SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 20, 1998
EA Industries, Inc.
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(Exact name of registrant as specified in its charter)
New Jersey
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(State or other jurisdiction of incorporation)
1-4680 21-0606484
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(Commission File Number) (IRS Employer Identification No.)
185 Monmouth Parkway, West Long Branch, New Jersey 07764-9989
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(Address of principal executive offices, including zip code)
(732) 229-1100
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(Registrant's telephone number)
N/A
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(Former name or former address, if changed since last report.)
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Item 5. Other Events.
On July 20, 1998, the Company completed a private placement of 6%
Convertible Notes (the "Notes") in the aggregate principal amount of $4,000,000.
The Notes have the following terms: (i) a three year term, with a maturity date
of July 17, 2001, (ii) an interest rate of 6% per annum, payable in shares of
Common Stock of the Company as and upon conversion, (iii) convertible (a) in the
first 90 days after issuance, and for conversions exceeding certain volume
limitations, at 100% of the last closing bid price ("Closing Bid Price") of the
Company's Common Stock on the trading day immediately preceding a conversion or
(b) in other cases, at 85% of the Market Price (as defined in the Notes) on the
date of conversion, (iv) a maximum conversion price in each case initially equal
to $ 4.125 per share and reset to the lower of $ 4.125 per share or the lowest
Closing Bid Price during the 20 trading days ended on January 15, 1999, (v)
adjustments to the conversion formulae for major changes in the Company's
capital structure such as stock splits, (vi) restrictions on the Company`s
rights to raise additional capital in excess of one million dollars for one
year, (vii) a one year right of first refusal for the placement agent to conduct
future offerings and for the holders of the Notes to be investors, (viii) a
right by the Company if a conversion price would be at or below $2.00 per share
to satisfy conversion with cash equivalent to the market price of the number of
shares of Common Stock which would have been received on conversion with minimum
payment equal to 110% of the converted principal plus interest and a maximum
payment of 130% of the converted principal plus interest, (ix) a right of the
holders if the Company concludes a major transaction such as certain mergers or
asset sales, to require prepayment of the Notes at 125% of outstanding principal
and interest or at an amount equal to the value of the stock which would have
been received upon a conversion before the announcement of the transaction, and
(x) other provisions typically found in convertible notes.The proceeds of the
offering will be used to provide additional working capital for the Company,
primarily to support the anticipated growth in the Company's contract
manufacturing operations.
In addition, as part of the offering of the Notes, the Company issued
warrants (the "Investor Warrants") to the holders of the Notes. The Investor
Warrants entitle the holders to purchase an aggregate of 900,000 shares of
Common Stock at a price of $ 3.1625 per share for a period of three years. As
part of the offering of the Notes the Company paid a cash placement fee of
$280,000 and issued certain warrants (the "Placement Agent Warrants") to the
placement agent for the Notes entitling the placement agent of the Notes to
purchase an aggregate of 102,857 shares of Common Stock at an initial price of
$2.625 per share, which price would be reset in certain cases, for a period of
five years. The placement agent is unrelated to the Company.
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The Company relied on an exemption from the registration provisions of the
Securities Act of 1933, as amended (the "Act"), in connection with the issuance
of the Notes, the Placement Agent Warrants and the Investor Warrants. The
Company has agreed to file a registration statement under the Act for the resale
of the shares issuable upon conversions under the Notes and upon exercise of the
Investor Warrants and the Placement Agent Warrants, and to cause the
Registration Statement to become effective on or before October 31, 1998. In
addition the Company has granted a security interest in the stock of Service
Assembly, Inc. to the holders of the Notes to secure the performance of the
Company's obligations under the Notes and the related agreements.
ITEM 7. Exhibits
1. Form of 6% Convertible Note.
2. Form of Regulation D Subscription Agreement for 6% Convertible Notes.
3. Form of Registration Rights Agreement for holders of 6% Convertible Notes
4. Form of Stock Pledge Agreement.
5. Placement Agent Agreement regarding 6% Convertible Notes.
6. Form of Investor Warrant.
7. Form of Placement Agent Warrant.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
EA Industries, Inc.
Registrant
By: /s/Howard P. Kamins
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Howard P. Kamins
Dated: August 6, 1998 Vice President and General Counsel
EXHIBIT 99.1
THIS CONVERTIBLE NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
CONVERTIBLE NOTE (COLLECTIVELY THE "SECURITIES") HAVE NOT BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THEY ARE BEING OFFERED
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D ("REGULATION "D")
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE, SOLD OR TRANSFERRED UNLESS
THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
No. ____ $____________ U.S.
EA INDUSTRIES, INC.
6% CONVERTIBLE NOTE DUE JULY ___, 2001
THIS CONVERTIBLE NOTE is one of a duly authorized issue of Convertible
Notes of EA Industries, Inc., a corporation duly organized and existing under
the laws of the State of New Jersey (the "Company"), designated as its 6%
Convertible Notes due July __, 2001, in an aggregate principal amount not
exceeding Four Million Five Hundred Thousand Dollars ($4,500,000 U.S.) (the
"Convertible Notes").
FOR VALUE RECEIVED, the Company promises to pay to ______________________,
or any subsequent registered holder hereof (the "Holder"), the principal sum
of ____________________ Dollars ($_____________ U.S.), on or prior to _____,
2001, or, if not a business day, the first business day thereafter
(the "Maturity Date"), and to pay interest
(continued on next page)
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
EA INDUSTRIES, INC.
Dated: July 16, 1998
By:
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Howard P. Kamins, Vice President
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on the principal sum outstanding in arrears on the earlier of the Date of
Conversion (as defined in Section 5(b)(iv)below) or the Maturity Date, at the
rate of six percent (6%) per annum. There shall be no prepayment of this
Convertible Note except as provided herein. Accrual of interest on this
Convertible Note shall commence on the Closing Date (as defined in Section 5(a)
below) with respect to this Convertible Note, and shall continue to accrue until
payment in full of the principal sum has been made or duly provided for, or,
with respect to any principal amount subject to conversion, until the Date of
Conversion, whichever is earlier. The interest so payable will be paid on the
Maturity Date, or the Date of Conversion, as defined in Section 5(b)(iv) below,
as the case may be. Such interest shall be paid to the person and at the address
in whose name this Convertible Note is registered on the records of the Company
regarding registration and transfers of the Convertible Notes (the "Convertible
Note Register") on the business day immediately preceding the payment date. The
principal of, and interest on, this Convertible Note are payable, if converted
by the Holder pursuant to Section 5 hereof, in shares of Common Stock, or if
redeemed, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts, to the
person and at the address in whose name this Convertible Note is registered on
the Convertible Note Register on the business day immediately preceding the
payment date.
This Convertible Note is subject to the following additional provisions:
Section 1. Convertible Note Denominations. Upon conversion of a portion,
but less than all, of this Convertible Note in accordance with the terms hereof,
a new convertible note or convertible notes may be issued to the Holder in a
denomination equal to the exact amount of the unconverted portion of this
Convertible Note. No service charge will be made for registration of transfer or
exchange.
Section 2. Withholding. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Convertible Note any amounts
required to be withheld under the applicable provisions of the United States
income tax laws, or other applicable laws, at the time of such payments. Holder
shall, prior to any transfer hereof, deliver to the Company a completed form W-8
for such transferee. The Holder shall pay any other taxes, charges, or levies in
connection with the issuance or transfer thereof.
Section 3. Sale, Transfer or Exchange. This Convertible Note has been
issued based upon investment representations of the original purchaser hereof
and may be transferred or exchanged only in compliance with the Act, including
Regulation D and any applicable state securities laws ("State Acts"). Any Holder
of this Convertible Note, by acceptance hereof, agrees to the representations,
warranties and covenants herein. Prior to due presentment to the Company for
transfer of this Convertible Note, the Company and any agent of the Company may
treat the person in whose name this Convertible Note is duly registered on the
Company's Convertible Note Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Convertible Note be overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
Section 4. [Intentionally Left Blank].
Section 5. Conversion. The record Holders of this Convertible Note shall
have conversion rights as follows (the "Conversion Rights"):
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(a) Right to Convert. The record Holder of this Convertible Note shall
be entitled to convert any or all its Convertible Notes at any time or from
time to time on or after the Last Closing Date, as defined below, at the office
of the Company's designated transfer agent for the Common Stock (the "Transfer
Agent"), into that number of fully-paid and non-assessable shares of Common
Stock calculated in accordance with the following formula (the "Conversion
Rate"):
Number of shares of Common Stock issued upon conversion of a Convertible
Note or Convertible Notes =
Principal + Interest
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Conversion Price
where,
o "Principal" = the then outstanding principal amount of Convertible
Note(s) to be converted,
o "Interest" = (.06) X (N/365) X Principal, where "N" = the number of
days between (i) the Closing Date (as defined below), and (ii) the
applicable Date of Conversion (as defined in Section 5(b)(iv) below)
for the Convertible Notes for which conversion is being elected.
o "Conversion Price": Subject to the Floor Price (as defined below), if
applicable, the Conversion Price equals the Variable Conversion Price
(as defined below) on the Date of Conversion, but shall in no event
exceed the Maximum Conversion Price (as defined below).
o "Floor Price": If, at any time on or after the date that is four
hundred fifty-five (455) days after the Last Closing Date, the Closing
Bid Price (as defined below) of the Common Stock exceeds the greater
of $6 or 150% of the Maximum Conversion Price then in effect for
twenty (20) consecutive trading days, the Conversion Price shall
thereafter be no less than a "Floor Price" equal to $2. There shall be
no Floor Price prior to the date that is four hundred fifty-five (455)
days after the Closing Date.
o "Maximum Conversion Price": During the period beginning on the Last
Closing Date and ending on the date which is one hundred eighty (180)
days after the Last Closing Date, the "Maximum Conversion Price" per
share shall equal 150% of the average Closing Bid Price for the five
(5) trading days immediately preceding the date of the first Closing
of a Convertible Note (the "Initial Maximum Conversion Price").
Anytime after the date that is one hundred eighty (180) days after the
Last Closing Date, "Maximum Conversion Price" shall equal the lesser
of (i) the Initial Maximum Conversion Price or (ii) the Market Price
(as defined below) in effect on the date that is one hundred eighty
(180) days after the Closing Date.
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o "Market Price" shall equal the lowest Closing Bid Price for any
trading day occurring during the applicable Pricing Period (as defined
below).
o "Discounted Conversions" shall mean (a) conversions which (i) occur on
or after the date that is ninety (90) days after the Last Closing
Date, and (ii) do not exceed the Limited Conversion Quota (as defined
below), or (b) other conversions specifically designated herein as
Discounted Conversions. In the event that any "Key Employee" (as
defined in the Subscription Agreement) leaves his employment with the
Company, any conversions which occur thereafter shall be deemed to be
Discounted Conversions. From and after the occurrence of an Event of
Default, all subsequent conversions shall be deemed to be Discounted
Conversions.
o "Unlimited Conversions" shall mean conversions which do not meet the
definition of a Discounted Conversion.
o "Variable Conversion Price": (i) for Discounted Conversions, the
"Variable Conversion Price" shall equal 85% of the Market Price in
effect on the Date of Conversion (the "Limited Conversion Price"), and
(ii) for Unlimited Conversions, the Variable Conversion Price shall
equal 100% of the Closing Bid Price of the Common Stock on the trading
day immediately preceding the Date of Conversion.
o "Pricing Period" shall mean twenty (20) consecutive trading days, plus
two (2) additional consecutive trading days for each thirty (30)
calendar days which have passed since the date that is one hundred
eighty (180) days after the Last Closing Date, ending on the trading
day immediately preceding the Date of Conversion. If the Holder
conducts short-sales, or other sales, of Common Stock during a Pricing
Period, trading days otherwise includable in a Pricing Period shall
not include the days on which such sales or short sales occurred.
o "Limited Conversion Quota": Beginning on the date that is ninety (90)
days following the Last Closing Date, as defined below, the "Limited
Conversion Quota" initially shall be one third (1/3) of the aggregate
principal amount of Convertible Notes issued to such Holder, and on
the date that is one hundred twenty (120) after the Last Closing Date,
the Limited Conversion Quota shall increase by an additional one third
(1/3) of the aggregate principal amount of the Convertible Notes
issued to such Holder, and on the date that is one hundred eighty
(180) days after the Last Closing Date, the Limited Conversion Quota
shall increase to one hundred percent (100%) of the aggregate
principal amount of the Convertible Notes issued to such Holder; and
provided, further, in the event that the Holder converts less than its
full Limited Conversion Quota during any one of the above periods, the
unconverted amount shall be carried forward and added to the Limited
Conversion Quota, and provided, further, that subsequent to the date
that is one hundred eighty (180) days following the Last Closing Date,
all conversions shall be deemed to be Discounted Conversions.
For purposes hereof, a new month will be deemed to occur on the same
numeric day of the next calendar month. For example, if the Last
Closing Date were to occur on July 8, 1998, the date that is six
months thereafter would be December 8, 1998.
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For purposes hereof, any Holder which acquires Convertible Notes from
another Holder (the "Transferor") and not upon original issuance from the
Company shall be entitled to exercise its conversion right as to the percentages
of the Principal Amount specified under Section 5(a) in such amounts and at such
times such that the aggregate principal amount of Convertible Notes eligible for
conversion by such Holder at any time shall be in the same proportion that the
principal amount of Convertible Notes acquired by such Holder from its
Transferor bears to the total principal amount of Convertible Notes immediately
theretofore owned by such Transferor, or (subject to the aggregate limitation
applicable to a Transferor) as may otherwise be agreed between a Transferor and
its transferee with notice to the Company.
o "Closing," "Last Closing," "Closing Date," and "Last Closing Date"
shall have the meanings as set forth in the Regulation D Subscription
Agreements between the Company and the initial purchasers of the
Convertible Notes, dated as of July ___, 1998 (each, a "Subscription
Agreement").
As used herein, "Closing Bid Price" means, for any security as of any date,
the last closing bid price per share for such security on the New York Stock
Exchange (the "NYSE") as reported by Bloomberg Financial Markets ("Bloomberg"),
or, if the NYSE is not the principal securities exchange or trading market for
such security, the last closing bid price per share of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price per share of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price is reported for such security by Bloomberg, the last
closing trade price per share of such security as reported by Bloomberg, or, if
no last closing trade price is reported for such security by Bloomberg, the
average of the bid prices per share of any market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value per share as mutually determined by the Company and the
holders of a majority of the principal amount of Convertible Notes. If the
Company and the holders of a majority of the principal amount of Convertible
Notes are unable to agree upon the fair market value of the Common Stock, then
such dispute shall be resolved by an investment banking firm mutually acceptable
to the Company and the holders of a majority of the principal amount of
Convertible Notes.
As used herein, "Closing Sale Price" means, for any security as of any
date, the last closing trade price per share for such security on the NYSE as
reported by Bloomberg, or, if the NYSE is not the principal securities exchange
or trading market for such security, the last closing trade price per share of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing trade price per share of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the last closing bid price per share of such security as
reported by Bloomberg, or, if no last closing bid price is reported for such
security by Bloomberg, the average of the bid prices per share of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Sale Price
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cannot be calculated for such security on such date on any of the foregoing
bases, the Closing Sale Price of such security on such date shall be the fair
market value per share as mutually determined by the Company and the holders of
a majority of the principal amount of Convertible Notes. If the Company and the
holders of Convertible Notes are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved by an investment banking
firm mutually acceptable to the Company and the holders of a majority of the
principal amount of Convertible Notes.
(b) Mechanics of Conversion. In order to convert Convertible Notes into
full shares of Common Stock, the Holder shall (i) send via facsimile, on or
prior to 11:59 p.m., New York City time (the "Conversion Notice Deadline") on
the Date of Conversion, a copy of the fully executed notice of conversion
attached hereto ("Notice of Conversion") to the Transfer Agent, with a copy to
the Company at the office of the Company stating that the Holder elects to
convert (provided that if a Holder timely sends a copy of the Notice of
Conversion to either one of the Company or the Transfer Agent, failure to send a
copy of the Notice of Conversion to the other shall not void the conversion),
which notice shall specify the Date of Conversion, the principal amount of
Convertible Notes to be converted, the applicable Conversion Price and a
calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the front page of each certificate to be
converted) and (ii) within two (2) business days surrender to a common courier
for delivery to the office of the Company or the Transfer Agent, the Convertible
Notes (the "Convertible Note Certificates") being converted, duly endorsed for
transfer; provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless either the Convertible Notes are delivered to the Company or its Transfer
Agent as provided above, or the Holder notifies the Company or its Transfer
Agent that such certificates have been lost, stolen or destroyed (subject to the
requirements of subparagraph (i) below). Upon receipt by the Company of a
facsimile copy of a Notice of Conversion, the Company shall immediately send,
via facsimile, a confirmation of receipt of the Notice of Conversion to the
Holder which shall specify that the Notice of Conversion has been received and
the name and telephone number of a contact person at the Company whom the Holder
should contact regarding information related to the Conversion. In the case of a
dispute as to the calculation of the Conversion Rate, the Company shall promptly
issue to the Holder the number of Shares that are not disputed and shall submit
the disputed calculations to its outside accountant via facsimile within three
(3) days of receipt of Holder's Notice of Conversion. The Company shall cause
the accountant to perform the calculations and notify the Company and Holder of
the results no later than two business days from the time it receives the
disputed calculations. Accountant's calculation shall be deemed conclusive
absent manifest error.
(i) Lost or Stolen Convertible Notes. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any Convertible Note
and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Company and the Transfer Agent, and upon surrender and
cancellation of the Convertible Notes, if mutilated, the Company shall or shall
cause the Transfer Agent to execute and deliver new Convertible Notes of like
principal amount and date. However, the Company shall not be obligated to
re-issue such lost or stolen Convertible Notes if the Holder contemporaneously
requests the Company to convert such Convertible Notes into Common Stock.
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(ii) Delivery of Common Stock Upon Conversion. The Company shall
cause to be delivered to the Holder or at its direction to transferees of
the Holder, as soon as practicable but in any event no later than the later of
(the "Deadline") (x) the close of business on the third (3rd) business day
following the delivery of the facsimile Notice of Conversion and (y) the day
that is the first business day after receipt by the Transfer Agent of the
original Convertible Notes to be converted (or provision for indemnification in
accordance with the requirements of subparagraph (i) in the case of lost or
destroyed certificates, if required) and a copy of the Notice of Conversion, the
number of shares of Common Stock to which the Holder shall be entitled as
aforesaid and a certificate for that principal amount of Convertible Notes not
being converted, if any, which were previously represented by the Convertible
Notes submitted for conversion. If electronic delivery is requested, shares of
Common Stock shall be transmitted electronically pursuant to such electronic
delivery system as the Holder shall request (to the extent such shares may be
delivered without a legend pursuant to the Subscription Agreement); otherwise
delivery shall be by physical certificates. All Convertible Notes shall be
physically delivered. All physical deliveries shall be by reputable overnight
courier and the Deadline shall be extended by one additional business day for
physical delivery of certificates to a location outside of the United States.
(iii) No Fractional Shares. If any conversion of the Convertible
Notes would create a fractional share of Common Stock or a right to acquire
a fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon conversion, in the
aggregate, shall be the next higher number of shares.
(iv) Date of Conversion. The date on which conversion occurs (the
"Date of Conversion") shall be deemed to be the date set forth in such
Notice of Conversion, provided (i) that the advance copy of the Notice of
Conversion is sent via facsimile to the Transfer Agent before 11:59 p.m., New
York City time, on the Date of Conversion, and (ii) that the original
Convertible Notes to be converted are surrendered by depositing such Convertible
Notes with a common courier, for delivery to the Transfer Agent as provided
above, within two (2) business days after the Date of Conversion. The person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record Holder or Holders of
such shares of Common Stock on the Date of Conversion. In the event that the
original Notice of Conversion and Convertible Notes are inadvertently forwarded
to the Company instead of the Transfer Agent within the required time frame, the
conversion shall not be voided thereby and the Date of Conversion shall still be
deemed to be the date set forth in such Notice of Conversion, provided that the
Deadline for delivery of the Common Stock is based solely on the date of receipt
by the Transfer Agent of the required documentation. In the event that the
Company receives an original Notice of Conversion or original Convertible Notes
from a Holder, it shall promptly forward such Convertible Notes to the Transfer
Agent.
(c) Payment upon Maturity. Each Convertible Note outstanding on the date
which is three (3) years after the Last Closing Date or, if not a business day,
the first business day thereafter ("Termination Date" or the "Maturity Date")
automatically shall, at the option of the Company, either (i) be converted
("Automatic Conversion") into Common Stock on such date at the Conversion Rate
then in effect (calculated in accordance with the formula in Section 5(a)
above), and the Termination Date shall be deemed the Date of Conversion with
respect to such conversion for purposes of this Convertible Note, or (ii) be
repaid (a "Maturity Payment")
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by the Company for cash in an amount equal to the principal amount of
Convertible Notes being repaid, plus liquidated damages, Conversion Failure
Payments, Late Registration Payments (as defined in the Registration Rights
Agreement) and any other cash payments then due from the Company and then
unpaid, together with the accrued but unpaid Interest (as defined in Section
5(a)) (the "Total Maturity Value"). If the Company elects to repay the
Convertible Notes in cash, within five (5) business days prior to the
Termination Date, the Company shall send to the Holders of outstanding
Convertible Notes notice (the "Maturity Payment Notice") via facsimile of its
intent to make a Maturity Payment with respect to the outstanding Convertible
Notes. If the Company does not send such notice to Holder on such date, an
Automatic Conversion shall be deemed to have occurred. If an Automatic
Conversion occurs, the Company and the Holders shall follow the applicable
conversion procedures set forth in this Convertible Note; provided, however,
that the Holders are not required to send the Notice of Conversion contemplated
by Section 5(b). If the Company elects to repay the Convertible Notes for cash,
each Holder of outstanding Convertible Notes shall send their Convertible Notes
to the Company within five (5) days of the date of receipt of the Maturity
Payment Notice from the Company, and the Company shall pay the applicable
repayment price to each respective Holder within five (5) days of the receipt of
such Convertible Notes. The Company shall not be obligated to deliver the
repayment price unless the Convertible Notes are delivered to the Company, or,
in the event any Convertible Notes have been lost, stolen, mutilated or
destroyed, unless the Holder has complied with Section 5(b)(i). If the Company
elects to repay the Convertible Notes for cash under this Section 5(c) and the
Company fails to pay the Holders the repayment price within five (5) business
days of its receipt of the Convertible Notes to be repaid as required by this
Section 5(c), then an Automatic Conversion shall be deemed to have occurred and,
upon receipt of the Convertible Notes, the Company shall immediately deliver to
the Holders the certificates representing the number of shares of Common Stock
to which the Holders would have been entitled upon Automatic Conversion using
the lowest Conversion Price (as defined in Section 5 hereof) in effect during
the period beginning on the Termination Date and ending on the date the Transfer
Agent issues Common Stock pursuant to this Section 5(c). Nothing in this Section
5(c) shall be construed to limit Holder's ability to pursue Holder's rights
under Section 14 hereof.
(d) Adjustment to Conversion Rate.
(i) Adjustment to Maximum Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the conversion of all of the Convertible Notes, the
number of outstanding shares of Common Stock is increased by a stock split,
stock dividend, or other similar event, the Maximum Conversion Price shall be
proportionately reduced, or if the number of outstanding shares of Common Stock
is decreased by a combination or reclassification of shares, or other similar
event, the Maximum Conversion Price and the Floor Price shall be proportionately
increased.
(ii) Further Adjustment to Conversion Price. If, at any time when any
Convertible Notes are issued and outstanding, the number of outstanding shares
of Common Stock is increased or decreased by a stock split, stock dividend, or
other similar event, which event shall have taken place during the reference
period for determination of the Conversion Price for any conversion of the
Convertible Notes (including, without limitation, a reference period for
determining the Maximum Conversion Price), then the Market Price, the Conversion
Price, the Variable Conversion Price, and the Maximum Conversion Price, as
applicable, shall be
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calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event.
(iii) Adjustments.
(A) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person (as defined below) or other transaction which is effected in
such a way that holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any Organic Change, the Company will make appropriate
provision (in form and substance reasonably satisfactory to the Holders of a
majority of the principal amount of Convertible Notes then outstanding) to
insure that the Holders of the Convertible Notes will thereafter have the right
to acquire and receive in lieu of or addition to (as the case may be) the shares
of Common Stock otherwise acquirable and receivable upon the conversion of this
Convertible Note at the lesser of (i) the Limited Conversion Price or (ii) the
Maximum Conversion Price, such shares of stock, securities or assets that would
have been issued or payable in such Organic Change with respect to or in
exchange for the number of share of Common Stock which would have been
acquirable and receivable upon the conversion such Holder's Convertible Notes
had such Organic Change not taken place (without taking into account any
limitations or restrictions on the timing or amount of conversions). In any such
case, the Company will make appropriate provision (in form and substance
reasonably satisfactory to the Holders of a majority of the Principal amount of
Convertible Notes then outstanding) with respect to such Holders' rights and
interests to insure that the provisions of this Section 5(d)(iii) and the
remaining Sections of this Convertible Note will thereafter be applicable to the
Convertible Notes (including, in the case of any such consolidation, merger or
sale in which the successor entity or purchasing entity is other than the
Company, an immediate adjustment of the Maximum Conversion Price to the value
for the Common Stock reflected by the terms of such consolidation, merger or
sale, if the value so reflected is less than the Maximum Conversion Price in
effect immediately prior to such consolidation, merger or sale and an immediate
revision to the Variable Conversion Price so that it is thereafter based on the
price of the common stock of the surviving entity and the market in which such
common stock is traded). The Company will not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor entity
(if other than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes, by written instrument (in form and substance
reasonably satisfactory to the Holders of a majority of the principal amount of
the Convertible Notes then outstanding), the obligation to deliver to each
Holder of Convertible Notes such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire. "Person" shall mean an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(B) Adjustment Due to Distribution. Subject to the restrictions
herein contained, if at any time after the Closing Date, the Company shall
declare or make any distribution of its assets (or rights to acquire its assets)
or shares of its capital stock (other than Common Stock) to holders of Common
Stock as a partial liquidating dividend, by way of return
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of capital or otherwise (including any dividend or distribution to the
Company's shareholders in cash or shares (or rights to acquire shares) of
capital stock of any other public or private company, including but not limited
to a subsidiary or spin-off of the Company (a "Distribution"), then the Holder
of this Convertible Note shall be entitled to receive the amount of such
distribution (in kind) which would be payable to the Holder with respect to the
shares of Common Stock which would be issuable upon such conversion of the
Convertible Note as of the record date for determining that the shareholders are
entitled to such Distribution (without regard to any limitation on conversion
contained herein) had such Holder been the holder of such shares of Common Stock
on the record date for determination of shareholders entitled to such
Distribution.
(iv) Issuance of Other Securities With Market Conversion Price. If,
at any time while the Convertible Notes are issued and outstanding, the
Company shall issue any securities which are convertible into or exchangeable
for Common Stock ("Convertible Securities") either (i) at a conversion or
exchange rate based on a discount from the market price of the Common Stock at
the time of conversion or exercise or (ii) with a fixed conversion or exercise
price less than the Maximum Conversion Price, then, at the Holder's option: (X)
in the case of clause (i), the Variable Conversion Price in respect of any
conversion of Convertible Notes after such issuance shall be calculated
utilizing the lesser of the lowest variable conversion price and the lowest
fixed conversion price applicable to any such Convertible Securities, and (Y) in
the case of clause (ii), the Maximum Conversion Price shall be reduced to such
lesser conversion or exercise price.
(v) No Fractional Shares. If any adjustment under this Section 5(d)
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion, in the aggregate,
shall be the next higher number of shares.
Section 6. Company's Right to Prepay.
(a) Company's Right to Prepay Upon Receipt of Notice of Conversion.
If the Company has, in its sole discretion, delivered an Advance Notice of
Election to Holder in accordance with Section 7 below and such Advance Notice of
Election is in effect in accordance with Section 7 below at the time of receipt
of a Notice of Conversion pursuant to Section 5, and if the Conversion Price of
such conversion is less than $2.00, the Company shall prepay in whole or in part
(as specified in the applicable Advance Notice of Election) any Convertible Note
so submitted for conversion, immediately prior to and in lieu of conversion
("Prepayment Upon Receipt of Notice of Conversion").
(i) Prepayment Price Upon Receipt of a Notice of Conversion. The
prepayment for Convertible Notes under this Section 6(a) shall be
calculated in accordance with the following formula ("Prepayment Price"):
[Principal + Interest] x Highest Sale Price on Date of Conversion
----------------------------------------
Conversion Price
where,
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"Date of Conversion", and "Conversion Price" shall have the same meanings as
defined in Section 5, and Highest Sale Price shall have the meaning as defined
below; provided, however, that such Prepayment Price shall be no less than (110%
X Principal) + accrued Interest and no greater than (130% X Principal) + accrued
Interest.
As used herein, "Highest Sale Price" means, for any security as of any
date, the highest trade price per share for such security on the NYSE as
reported by Bloomberg, or, if the NYSE is not the principal securities exchange
or trading market for such security, the highest trade price per share of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the highest trade price per share of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no trade price is reported for such security by
Bloomberg, the closing bid price per share of such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the average of the bid prices per share of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
If the Closing Sale Price cannot be calculated for such security on such date on
any of the foregoing bases, the Highest Sale Price of such security on such date
shall be the fair market value per share as mutually determined by the Company
and the holders of a majority of the principal amount of Convertible Notes. If
the Company and the holders of Convertible Notes are unable to agree upon the
fair market value of the Common Stock, then such dispute shall be resolved by an
investment banking firm mutually acceptable to the Company and the holders of a
majority of the principal amount of Convertible Notes.
(ii) Mechanics of Prepayment Upon Receipt of Notice of Conversion.
If a conversion occurs that the Company is required to prepay under Section
6(a) above, the Company shall effect such prepayment by giving notice
("Prepayment Confirmation") confirming its election to prepay as set forth in
any effective Advance Notice of Election, by facsimile, by 5:00 p.m. New York
City time the next business day following receipt of a Notice of Conversion from
a Holder, and the Company shall provide a copy of such Prepayment Confirmation
by overnight or two (2) day courier, to (A) the Holder of the Convertible Notes
submitted for conversion at the address and facsimile number of such Holder
appearing in the Company's register for the Convertible Notes and (B) the
Company's Transfer Agent. Such Prepayment Confirmation shall conform to the
election set forth in any effective Advance Notice of Election and shall verify
the portion of the Convertible Notes submitted for conversion which the Company
will prepay and the applicable Prepayment Price.
(iii) Void Prepayment. In the event that the Company does not pay the
Prepayment Price within the time period set forth in this Section 6 (a "Void
Prepayment"), at any time thereafter and until the Company pays such unpaid
applicable Prepayment Price in full, a Holder of Convertible Notes shall have
the option (the "Void Prepayment Option") to, in lieu of prepayment, require the
Company to promptly return to such Holder any or all of the Convertible Notes
that were submitted for prepayment by such Holder under this Section 6 and for
which the applicable Prepayment Price (together with any interest thereon) has
not been paid, by sending written notice thereof to the Company via facsimile
(the "Void Prepayment Notice"). Upon the Company's receipt of such Void
Prepayment Notice, (i) the Prepayment Confirmation, shall be null and void with
respect to those Convertible Notes subject to the Void Prepayment Notice, (ii)
the Company shall immediately return any Convertible Notes subject to the Void
Prepayment Notice, and (iii) at any time thereafter, the Convertible Notes
subject to the Void Prepayment
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Notice shall be eligible for conversion according to Section 5. If there is
a Void Prepayment, the Company shall promptly notify the Holders and thereafter
the Company forfeits its rights to prepay any Convertible Notes under this
Section 6.
(b) Company Must Have Immediately Available Funds or Credit Facilities.
The Company shall not be entitled to send any Advance Notice of Election
(as defined below)and begin the prepayment procedure under this Section 6 unless
it has:
(i) the full amount of the Prepayment Price in cash, available in a
demand or other immediately available account in a bank or similar
financial institution; or
(ii) immediately available credit facilities, in the full amount of
the Prepayment Price with a bank or similar financial institution; or
(iii) an agreement with a standby underwriter willing to purchase
from the Company a sufficient number of shares of stock to provide proceeds
necessary to prepay any outstanding amounts on the Convertible Note that is not
converted prior to prepayment; or
(iv) in the case of an Asset Sale, an agreement with the purchaser
of such assets that proceeds from the Asset Sale in the amount of the
Prepayment Price shall be set aside, upon the closing of the Asset Sale, in a
separate escrow account for payment directly to the Holder of the Convertible
Notes being prepaid; or
(v) a combination of the items set forth in (i), (ii), (iii) and (iv)
above, aggregating the full amount of the Prepayment Price.
The Company shall include with the Notice of Prepayment a written
certification by an officer of the Company (or from such third party, if the
funds relied upon are from a third party), that the funds or credit facilities
are available for the prepayment.
Following delivery of a Notice of Prepayment, the Company shall maintain
the funding availability as contemplated by (i) through (v) above. If the
foregoing conditions of this Section 6(b) are satisfied and the Company complies
with Section 6(c) hereof, then any Convertible Notes called for by a Notice of
Prepayment shall cease to be outstanding for all purposes hereunder (including
the right to convert or to accrue additional Interest or to exercise any other
right or privilege hereunder) on the Date of Prepayment and shall instead
represent the right to receive the Prepayment Price without interest from and
after the Date of Prepayment.
(c) Payment of Prepayment Price. Each Holder submitting Convertible
Notes being prepaid under this Section 6 shall send their Convertible Notes
so prepaid to the Transfer Agent by overnight or, if outside the U.S., two-day
courier within three (3) business days of the Date of Prepayment, and the
Company shall pay the applicable Prepayment Price to that Holder within five (5)
business days of the date the Transfer Agent receives the Convertible Notes
being prepaid. The Company shall not be obligated to deliver the Prepayment
Price unless and until the Convertible Notes so prepaid are delivered to the
Transfer Agent, or, in the event one (1) or more Convertible Notes have been
lost, stolen, mutilated or destroyed, at such time as the Holder has complied
with Section 5(b)(i). In the event that the Convertible Notes
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<PAGE>
being prepaid are inadvertently forwarded to the Company instead of the
Transfer Agent, the Company shall promptly forward such Convertible Notes to the
Transfer Agent.
Section 7. Advance Notice of Prepayment.
(a) Advance Notice of Company's Election to Prepay. In order to effect a
Prepayment Upon Receipt of Notice of Conversion under Section 5(a) above, the
Company must provide advance written notice ("Advance Notice of Election")
stating that the Company elects to prepay all or some stated portion of Holder's
Convertible Notes in cash if submitted for conversion over the subsequent thirty
(30) day period, pursuant to the Company's prepayment rights discussed in
Section 6(a).
(b) Mechanics of Advance Notice of Election. The Company may deliver an
Advance Notice of Election to the Holder at any time (1) via facsimile and (2)
by depositing such Election Response with an overnight or five (5) day courier
delivery, provided that the Advance Notice of Election shall not take effect
until at least five (5) business days after the date it is delivered to the
Holder. The Company's Advance Notice of Election shall state (i) that the
Company shall prepay, where prepayment is allowed under Section 6 above, all or
a specified percentage portion (the "Percentage Portion") of any of Holder's
Convertible Notes submitted for conversion over a thirty (30) day period
beginning no sooner than two (2) business days after the delivery of notice to
the Holder, and (ii) that the Company has funds or credit facilities, as
required in Section 6(b) to effect such prepayments. The Company may not deliver
any further Advance Notices of Election and shall immediately retract any and
all outstanding Advance Notices of Election if the Company fails to deliver any
Prepayment Price to any Holder in accordance with Section 6(c). Any Advance
Notice of Election shall be delivered to each Holder and shall cover the same
Percentage Portion of Convertible Notes submitted for conversion with respect to
each Holder.
(c) Retraction of an Advance Notice of Election. The Company may retract
any Advance Notice of Election by giving ten (10) business days advance written
notice to the Holders. The Company must retract any Advance Notice of Election
then in effect if, at any time, the Company does not have, or reasonably
anticipates that it will not have, funds or credit facilities, as required in
Section 6(b) to effect all prepayments covered by the notice.
(d) Advance Notice of Election is Binding. Unless an Advance Notice of
Election is retracted in the manner allowed in subsection (c) above or unless
Holder agrees in writing otherwise, the election made by the Company in an
Advance Notice of Election is binding and the Company must prepay conversions as
and to the extent specified in any Advance Notice of Election in effect at the
time of a conversion.
Section 8. Negative Covenants. Company shall not amend, alter or change
this Convertible Note or the rights of the parties thereunder without the
consent of Holders of at least 75% of the then outstanding principal amount of
the Convertible Notes.
In the event Holders of at least seventy-five percent (75%) of the then
outstanding principal amount of Convertible Notes agree to allow the Company to
alter or change the rights, preferences or privileges of the Convertible Notes
so as to affect the Convertible Notes, then the
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Company will deliver notice of such approved change to the Holders of the
Convertible Notes that did not agree to such alteration or change (the
"Dissenting Holders") and Dissenting Holders shall have the right for a period
of thirty (30) business days to convert pursuant to the terms of this
Convertible Note as they exist prior to such alteration or change (provided
that, for purposes of calculating the Variable Conversion Price, such
conversions shall be deemed to be Discounted Conversions), or continue to hold
their Convertible Notes, as amended.
Section 9. [Intentionally Left Blank].
Section 10. [Intentionally Left Blank].
Section 11. Authorization and Reservation of Shares of Common Stock/Cap
Amount.
(a) Authorized and Reserved Amount. At the time of each Closing, the
Company shall have authorized and reserved and keep available for issuance five
million two hundred fifty thousand (5,250,000) shares of Common Stock (the
"Reserved Amount") solely for the purpose of effecting the conversion of the
Convertible Notes and exercise of the Warrants (as defined in the Registration
Rights Agreement between the Company and the Holders, referred to herein as the
"Registration Rights Agreement"), which number shall not be reduced. The Company
shall at all times have authorized and reserved and keep available out of its
authorized but unissued shares of Common Stock a sufficient number of shares of
Common Stock to provide for the full conversion of all outstanding Convertible
Notes, and issuance of the shares of Common Stock in connection therewith. The
Company shall use all authorized but unreserved shares as necessary to honor
conversions of Convertible Notes.
(b) Increases to Reserved Amount. Without limiting any other provision
of this Section 11, if at any time the Holder's portion of the Reserved
Amount, based upon the average of the five (5) lowest Conversion Prices in
effect during any 30 consecutive trading days prior to the providing of such
notice shall be less than One Hundred Fifty percent (150%) of the number of
shares of Common Stock issuable to such Holder upon conversion all of its
Convertible Notes (assuming, for such calculations, that the Variable Conversion
Price is calculated based upon a Limited Conversion) (a "Share Reservation
Failure"), or that the Holder's portion of the Reserved Amount, based upon the
Conversion Prices in effect during any two consecutive trading days prior to
such notice, shall be less than One Hundred Twenty Five percent (125%) of the
number of shares of Common Stock issuable to such Holder upon conversion of all
its Convertible Notes (assuming, for such calculations, that the Variable
Conversion Price is calculated based upon a Limited Conversion) (each, a "Share
Reservation Failure"), the Company shall within five (5) business days notify
all Holders of Convertible Notes of such occurrence and shall take action as
soon as possible, but in any event within five (5) days after such Holder's
notice if such action can be accomplished by the Board of Directors and within
120 days of such Holder's notice if such action requires the approval of the
Company's shareholders, to increase the Reserved Amount for each Holder to Two
Hundred percent (200%) of the number of shares of Common Stock then issuable to
such Holder upon conversion of its Convertible Notes (assuming, for such
calculations, that the Variable Conversion Price is calculated based upon a
Limited Conversion).
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(c) Reduction of Reserved Amount Under Certain Circumstances. Prior to
complete conversion of all Convertible Notes the Company shall not reduce the
number of shares required to be reserved for issuance under this Section 11
without the written consent of all Holders except for a reduction proportionate
to a combination, reverse stock split, or similar action effected for a valid
business purpose other than affecting the obligations of Company under this
Section 11, which action affects all shares of Common Stock equally; provided,
however that in no event shall any Holder's portion of the Reserved Amount be
reduced below One Hundred Fifty percent (150%) of the number of shares of Common
Stock issuable upon conversion of that Holder's outstanding Convertible Notes
(assuming, for such calculations, that the Variable Conversion Price is
calculated based upon a Limited Conversion), without that Holder's written
consent.
(d) [Intentionally Omitted].
(e) Cap Amount. Unless otherwise permitted by the New York Stock
Exchange ("NYSE") in no event shall the total number of shares of Common
Stock issued upon conversion of all of the Convertible Notes and upon exercise
of the Warrants exceed the maximum number of shares of Common Stock that the
Company can without shareholder approval so issue pursuant to NYSE Listed
Company Manual Section 312.03(c) (or any successor rule) ("Rule 312.03(c)") (the
"Cap Amount") which, as of the date of issuance of the Convertible Notes, shall
be 2,632,465 shares (subject to appropriate adjustments for stock splits, stock
dividends, combinations and other similar events). The Cap Amount shall be
allocated pro-rata to the holders of Convertible Notes as provided in subsection
(f) below. In the event the Company is prohibited from issuing shares of Common
Stock as a result of the operation of this subparagraph (e), the Company shall
comply with subsection (g) below.
(f) Allocations of Cap Amount and Reserved Amount. The initial Cap
Amount and Reserved Amount shall be allocated pro rata among the Holders of
Convertible Notes based on the principal amount of Convertible Notes initially
issued to each Holder. Each increase to the Cap Amount and Reserved Amount shall
be allocated pro rata among the Holders of Convertible Notes based on the then
outstanding principal amount of Convertible Notes held by each Holder at the
time of the increase in the Cap Amount or Reserved Amount, as the case may be.
In the event a Holder shall sell or otherwise transfer any of such Holder's
Convertible Notes, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Convertible Notes shall be allocated to the remaining Holders of
Convertible Notes, pro rata based on the principal amount of Convertible Notes
then held by such Holders.
(g) Shareholder Vote for 20% Approval. The Company shall, at its next
annual shareholder meeting, to be held no later than September 30, 1998, use its
best efforts to obtain approval of its shareholders (the "Shareholder Vote") to
authorize the issuance of the full number of shares of Common Stock which would
be issuable upon the conversion of all of the Convertible Notes and exercise of
the Warrants but for the Cap Amount and without regard to any other conversion
limitations contained herein and eliminate any prohibitions under applicable law
or the rules or regulations of any stock exchange, interdealer quotation system
or other self-regulatory organization with jurisdiction over the Company or any
of its securities with
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respect to the Company's ability to issue shares of Common Stock in excess
of the Cap Amount (such approvals being the "20% Approval"). In connection with
such Shareholder Vote, the Company shall use its best efforts to cause all
officers and directors of the Company to promptly enter into irrevocable
agreements to vote all of their shares in favor of eliminating such
prohibitions.
(h) Inability to Convert due to Cap Amount.
(i) [Intentionally Omitted].
(ii) Remedies. In the event the Shareholder Vote results in a denial
of the 20% Approval or the 20% Approval has not occurred by October 31,
1998, then (A) Holders of at least fifty percent (50%) of the aggregate of the
then outstanding principal amount of the Convertible Notes, by delivery of
written notice to the Company, shall have the option to require the Company to
terminate the listing of its Common Stock on the NYSE (or any other stock
exchange, interdealer quotation system or trading market) and cause its Common
Stock to be eligible for trading on the over-the-counter electronic bulletin
board; and (B) each Holder of Convertible Notes shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of written notice ("Cap Prepayment Notice") to the Company, to require
the Company to repay in cash, at an amount per share equal to the Prepayment
Price in effect on the date of the Cap Prepayment Notice, a portion of the
Holder's Convertible Notes such that, after giving effect to such purchase, the
Holder's allocated portion of the Cap Amount exceeds 125% of the total number of
shares of Common Stock issuable to such Holder upon conversion of its
Convertible Notes on the date of such Cap Prepayment Notice.
Section 12. Failure to Satisfy Conversions.
(a) Conversion Failure Payments. If, at any time, (x) a Holder submits a
Notice of Conversion (or is deemed to submit such notice pursuant to Section
5(c) hereof), and the Company fails for any reason to deliver, on or prior to
the expiration of the Deadline ("Delivery Period") for such conversion, such
number of shares of Common Stock to which such converting Holder is entitled
upon such conversion (which shares shall be listed, authorized, reserved,
registered, and freely tradable to the extent required in this Convertible Note,
the Registration Rights Agreement between the Company and the Holder(s) and the
Subscription Agreement between the Company and the Holder(s), collectively
referred to as the "Governing Agreements"), or (y) the Company provides notice
to the Holders or otherwise announces at any time its intention not to issue
shares of Common Stock upon exercise by the Holders of its conversion rights in
accordance with the terms of this Convertible Note (each of (x) and (y) being a
"Conversion Failure"), then in addition to all other available remedies which
such Holder may pursue hereunder and under the Subscription Agreement (including
indemnification pursuant to Section 8 thereof, the Company shall pay to such
Holder liquidated cash damages in an amount equal to the lower of:
(i) "Damages Amount" X "D" X .005, and
(ii) the highest amount permitted by applicable law, where:
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"D" means the number of days beginning the date of the Conversion Failure
through and including the Cure Date with respect to such Conversion Failure;
"Damages Amount" means the principal amount of this Convertible Note
subject to conversion plus all accrued and unpaid Interest thereon as of the
first day of the Conversion Failure, plus all damage payments previously owed
and unpaid.
"Cure Date" means (i) with respect to a Conversion Failure described in
clause (x) of its definition, the date the Company effects the conversion of the
portion of this Convertible Note submitted for conversion and (ii) with respect
to a Conversion Failure described in clause (y) of its definition, the date the
Company undertakes in writing to timely issue Common Stock in satisfaction of
all conversions of Convertible Notes in accordance with the terms of the
Convertible Notes.
The payments to which a Holder shall be entitled pursuant to this Section
are referred to herein as "Conversion Failure Payments." The parties agree that
the damages caused by a breach hereof would be difficult or impossible to
estimate accurately. A Holder may elect to receive accrued Conversion Failure
Payments in cash or to convert all or any portion of such accrued Conversion
Failure Payments, at any time, into Common Stock at the lowest Conversion Price
in effect during the period beginning on the date of the Conversion Failure
through the Cure Date for such Conversion Failure. In the event a Holder elects
to receive any Conversion Failure Payments in cash, it shall so notify the
Company in writing. In the event a Holder elects to convert all or any portion
of the Conversion Failure Payments, such Holder shall indicate on a Notice of
Conversion such portion of the Conversion Failure Payments which such Holder
elects to so convert and such conversion shall otherwise be effected in
accordance with the provisions of Section 5.
(b) Buy-In Cure. Unless a Conversion Failure described in clause (y) of
Section 12(a) hereof has occurred with respect to a Holder, if (i) the Company
fails for any reason to deliver during the Delivery Period shares of Common
Stock to a Holder upon a conversion of the Convertible Notes and (ii) after the
applicable Delivery Period with respect to such conversion, a Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to make
delivery upon a sale by a Holder of the shares of Common Stock (the "Sold
Shares") which such Holder anticipated receiving upon such conversion (a
"Buy-In"), the Company shall pay such Holder within two (2) business days
following receipt of written notice of a claim pursuant to Section 12(b) (in
addition to any other remedies available to Holder) the amount by which (x) such
Holder's total purchase price (including brokerage commission, if any) for the
shares of Common Stock so purchased exceeds (y) the net proceeds received by
such Holder from the sale of the Sold Shares. For example, if a Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to shares of Common Stock sold for $10,000, the Company will
be required to pay such Holder $1,000. A Holder shall provide the Company
written notification indicating any amounts payable to Holder pursuant to this
Section 12.
(c) Adjustment to Conversion Price. If a Holder has not received
certificates for all shares of Common Stock within five (5) business days
following the expiration of the Delivery Period with respect to a conversion of
any portion of any of such Holder's Convertible
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Notes for any reason, then the Conversion Price applicable upon conversion
of such portion of the Convertible Notes shall thereafter be the lowest
Conversion Price in effect during the period beginning on, and including, such
Conversion Date through and including the Cure Date. If there shall occur a
Conversion Failure of the type described in clause (y) of Section 12(a), then
the Maximum Conversion Price with respect to any conversion of Convertible Notes
thereafter shall be the lowest Conversion Price in effect at any time during the
period beginning on, and including, the date of the occurrence of such
Conversion Failure through and including the Cure Date. The Conversion Price
shall thereafter be subject to further adjustment for any events described in
Section 5(d).
(d) Void Conversion Notice. If for any reason a holder has not received
all of the shares of Common Stock prior to the tenth (10th) business day
after the Deadline with respect to a conversion of Convertible Notes, then the
holder, upon written notice to the Transfer Agent, with a copy to the Company,
may void its Conversion Notice with respect to, and retain or have returned, as
the case may be, any Convertible Notes that have not been converted pursuant to
such holder's Conversion Notice; provided that the voiding of a holder's
Conversion Notice shall not affect the Company's obligations to make any
payments which have accrued prior to the date of such notice pursuant to Section
12(a) above or otherwise or effect the Adjustment to the Conversion Price
provided in Section 12(c).
Section 13. Repayment at Option of Holders.
(a) Repayment Option Upon Major Transaction. In addition to all other
rights of the holders of Convertible Notes contained herein, upon the
announcement of a Major Transaction (as defined below), each holder of
Convertible Notes shall have the right, at such Holder's option, upon written
notice to the Company to require the Company to declare any or all of the
amounts due under this Convertible Note due and payable, at any time and from
time to time, at a price equal to the greater of (i) 125% of the Total Maturity
Value of such Convertible Notes and (ii) the product of (A) the Conversion Rate
on the date of such notice and (B) the Closing Sale Price of the Common Stock on
the trading date immediately preceding the date of consummation of the Major
Transaction ("Major Transaction Repayment Price").
(b) "Major Transaction". A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:
(i) a consolidation, merger or other business combination or event
(other than a public offering of the Company's equity for cash) following
which the holders of Common Stock of the Company immediately preceding such
consolidation, merger, combination or event either (i) no longer hold a
majority of the shares of Common Stock of the Company or (ii) no longer
have the ability to elect a majority of the board of directors of the
Company (a "Change of Control"); provided, however, that if the other
entity involved in such consolidation, merger, combination or event is a
publicly traded company with "Substantially Similar Trading
Characteristics" (as defined below) as the Company and the holders of
Common Stock are to receive solely Common Stock or no consideration (if the
Company is the surviving entity) or solely common stock of such other
entity (if such other entity is the surviving entity), such transaction (a
"Substantially Similar Change in Control") shall not be deemed to be a
Major
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Transaction (provided the surviving entity, if other than the Company,
shall have agreed to assume all obligations of the Company under this
Convertible Note, the Subscription Agreement and the Registration Rights
Agreement). For purposes hereof, an entity shall have Substantially Similar
Trading Characteristics as the Company if the average daily dollar trading
volume of the common stock of such entity is equal to or in excess of
$350,000, if the surviving entity is listed on the NYSE or AMEX, or
$700,000 otherwise for the 90th through the 31st day prior to the public
announcement of such transaction.
(ii) the sale or transfer of all or substantially all of the Company's
assets (an "Asset Sale"); or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase,
tender or exchange offer a Change of Control shall have occurred.
(c) Mechanics of Repayment at Option of Holder Upon Major Transaction.
Within 2 business days following the public announcement and at least five (5)
business days prior to the consummation of a Major Transaction, the Company
shall deliver written notice thereof via facsimile ("Notice of Major
Transaction") to each Holder of Convertible Notes, which notice shall state the
expected consummation date. At any time after the public announcement of a Major
Transaction, but prior to the consummation thereof, any Holder of Convertible
Notes then outstanding may by delivering written notice thereof via facsimile
and overnight courier ("Notice of Repayment at Option of Holder Upon Major
Transaction") to the Company, require the Company to repay up to all of the
Holder's Convertible Notes outstanding at the time such Major Transaction is
consummated. The Notice of Repayment at Option of Holder Upon Major Transaction
shall indicate the maximum principal amount of Convertible Notes that such
holder is electing to require to be repaid provided that such repayment shall be
contingent upon the closing of such Major Transaction. No such notice shall
preclude a Holder from converting Convertible Notes pursuant to Section 5
hereof.
(d) Payment of Repayment Price. Upon the Company's receipt of a
Notice(s) of Repayment at Option of Holder Upon Major Transaction from any
Holder of Convertible Notes, the Company shall immediately notify each Holder of
Convertible Notes by facsimile of the Company's receipt of such notices. The
Company shall deliver the applicable Major Transaction Repayment Price to such
holder within five (5) business days after the Company's receipt of a Notice of
Repayment Option of Holder Upon Major Transaction, but in no event later than
the consummation date for such Major Transaction; provided that a Holder's
Convertible Notes shall have been so delivered to the Transfer Agent. If the
Company is unable to repay all of the Convertible Notes submitted for repayment,
the Company shall (i) repay a pro rata amount from each holder of Convertible
Notes based on the principal amount of Convertible Notes submitted for repayment
by such Holder relative to the total principal amount of Convertible Notes
submitted for repayment by all Holders of Convertible Notes as of the date
payment is required to be made and (ii) in addition to any remedy such holder of
Convertible Notes may have under this Convertible Note and the Subscription
Agreement, pay to each Holder interest at the rate of 18% per annum in respect
of each unpaid Convertible Note until paid in full.
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(e) Void Repayment. In the event that the Company does not pay the Major
Transaction Repayment Price within the time period set forth in Section 13(d),
at any time thereafter and until the Company pays such unpaid applicable
Repayment Price in full, a Holder of Convertible Notes shall have the option
(the "Void Optional Repayment Option") to, in lieu of repayment, require the
Company to promptly return to such Holder any or all of the Convertible Notes
that were submitted for repayment by such Holder under this Section 13 and for
which the applicable Major Transaction Repayment Price (together with any
interest thereon) has not been paid, by sending written notice thereof to the
Company via facsimile (the "Void Optional Repayment Notice"). Upon the Company's
receipt of such Void Optional Repayment Notice, (i) the Notice of Repayment at
Option of Holder Upon Major Transaction shall be null and void with respect to
those Convertible Notes subject to the Void Optional Repayment Notice, (ii) the
Company shall immediately return any Convertible Notes subject to the Void
Optional Repayment Notice, (iii) the Maximum Conversion Price of such returned
Convertible Notes shall be adjusted to the lesser of (A) the Maximum Conversion
Price as in effect on the date on which the Void Optional Repayment Notice is
delivered to the Company and (B) the lowest Closing Bid Price during the period
beginning on the date on which the Notice of Repayment at Option of Holder Upon
Major Transaction is delivered to the Company and ending on the date on which
the Void Optional Repayment Notice is delivered to the Company, and (iv) the
Conversion Price in effect at such time shall be reduced by a number of
percentage points equal to the product of (A) .25 and (B) the number of days in
the period beginning on the date which is five business days after the date on
which the Notice of Repayment at Option of Holder Upon Major Transaction is
delivered to the Company and ending on the date on which the Void Optional
Repayment Notice is delivered to the Company.
(f) Miscellaneous. A Holder's delivery of a Void Optional Repayment
Notice and exercise of its rights following such notice shall not effect
the Company's obligations to make any payments which have accrued prior to the
date of such notice. In the event of a repayment pursuant to this Section 13 of
less than all of the principal amount represented by a particular Convertible
Note, the Company shall promptly cause to be issued and delivered to the Holder
of such Convertible Notes a Convertible Note representing the remaining unpaid
principal amount thereof which has not been repaid.
Section 14. Events of Default.
(a) Holder's Option to Demand Prepayment. Upon the occurrence of an
Event of Default (as herein defined), each Holder shall have the right to
elect at any time and from time to time prior to the cure by Company of such
Event of Default to have all or any portion of such Holder's then outstanding
Convertible Notes prepaid by the Company for an amount equal to the Holder
Demand Prepayment Amount (as herein defined).
(i) The right of a Holder to elect prepayment shall be exercisable
upon the occurrence of an Event of Default by such Holder in its sole
discretion by delivery of a Demand Prepayment Notice (as herein defined) in
accordance with the procedures set forth in this Section 14. Notwithstanding the
exercise of such right, the Holder shall be entitled to exercise all other
rights and remedies available under the provisions of this Convertible Note and
at law or in equity.
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(ii) A Holder shall effect each demand for prepayment under this
Section 14 by giving at least two (2) business days prior written notice
(the "Demand Prepayment Notice") of the date which such prepayment is to become
effective (the "Effective Date of Demand of Prepayment"), the Convertible Notes
selected for prepayment and the Holder Demand Prepayment Amount to the Company
at the address and facsimile number provided in the Subscription Agreement,
which Demand Prepayment Notice shall be deemed to have been delivered on the
business day after the date of transmission of Holder's facsimile (with a copy
sent by overnight courier to the Company) of such notice.
(iii) The Holder Demand Prepayment Amount shall be paid to a Holder
whose Convertible Notes are being prepaid within one (1) business day
following the Effective Date of Demand of Prepayment; provided, however, that
the Company shall not be obligated to deliver any portion of the Holder Demand
Prepayment Amount until one (1) business day following either the date on which
the Convertible Notes being prepaid are delivered to the office of the Company
or the Transfer Agent, or the date on which the Holder notifies the Company or
the Transfer Agent that such Convertible Notes have been lost, stolen or
destroyed and delivers the documentation required in accordance with Section
5(b)(i) hereof.
(b) Holder Demand Prepayment Amount. The "Holder Demand Prepayment
Amount" means the greater of: (a) 1.3 times the Total Maturity Value of the
Convertible Notes for which demand is being made, through the date of prepayment
or (b) the product of (1) the highest price at which the Common Stock is traded
on the date of the Event of Default (or on the most recent trading date for the
Common Stock if the Common Stock is not traded on such date) divided by the
Conversion Price in effect as of the date of the Event of Default, and (2) the
Total Maturity Value through the date of prepayment.
(c) Events of Default. An "Event of Default" means any one of the
following:
(i) either (a) a Conversion Failure described in Section 12(a) hereof
which is uncured ten (10) business days after the applicable Deadline or
(b) a material failure by the Company to comply with the remedies described in
Sections 11(g)(ii) and 12 hereof;
(ii) a Share Reservation Failure described in Section 11(b) hereof,
if such Share Reservation Failure continues uncured for ninety (90) days;
(iii) the Company fails, and such failure continues uncured for
three (3) business days after the Company has been notified thereof in
writing by a Holder, to satisfy the share reservation requirements of Section 11
hereof, where such action can be accomplished by the Board of Directors;
(iv) the Company fails to pay any cash payments due to a Holder under
the terms of this Convertible Note or the Registration Rights Agreement (as
defined below) within five (5) days after such Holder has notified the Company,
in writing, that such payment is past due and that the Holder intends to declare
an "Event of Default" under this Section 14;
(v) the Company fails to cause the registration statement required
by the Registration Rights Agreement to become effective within one hundred
twenty (120) days of
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the Closing Date, or fails to maintain an effective registration statement
as required by the Registration Rights Agreement between the Company and the
Holder(s) (the "Registration Rights Agreement") except where such failure lasts
no longer than three (3) consecutive trading days and is caused solely by
failure of the Securities and Exchange Commission to timely review the customary
submission of or respond to the customary requests of the Company;
(vi) for three (3) consecutive trading days or for an aggregate of
ten (10) trading days in any nine (9) month period, the Common Stock
(including any of the shares of Common Stock issuable upon conversion of the
Convertible Notes is (i) suspended from trading on any of the NYSE, Nasdaq
SmallCap, Nasdaq Stock Market Inc.'s National Market ("NMS"), or the American
Stock Exchange ("AMEX"), or (ii) is not qualified for trading on at least one of
the NYSE, Nasdaq SmallCap, NMS, or the AMEX;
(vii) the Company fails, and such failure continues uncured for
three (3) business days after the Company has been notified thereof in
writing by a Holder, to remove any restrictive legend on any certificate for any
shares of Common Stock issued to a Holder upon conversion of any Convertible
Notes, as and when required by this Convertible Note, the Subscription
Agreement, or the Registration Rights Agreement;
(viii) the Company breaches, and such breach continues uncured for
three (3) business days after the Company has been notified thereof in
writing by a Holder, any significant covenant or other material term or
condition of any Convertible Note, the Subscription Agreement or the
Registration Rights Agreement;
(ix) any representation or warranty of the Company made herein or in
any agreement, statement or certificate given in writing pursuant hereto or
in connection herewith (including, without limitation, the Subscription
Agreement and Registration Rights Agreement), shall be false or misleading in
any material respect when made and is not cured prior to Closing;
(x) the Company or any subsidiary of the Company shall make an
assignment for the benefit of its creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such receiver or trustee shall otherwise be appointed;
(xi) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against the Company or
any subsidiary of the Company (and such proceedings shall continue unstayed for
thirty (30) days);
(xii) the Shareholder Vote has not occurred by October 31, 1998; or
(xiii) the Warrant Shares (as defined in the Subscription Agreement)
have not become listed and available for trading on the NYSE by the date
that is five (5) trading days after the Shareholder Vote or the Company has
received a letter from the NYSE stating the listing of the Warrant Shares is
denied regardless of the results of the Shareholder Vote.
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(d) Failure to Pay Damages Amount. If the Company fails to pay the
Holder Demand Prepayment Amount within five (5) business days of its
receipt of a Demand Prepayment Notice, then such Holder shall have the right, at
any time and from time to time prior to the payment of the Holder Demand
Prepayment Amount, to require the Company, upon written notice, to immediately
convert (in accordance with the terms of Section 5) all or any portion of the
Holder Demand Prepayment Amount, into shares of Common Stock at the then current
Conversion Price, provided that if the Company has not delivered the full number
of shares of Common Stock issuable upon such conversion within three (3)
business days after the Company receives written notice of such conversion, the
Conversion Price with respect to such Holder Demand Prepayment Amount shall
thereafter be deemed to be the lowest Conversion Price in effect during the
period beginning on the date of the Event of Default through the date on which
the Company delivers to the Holder the full number of freely tradable shares of
Common Stock issuable upon such conversion. In the event the Company is not able
to pay all amounts due and payable with respect to all Convertible Notes subject
to Holder Demand Prepayment Notices, the Company shall pay the Holders such
amounts pro rata, based on the total amounts payable to such Holder relative to
the total amounts payable to all Holders.
Section 15. Remedies, Other Obligations, Breaches and Injunctive Relief.
The remedies provided in this Convertible Note shall be cumulative and in
addition to all other remedies available under the Convertible Note at law or in
equity (including a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of compliance with
the provision giving rise to such remedy and nothing herein shall limit a
holder's right to actual damages for any failure by the Company to comply with
the terms of this Convertible Note (after taking into effect the damages and
remedies available hereunder). Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the holder hereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holders of Convertible
Notes and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees, in the event of any such breach or threatened breach,
the Holders of Convertible Notes shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
Section 16. Restriction on Repayment and Cash Dividends. Until all of the
Convertible Notes have been converted or repaid as provided herein, the Company
shall not, directly or indirectly, redeem, or declare or pay any cash dividend
or distribution on its capital stock without the prior express written consent
of the holders of not less than two-thirds (2/3) of the then outstanding
Convertible Notes.
Section 17. No Five Percent Holders. Notwithstanding anything to the
contrary contained herein, the Convertible Notes shall not be convertible by a
Holder to the extent (but only to the extent) that, if converted by such Holder,
the Holder would beneficially own in excess of 4.99% of the then outstanding
shares of Common Stock of the Company. To the extent this limitation applies,
the determination of whether Convertible Notes shall be convertible (vis-a vis
other securities owned by such Holder) and of which Convertible Notes shall be
converted shall be in the sole discretion of the Holder and submission of the a
given principal amount of
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Convertible Notes for conversion shall be deemed to be the Holder's
determination of whether such principal amount of Convertible Notes is
convertible, subject to such aggregate percentage limitations. No prior
inability to convert Convertible Notes pursuant to this subparagraph shall have
any effect on the applicability of its provisions with respect to any subsequent
determination of convertibility. For the purposes of this subparagraph,
beneficial ownership and all calculations, including without limitation, with
respect to calculations of percentage ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13-D and G thereunder. Notwithstanding the foregoing,
each Holder shall have the right to waive such restriction or increase such
percentage to one Applicable Percentage (as defined below) or any lesser
percentage upon sixty one (61) days' prior notice to the Company and to decrease
any such percentage immediately upon written notice to the Company. Moreover
each Holder shall have the right at any time irrevocably to waive the
applicability of the immediately preceding sentence to itself. The provisions of
this subparagraph may be waived and/or implemented in a manner otherwise than in
strict conformity with the terms hereof with the approval of the Board of
Directors of the Company and the Holders of a majority of the outstanding
principal amount of the Convertible Notes: (i) with respect to any matter to
cure any ambiguity herein, to correct this subparagraph (or any portion thereof)
which may be defective or inconsistent with the intended beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation; and (ii) with respect to
any other matter, with the further consent of the Holders of majority of the
then outstanding shares of Common Stock. The limitations contained in this
subparagraph shall apply to a successor Holder of Convertible Notes if, and to
the extent, elected by such successor Holder concurrently with its acquisition
of such Convertible Notes, such election to be promptly confirmed in writing to
the Company (provided no transfer or series of transfers to a successor Holder
or Holders shall be used by a Holder to evade the limitations contained herein).
As used herein, the Applicable Percentage shall mean 9.9% at any time that an
Event of Default has not occurred and is continuing and shall otherwise mean
100%.
Section 18. Miscellaneous.
(a) Construction of Instrument. This Convertible Note shall be deemed
to be jointly drafted by the Company and all Purchasers and shall not be
construed against any person as the drafter hereof. No failure or delay on the
part of a Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. The Company covenants to each Holder
that there shall be no characterization concerning this instrument other than as
expressly provided herein. Notwithstanding anything to the contrary contained
herein, or any limitations contained herein, any cash amounts due hereunder
which are not paid when due shall bear interest at 18% per annum.
(b) Obligations Secured by Collateral. All of the Company's existing and
future obligations under this Convertible Note are secured by the Collateral
described in that certain Stock Pledge Agreement of even date herewith by and
between the Company and the holders of the Convertible Notes, including but not
limited to a pledge of common stock of Service Assembly, Inc., a corporation
duly organized under the laws of Massachusetts and a wholly-owned subsidiary of
the Company and related dividends, cash, securities and property.
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(c) Successors and Assigns. The terms and conditions of this Convertible
Note shall inure to the benefit of and be binding upon the respective successors
and assigns of the parties. Nothing in this Convertible Note, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Convertible Note, except as expressly
provided in this Convertible Note. Holder may assign Holder's rights hereunder,
in connection with any private sale of the Convertible Notes of such Holder, so
long as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Convertible Note.
(d) Arbitration of Disputes. Any controversy or claim arising out of or
related to this Convertible Note or the breach thereof, shall be settled by
binding arbitration in New York, NY in accordance with the Expedited Procedures
(Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). A proceeding shall be commenced upon written demand by
Company or any Holder to the other. The arbitrator(s) shall enter a judgment by
default against any party which fails or refuses to appear in any properly
noticed arbitration proceeding. The proceeding shall be conducted by one (1)
arbitrator, unless the amount alleged to be in dispute exceeds two hundred fifty
thousand dollars ($250,000), in which case three (3) arbitrators shall preside.
The arbitrator(s) will be chosen by the parties from a list provided by the AAA,
and if they are unable to agree within ten (10) days, the AAA shall select the
arbitrator(s). The arbitrators must be experts in securities law and financial
transactions. The arbitrators shall assess costs and expenses of the
arbitration, including all attorneys' and experts' fees, as the arbitrators
believe is appropriate in light of the merits of the parties' respective
positions in the issues in dispute. Each party submits irrevocably to the
jurisdiction of any state court sitting in New York, NY or to the United States
District Court sitting in New York, NY for purposes of enforcement of any
discovery order, judgment or award in connection with such arbitration. The
award of the arbitrator(s) shall be final and binding upon the parties and may
be enforced in any court having jurisdiction. The arbitration shall be held in
such place as set by the arbitrator(s) in accordance with Rule 55.
(e) Waiver of Defenses. The Company hereby waives presentment for
payment, demand, notice of demand, notice of nonpayment or dishonor,
protest and notice of protest of this Convertible Note, and all other notices in
connection with the delivery, acceptance, performance, default, or enforcement
of the payment of this Convertible Note. The Company agrees that the Company's
liability shall be unconditional, without regard to the liability of any other
party, and shall not be affected in any manner by any indulgence, extension of
time, renewal, waiver or modification granted or consented to by the Holders.
The Company hereby waives and releases all errors, defects and imperfections in
any proceeding instituted by Holders under the terms of this Convertible Note.
(f) Governing Law/Waiver of Jury Trial. This Convertible Note shall be
governed by and construed under the laws of the State of New York without
respect to conflict of laws principles. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Convertible Note and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained
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herein shall be deemed to limit in any way any right to serve process in
any manner permitted by law. Each party hereby irrevocably waives any right it
may have, and agrees not to request, a jury trial for the adjudication of any
dispute hereunder or in connection herewith or arising out of this agreement or
any transaction contemplated hereby.
(g) Company Pays Convertible Note Collection Costs. The Company agrees
to pay to Holder all of Holder's costs incurred in conjunction with the
collection of amounts due under this Convertible Note which are not paid as
required herein.
26
EXHIBIT 99.2
EA INDUSTRIES, INC.
REGULATION D SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES
REVIEWED OR DETERMINED THE ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SUBSCRIBERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND
ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE
ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT E.
SEE ADDITIONAL LEGENDS AT SECTIONS 3.7 and 9.
THIS REGULATION D SUBSCRIPTION AGREEMENT (this "Agreement" or
"Subscription Agreement") is made as of the date at the end of this
Agreement, by and between EA Industries, Inc., a corporation duly organized and
existing under the laws of the State of New Jersey (the "Company"), and the
undersigned Subscribers executing this Agreement ("Subscriber", together with
the other subscriber executing this agreement, collectively referred to as the
"Subscribers").
THE PARTIES HEREBY AGREE AS FOLLOWS:
This Agreement is executed by Subscriber and the Company in connection with
the offer and sale by the Company and the purchase by Subscriber of 6%
Convertible Notes (the "Convertible Notes"), of the Company in the initial
amount set forth in Subscriber's signature block at the end of this Agreement.
The Convertible Notes are being offered at a purchase price equal to the
principal amount thereof, with a minimum aggregate offering amount of Two
Million Dollars ($2,000,000) (the "Minimum Amount"), and up to a maximum
aggregate amount of Four Million Five Hundred Thousand Dollars ($4,500,000) (the
"Maximum Amount") (collectively, the "Offering"). The terms of the Convertible
Notes, including the terms on which the Convertible Notes may be converted into
common stock of the Company (the "Common Stock"), are set forth in the form of
Convertible Note (the "Convertible Notes"), in the form attached hereto as
Exhibit A. Each
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Convertible Note is accompanied by a warrant or warrants, to be designated
as the Company's Series D Warrants (the "Warrants"), to purchase a number of
shares of Common Stock of the Company equal to Two Hundred Thousand (200,000)
shares of Common Stock for each One Million Dollars ($1,000,000) of the
aggregate purchase price of the Subscriber's Convertible Notes, exercisable for
a three (3) year term at a price equal to one hundred fifteen percent (115%) of
the average Closing Bid Price for the five (5) trading days preceding the first
Closing. The terms of the Warrants, including the terms on which the Warrants
may be exercised for Common Stock, are set forth in the form of the Warrant
attached hereto as Exhibit K. The solicitation of the purchase and sale of the
Convertible Notes and, if accepted by the Company, the offer and sale of the
Convertible Notes are being made in reliance upon the provisions of Rule 506 of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as
amended ("the Act"). The Convertible Notes and the Common Stock issuable upon
conversion thereof (the "Conversion Shares"), the Warrants and Common Stock
issuable upon exercise thereof (the "Warrant Shares") are sometimes referred to
herein singularly as "Security" and collectively as the "Securities."
It is agreed as follows:
1. Closing
1.1 Offer to Purchase; Purchase Price and Closing; and Placement Fees.
Subject to satisfaction of the conditions to closing set forth in Section 1.2
below, Subscriber hereby agrees to purchase Convertible Notes, for the aggregate
purchase price in the amount set forth in Subscriber's signature block at the
end of this Agreement (the "Initial Principal Amount") in accordance with the
terms and conditions of this Agreement. Assuming that the Minimum Amount and
corresponding Subscription Agreements accepted by the Company are received into
the Company's designated escrow account for this Offering established pursuant
to the Escrow Agreement and Instructions (the "Escrow Agreement") by and among
the Company, First Union National Bank of Georgia (the "Escrow Agent") and the
Placement Agent (as defined below) (the "Escrow Account"), prior to the
termination of the offering, the closing of a sale and purchase of Convertible
Notes and accompanying Warrants as to the Subscribers (the "Closing") shall be
deemed to occur when this Agreement has been executed by all Subscribers and the
Company and full payment shall have been made by each Subscriber, by wire
transfer to the Escrow Account as set forth in Section 7.1(a) for payment in
consideration for the Company's delivery of certificates representing the
Convertible Notes subscribed for and the conditions to each Subscriber's
obligations set forth in Section 1.2 have been satisfied.
The parties hereto acknowledge that Swartz Investments, LLC is acting as
placement agent (the "Placement Agent") for this Offering and will be
compensated by the Company in cash and warrants to purchase Common Stock. The
Placement Agent has acted solely as placement agent in connection with the
Offering by the Company of the Convertible Notes pursuant to this Agreement. The
information and data contained in the Disclosure Documents (as defined in
Section 2.2.4) have not been subjected to independent verification by the
Placement Agent, and no representation or warranty is made by the Placement
Agent as to the accuracy or completeness of the information contained in the
Disclosure Documents.
1.2 Conditions to Subscriber's Obligations to Consummate the Closing.
Subscriber's obligations hereunder are conditioned upon all of the following:
(a) the following documents shall have been deposited with the Escrow
Agent: the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit B (the "Registration Rights
Agreement") (executed by the Company), an opinion of counsel, in
the form attached hereto as Exhibit C (the "Opinion of Counsel")
(signed by the
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Company's counsel), the Irrevocable Instructions to Transfer
Agent, in the form attached hereto as Exhibit D (the "Irrevocable
Instructions to Transfer Agent")(executed by the Company and the
Company's transfer agent, the "Transfer Agent"); duly executed
Convertible Notes issued in the name of the Subscriber; and the
Warrants issued in the name of the Subscriber;
(b) the follHowing documents shall have been received by the
Subscriber: a Certificate of Good Standing dated within ten (10)
days of the Closing Date, Secretary's Certificate certifying the
Company's Articles, Bylaws and Resolutions, and a Certified Copy
of the Company's Articles;
(c) the Company's Common Stock (including all Conversion Shares)
shall be listed for and be actively trading on the New York Stock
Exchange ("NYSE");
(d) other than losses described in the Disclosure Documents (as
defined above) as of the Closing there have been no material
adverse changes in the Company's business, prospects or financial
condition since the date of the last balance sheet included in
the Disclosure Documents, including but not limited to incurring
material liabilities;
(e) the representations and warranties of the Company are true and
correct at the Closing as if made on such date, and the Company
shall deliver a certificate, signed by an officer of the Company,
to such effect to the Subscriber; and
(f) the Minimum Amount and corresponding subscription agreements
accepted by the Company shall have been received by the Escrow
Agent; and
(g) the Company shall have reserved for issuance a sufficient number
of shares of Common Stock to effect conversions of the
Convertible Notes and exercise of the Warrants, which number of
shares shall initially be equal to Five Million Two Hundred Fifty
Thousand (5,250,000) shares.
2. Representations and Warranties of Subscriber. Subscriber hereby
represents and warrants to the Company as follows:
2.1 Accredited Investor. Subscriber is an accredited investor, as
defined in Rule 501 of Regulation D, and agrees to check the applicable box
set forth in Section 10 of this Agreement .
2.2 Investment Experience; Access to Information; Independent
Investigation.
2.2.1 Access to Information. Subscriber or Subscriber's professional
advisor has been granted the opportunity to ask questions of and receive answers
from representatives of the Company, its officers, directors, employees and
agents concerning the terms and conditions of this Offering, the Company and its
business and prospects.
2.2.2 Reliance on Own Advisors. Subscriber has relied on the advice
of, or has consulted with, Subscriber's own personal tax, investment, legal
or other advisors and has not relied on the Company or any of its affiliates,
officers, directors, attorneys, accountants or any affiliates of any thereof and
each other person, if any, who controls any thereof, within the meaning of
Section 15 of the Act for any tax or legal advice (other than reliance on
information in the Disclosure Documents as defined in Section 2.2.4 below and on
the
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Opinion of Counsel). The foregoing, however, does not limit or modify
Subscriber's right to rely upon representations and warranties of the Company in
Section 4 of this Agreement.
2.2.3 Capability to Evaluate. Subscriber or Subscriber's advisor has
such knowledge and experience in financial and business matters so as to
enable such Subscriber to utilize the information made available to it in
connection with the Offering in order to evaluate the merits and risks of the
prospective investment, which are substantial, including without limitation
those set forth in the Disclosure Documents (as defined in Section 2.2.4 below).
2.2.4 Disclosure Documents. Subscriber, in making Subscriber's
investment decision to subscribe for the Securities hereunder, represents
that (a) Subscriber has received and had an opportunity to review (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 (ii)
the Company's quarterly report on Form 10-Q for the quarter ended March 28,
1998, (iii) the Risk Factors, attached as Exhibit E, (iv) the Capitalization
Schedule, attached as Exhibit F, (the "Capitalization Schedule") and (v) the Use
of Proceeds Schedule, attached as Exhibit G, (the "Use of Proceeds Schedule")
(b) Subscriber has read, reviewed, and relied solely on the documents described
in (a) above, the Company's representations and warranties and other information
in this Agreement, including the exhibits, any other written information
prepared by the Company which has been specifically provided to Subscriber in
connection with this Offering (the documents described in Section 2.2.4 (a) and
(b) are collectively referred to as the "Disclosure Documents"), and an
independent investigation made by Subscriber and Subscriber's representatives,
if any; (c) Subscriber has, prior to the date of this Agreement, been given an
opportunity to review material contracts and documents of the Company which have
been filed as exhibits to the Company's filings under the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and has had an opportunity
to ask questions of and receive answers from the Company's officers and
directors; and (d) is not relying on any oral representation of the Company or
any other person, nor on any written representation or assurance from the
Company which has been superseded in a writing from the Company prior to the
Subscriber signing this Agreement. The foregoing, however, does not limit or
modify Subscriber's right to rely upon representations and warranties of the
Company in Section 4 of this Agreement. Subscriber acknowledges and agrees that
the Company has no responsibility for, does not ratify, and is under no
responsibility whatsoever to comment upon or correct any reports, analyses or
other comments made about the Company by any third parties, including, but not
limited to, analysts' research reports or comments (collectively, "Third Party
Reports"), and Subscriber has not relied upon any Third Party Reports, including
any provided by the Placement Agent, in making the decision to invest.
2.2.5 Investment Experience; Fend for Self. Subscriber has
substantial experience in investing in securities and he, she or it has
made investments in securities other than those of the Company. Subscriber
acknowledges that Subscriber has the ability to bear the economic risk of
Subscriber's investment pursuant to this Agreement. Subscriber has not been
organized for the purpose of investing in securities of the Company, although
such investment is consistent with Subscriber's purposes.
2.3 Exempt Offering Under Regulation D.
2.3.1 Investment; No Distribution. Subscriber is acquiring the
Securities to be issued and sold hereunder for his, her or its own account
(or a trust account if such Subscriber is a trustee) for investment and not as a
nominee and not with a present view to the distribution thereof except for sales
exempt from registration under the Act or sold pursuant to an effective
registration statement. Subscriber is aware that there are legal limits on
Subscriber's ability to sell or dispose of the Securities and, therefore, that
Subscriber may be required to bear the economic risk of the investment for an
indefinite period of time and has adequate means of providing for Subscriber's
current needs and possible personal contingencies. Subscriber's commitment to
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illiquid investments is reasonable in relation to Subscriber's net worth. By
making the representations in this Section 2.3.1, the Subscriber does not agree
to hold the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant to
a registration statement or an exemption from registration under the Act, except
as otherwise limited or required by Section 5(a) of the Convertible Notes and
Section 6 of the Registration Rights Agreement.
2.3.2 [Intentionally Omitted].
2.3.3 Restricted Securities. Subscriber understands that the
Convertible Notes and the Warrants issued at Closing, are, and the
Conversion Shares and the Warrant Shares will be, characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may not be
transferred or resold without registration under the Act or pursuant to an
exemption therefrom. In this connection, Subscriber represents that Subscriber
is familiar with Rule 144 under the Act, as presently in effect, and understands
the resale limitations imposed thereby and by the Act.
2.3.4 Disposition. Without in any way limiting the representations
set forth above, Subscriber further agrees not to make any disposition
(except for any pledge in connection with a margin account of Subscriber) of all
or any portion of the Securities unless and until:
(a) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Subscriber shall have notified the Company of the
proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, Subscriber shall have
furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of the Securities under the Act. It is agreed that no
prior notice will be required other than for the filing of a Form 144,
if necessary, and the Company will not require opinions of counsel for
transactions made pursuant to Rule 144.
2.4 Due Authorization.
2.4.1 Authority. The person executing this Agreement, if executing
this Agreement in a representative or fiduciary capacity, has the full
power and authority to execute and deliver this Agreement and each other
document included herein for which a signature is required in such capacity and
on behalf of the subscribing individual, partnership, trust, estate, corporation
or other entity for whom or which Subscriber is executing this Agreement.
2.4.2 Due Authorization. If Subscriber is a corporation, Subscriber
is duly and validly organized, validly existing and in good tax and corporate
standing as a corporation under the laws of the jurisdiction of its
incorporation with full power and authority to purchase the Securities to be
purchased by Subscriber and to execute and deliver this Agreement.
2.4.3 [Intentionally Omitted].
3. Acknowledgments. Subscriber is aware that:
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<PAGE>
3.1 Risks of Investment. Subscriber recognizes that an investment in the
Company involves substantial risks, including the potential loss of Subscriber's
entire investment herein.
3.2 No Government Approval. No federal or state agency has passed upon
the Securities, recommended or endorsed the Offering, or made any finding
or determination as to the fairness of this transaction;
3.3 No Registration. The Securities and any component thereof have not
been registered under the Act or any applicable state securities laws by
reason of exemptions from the registration requirements of the Act and such
laws, and may not be sold, pledged (except for any pledge in connection with a
margin account of Subscriber), assigned or otherwise disposed of in the absence
of an effective registration of the Securities and any component thereof under
the Act or unless an exemption from such registration is available;
3.4 [Intentionally Omitted].
3.5 No Assurances of Registration. There can be no assurance that any
registration statement will become effective at the scheduled time. Therefore,
Subscriber may bear the economic risk of Subscriber's investment for an
indefinite period of time;
3.6 Exempt Transaction. Subscriber understands that the Securities are
being offered and sold in reliance on specific exemptions from the registration
requirements of federal and state law and that the representations, warranties,
agreements, acknowledgments and understandings set forth herein are being relied
upon by the Company in determining the applicability of such exemptions and the
suitability of Subscriber to acquire such Securities;
3.7 Legends. It is understood that the Convertible Notes, the Warrants,
the Conversion Shares and the Warrant Shares shall bear the following
legend (the "Legend") (prior to registration as provided in Section 5.3):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or pursuant to an exemption
therefrom."
3.8 Warrant Shares Not Listed as of Closing. The Warrant Shares are not
currently listed and available for trading on the New York Stock Exchange,
cannot become so listed and available for trading until after the 20% Approval
(as defined in Section 5.14 below), and may never become so listed and available
for trading.
4. Representations and Warranties of the Company . The Company hereby makes
the following representations and warranties to Subscriber (which shall be true
at the signing of this Agreement) and agrees with Subscriber that:
4.1 Organization, Good Standing, and Qualification. The Company and each
of its Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey, USA in the case of
the Company, the state of California, in the case of Tanon Manufacturing, Inc.
and the state of Massachusetts in the case of Service Assembly, Inc. and has all
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted. The Company and each of its
Subsidiaries is duly qualified to transact business and is in good standing in
each jurisdiction in which the
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failure to so qualify would have a material adverse effect on the business
or properties of the Company and its subsidiaries taken as a whole. The Company
is not the subject of any pending or, to its knowledge, threatened or
contemplated investigation or administrative or legal proceeding by the Internal
Revenue Service, the taxing authorities of any state or local jurisdiction, or
the Securities and Exchange Commission ("SEC"), The National Association of
Securities Dealers, Inc., The New York Stock Exchange (the "NYSE") or any state
securities commission, or any other governmental entity, which have not been
disclosed in the Disclosure Documents.
4.2 Corporate Condition. The Company's condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the Company. There have been no material
adverse changes to the Company's business or financial condition since the date
of such Disclosure Documents. The financial statements contained in the
Disclosure Documents have been prepared in accordance with generally accepted
accounting principles, consistently applied (except as otherwise permitted by
Regulation S-X of the Exchange Act), and fairly present the consolidated
financial condition of the Company as of the dates of the balance sheets
included therein and the consolidated results of its operations and cash flows
for the periods then ended. Without limiting the foregoing, there are no
material liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
period covered by the Disclosure Documents). The Company has paid all material
taxes which are due, except for taxes which it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending, or, to the
best of the Company's knowledge, threatened against the Company or its officers
and directors in their capacity as such, except as disclosed in the Disclosure
Documents and there is no factual basis, to the Company's knowledge, for any
material claim in the future. This Agreement and the Disclosure Documents do not
contain any untrue statement of a material fact and do not omit to state any
material fact required to be stated therein or herein necessary to make the
statements contained therein or herein not misleading in the light of the
circumstances under which they were made. No event or circumstance exists
relating to the Company which under applicable law that would require disclosure
in a registration statement filed by the Company in connection with the sale by
the Company of its common stock but which has not been so publicly announced or
disclosed. As of their respective dates, the Disclosure Documents complied in
all respects with the Exchange Act and the rules and regulations thereunder.
4.3 Authorization. All corporate action on the part of the Company by
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the
Convertible Notes being sold hereunder and the issuance (and/or the reservation
for issuance) of the Conversion Shares, the Warrants and the Warrant Shares have
been taken, with the exception of the approval of the shareholders required by
NYSE Listed Company Manual Section 312.03(c), and this Agreement, the
Convertible Notes, the Irrevocable Instructions to Transfer Agent and the
Registration Rights Agreement constitute valid and legally binding obligations
of the Company, enforceable in accordance with their terms, except insofar as
the enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors' rights generally or
by principles governing the availability of equitable remedies. The Company has
obtained all consents and approvals required for it to execute, deliver and
perform each agreement referenced in the previous sentence.
4.4 Valid Issuance of Convertible Notes and Common Stock. The
Convertible Notes and the Warrants, when issued, sold and delivered in
accordance with the terms hereof, for the consideration expressed herein, based
in part upon the representations of Subscriber in this Agreement, will be issued
in compliance with all applicable U.S. federal and state securities laws. The
Conversion Shares and the Warrant Shares, when issued in accordance with the
terms of the Convertible Notes or the Warrants, as applicable, shall be duly and
validly issued and outstanding, fully paid and nonassessable, and based in part
on the representations and
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warranties of Subscriber of the Convertible Notes, will be issued in
compliance with all applicable U.S. federal and state securities laws. The
Convertible Notes, the Conversion Shares, the Warrants and the Warrant Shares
will be issued free of any preemptive rights. The Company currently has Five
Million Two Hundred Fifty Thousand (5,250,000) Conversion Shares reserved for
issuance upon conversion of the Convertible Notes, and upon exercise of the
Warrants.
4.5 Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Certificate of Incorporation or Bylaws
each as amended, and in effect on and as of the date of the Agreement or of any
provision of any instrument or contract to which it is a party or by which it is
bound or, of any provision of any federal or state judgment, writ, decree,
order, statute, rule or governmental regulation applicable to the Company, which
would have a material adverse effect on the Company's business or prospects, or
on the performance of its obligations under this Agreement, the Registration
Rights Agreement, the Convertible Notes and the Irrevocable Instructions to
Transfer Agent, except as described in Schedule 4.5. The execution, delivery and
performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company (b) violate the Company's Articles of Incorporation or
By-Laws or (c) violate any statute, rule or governmental regulation applicable
to the Company which violation would have a material adverse effect on the
Company's business or prospects.
4.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has timely filed all reports required
by the Exchange Act since the Company first became subject to such reporting
requirements. The Company undertakes to furnish Subscriber with copies of such
reports as may be reasonably requested by Subscriber prior to consummation of
this Offering and thereafter, to make such reports available, as long as
Subscriber holds the Securities. Except as disclosed in Schedule A attached, the
Company is not otherwise in violation of the listing requirements of the New
York Stock Exchange (the "NYSE") and does not reasonably anticipate that the
Common Stock will be delisted by the NYSE for the foreseeable future. The
Company has filed all reports required under the Exchange Act. The Company, in
entering this Agreement, the Convertible Notes, the Irrevocable Instructions to
Transfer Agent and the Registration Rights Agreement and performing its
obligations hereunder and thereunder, shall not violate any of the rules of the
NYSE.
4.7 Capitalization. The capitalization of the Company as of July 10,
998 is, and the pro forma capitalization as of the Closing, after taking
into account the offering of the Securities contemplated by this Agreement and
all other share issuances occurring prior to this Offering, will be, as set
forth in the Capitalization Schedule as set forth in Exhibit F. Except as
disclosed in the Capitalization Schedule, as of the date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe for,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its subsidiaries, or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
and (ii) there are no agreements or arrangements under which the Company or any
of its subsidiaries is obligated to register the sale of any of its or their
securities under the Act (except the Registration Rights Agreement).
4.8 Intellectual Property. The Company has valid, unrestricted and
exclusive patents, trademarks, trademark registrations, trade names, copyrights,
know-how, technology and other intellectual property necessary to the conduct of
its business as set forth on Exhibit H-1. The Company has granted such licenses
or has assigned or otherwise transferred a portion of (or all of) such valid,
unrestricted and exclusive
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patents, trademarks, trademark registrations, trade names, copyrights,
know-how, technology and other intellectual property necessary to the conduct of
its business as set forth on Exhibit H-2. The Company has been granted licenses,
know-how, technology and/or other intellectual property necessary to the conduct
of its business as set forth on Exhibit H-3. To the best of the Company's
knowledge, the Company is not infringing on the intellectual property rights of
any third party, nor is any third party infringing on the Company's intellectual
property rights. The Company has received no notice of any conflict or
infringement of its intellectual property. There are no restrictions in any
agreements, licenses, franchises, or other instruments which preclude the
Company from engaging in its business as presently conducted. Neither the
Company nor any of its subsidiaries has entered into any consent,
indemnification, forbearance to sue or settlement agreements with respect to the
validity of the Company's or its subsidiaries' ownership or right to use its
intellectual property and, to the best knowledge of the Company, there is no
reasonable basis for any such claim to be successful.
4.9 Use of Proceeds. As of the date hereof, the Company expects to use
the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth on the Use of Proceeds Schedule set
forth as Exhibit G hereto. These purposes and amounts are estimates and are
subject to change without notice to any Subscriber.
4.10 No Rights of Participation. No person or entity, including, but not
limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
4.11 Company Acknowledgment. Subject to Section 2.3.1 above, the Company
hereby acknowledges that Subscriber may elect to hold the Securities for various
periods of time, as permitted by the terms of this Agreement, the Convertible
Notes, the Warrants, and other agreements contemplated hereby, and the Company
further acknowledges that Subscriber and the Placement Agent have made no
representations or warranties, either written or oral, as to how long the
Securities will be held by Subscriber or regarding Subscriber's trading history
or investment strategies.
4.12 Termination Date of Offering. The last Closing ("Last Closing")
shall occur no later than July 31, 1998, which date can be extended by up
to ten (10) days upon written approval by the Company and the Subscriber, and
the date of the Last Closing is referred to herein as the "Last Closing Date".
4.13 Underwriter's Fees and Rights of First Refusal. The Company is not
obligated to pay any compensation or other fees, costs or related expenditures
in cash or securities to any underwriter, broker, agent or other representative
other than the Placement Agent in connection with this Offering.
4.14 Current Public Information. The Company is currently eligible and
agrees to maintain its eligibility to register the resale of its Common Stock on
a registration statement on Form S-3 under the Act.
4.15 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under the Act pursuant to the
provisions of Regulation D or would require the issuance of any other securities
to be integrated with this Offering under the rules of NYSE. The Company has not
engaged in any form of general solicitation or advertising in connection with
the offering of the Convertible Notes.
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4.16 Acknowledgment of Dilution. The number of Conversion Shares
issuable upon conversion of the Convertible Notes may increase
substantially in certain circumstances, including the circumstance wherein the
trading price of the Common Stock declines. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereunder and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded in its good faith business
judgment that such issuance is in the best interests of the Company. The Company
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Convertible Notes is binding upon it and enforceable regardless of the
dilution that such issuance may have on the ownership interests of the other
stockholders.
4.17 Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of its actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
4.18 Key Employees. Each Key Employee (as defined below) is currently
serving the Company in the capacity disclosed in Exhibit I. No Key Employee, to
the best knowledge of the Company and its subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best knowledge of the Company and
its subsidiaries, any intention to terminate his employment with, or services
to, the Company or any of its subsidiaries. "Key Employee" means each of Frank
G. Brandenberg, President, Chief Executive Officer and Director; James Crofton,
Vice President and Chief Financial Officer - EAI; Jose Flahaux, Vice President -
EAI; Steven Pudles, President - Tanon Manufacturing (East Coast); and James
Cogan, President - Tanon Manufacturing (West Coast).
4.19 Tax Status. The Company has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
4.20 Transactions With Affiliates. Except as set forth in the Disclosure
Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
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4.21 Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under New Jersey law which is or could become
applicable to the Subscriber as a result of the transactions contemplated by
this Agreement, including, without limitation, the issuance of the Convertible
Notes and any conversion of the Convertible Notes and ownership of the
Conversion Shares.
4.22 Other Agreements. The Company has not, directly or indirectly, made
any agreements with the Subscriber, or any other subscriber under a subscription
in the form of this Agreement for the purchase of Convertible Notes, relating to
the terms or conditions of the transactions contemplated hereby or thereby
except as expressly set forth herein or therein, respectively, or in exhibits
hereto or thereto.
4.23 NYSE Correspondence. The Company has provided to the Subscriber a
copy of all correspondence and other written communications, between itself
and the NYSE as well as any correspondence to third parties regarding the
Company's NYSE listing which have been received or sent during the past nine
months.
4.24 Representations Correct. The foregoing representations, warranties
and agreements are true, correct and complete in all material respects, and
shall survive the Closing and the issuance of the Convertible Notes until the
date that is three (3) years after the Last Closing Date.
5. Covenants of the Company.
5.1 Independent Auditors. The Company shall, until at least three (3)
years after the date of the Last Closing, maintain as its independent
auditors an accounting firm authorized to practice before the SEC.
5.2 Corporate Existence and Taxes. The Company shall, until at least the
later of (i) the date that is three (3) years after the Last Closing Date or
(ii) the conversion or redemption of all of the Convertible Notes purchased
pursuant to this Agreement, and the exercise of the Warrants, maintain its
corporate existence in good standing and remain a Reporting Company (provided,
however, that the foregoing covenant shall not prevent the Company from entering
into any merger or corporate reorganization as long as the surviving entity in
such transaction, if not the Company, assumes the Company's obligations with
respect to the Convertible Notes and has Common Stock listed for trading on a
stock exchange or on Nasdaq and is a "Reporting Issuer") and shall pay all its
taxes when due except for taxes which the Company disputes.
5.3 Registration Rights. On or prior to the Closing, the Company will
enter into a registration rights agreement covering the resale of the
Conversion Shares and the Warrant Shares in the form of the Registration Rights
Agreement attached as Exhibit B.
5.4 Notification of Closing Date by Company. Within five (5) business
days after the Closing, the Company shall notify Subscriber in writing that
the Closing has occurred, the dates that Subscriber is entitled to convert
Subscriber's Convertible Notes, the value of the Fixed Conversion Price, as that
term is defined in the Convertible Notes, and the name and telephone number of
an administrative contact person at the Company whom Subscriber may contact
regarding information related to conversion of the Convertible Notes as
contemplated by the Convertible Notes.
5.5 Asset Transfers. The Company shall not transfer, sell, convey or
otherwise dispose of any of its material assets to any Subsidiary or affiliate
except for a cash or cash equivalent consideration or for a proper
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business purpose or loans, contributions or advances to any of its
subsidiaries, while any of the Convertible Notes are outstanding.
5.6 Capital Raising Limitations; Rights of First Refusal.
5.6.1 Capital Raising Limitations. The Company shall not, without
obtaining the prior written approval of Subscribers holding a majority of the
principal amount of Convertible Notes then outstanding, issue or sell or agree
to issue or sell any debt or equity securities (or any security convertible into
or exercisable or exchanged directly or indirectly, equity or debt security of
the Company) for cash in private capital raising transactions for a period
beginning on the date hereof and ending six (6) months (the "Lock-Up Period")
after the Last Closing Date (the limitations referred to in this sentence are
collectively referred to as the "Capital Raising Limitations," and are subject
to the exceptions as specified in Section 5.6.4 herein below).
5.6.2 Right of First Offer. The Company agrees that, during the
period beginning on the date hereof and terminating on the date that is
one year after the date of the Last Closing Date (the "First Refusal Period"),
the Company will not, without the prior written consent of each Subscriber issue
or sell, or agree to issue or sell any equity securities of the Company (or any
security convertible into or exercisable or exchangeable, directly or
indirectly, for equity or debt securities of the Company ("Future Offerings"))
unless the Company shall have first delivered to each Subscriber at least thirty
(30) days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof, and providing each Subscriber and its affiliates an option during the
twenty (20) day period following delivery of such notice to purchase up to the
amount of the securities as described in Section 5.6.3 below, being offered in
the Future Offering on the same terms as contemplated by such Future Offering
(the Subscriber's rights to purchase in Future Offerings referred to in this
sentence are collectively referred to as the "Rights of First Refusal"). The
First Refusal Period shall be extended one day for each day that the
effectiveness of the registration statement (the "Registration Statement")
required by the Registration Rights Agreement exceeds the Due Date (as defined
in the Registration Rights Agreement).
5.6.3 Amount of Subscriber's Right of First Refusal. The amount of
securities which a Subscriber is entitled to purchase in such a Future Offering
shall be a number obtained by multiplying the aggregate amount of securities
being offered in the Future Offering by a fraction, the numerator of which is
the purchase price of the Convertible Notes purchased by the Subscriber pursuant
to this Agreement and the denominator of which is the aggregate dollar amount of
Convertible Notes placed in this Offering.
5.6.4 Exceptions to the Capital Raising Limitation and Rights of
First Refusal. Neither the Capital Raising Limitations nor the Rights of
First Refusal shall apply to (a) any transaction involving issuances of
securities as consideration for a merger, consolidation, acquisition or sale of
assets, or, in connection with any of the foregoing transactions with an
industry Partner (a "Strategic Alliance"), or as consideration for an
acquisition of a business, product or license by the Company or exercise of
options by employees, consultants or directors; provided, however, that no
registration statement covering the resale of Common Stock issued in connection
with a Strategic Alliance, or upon conversion, exercise or exchange of
securities issued in connection with such transactions, shall be declared
effective prior to the date that is one year after the Last Closing Date, (b)
the issuance of securities pursuant to a firm commitment underwritten public
offering, (c) the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof, (d) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plans for the benefit of the Company's employees, directors or
consultants, (e) to any borrowing by the Company of straight debt, with no
equity feature, in a private placement, or (f) the issuance of securities where
(i) the benefits derived by the holder of such securities are entirely derived
from one of the Company's subsidiaries and (ii) none of the
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distributions from such securities may be made in equity securities of
the Company or securities convertible or exchangeable for or excercisable into
equity securities of the Company, or (g) issuance in one or more transactions
during the Lock-up Period, of equity securities generating aggregate gross cash
proceeds to the Company of not more than $1,000,000 but only if the price per
share of Common Stock of each of such securities (determined on an as-converted
basis) is not less than 90% of the market price of the Company's Common Stock at
the time of issuance.
The Capital Raising Limitations shall not apply (but the Rights of First
Refusal shall apply) to any transaction, up to $5 million, where the proceeds
are used to acquire Axiom Electronics, Inc. concurrently with the closing of
such transaction.
5.7 Financial 10-K Statements, Etc. and Current Reports on Form 8-K. The
Company shall make available to the holders of the Convertible Notes copies of
its annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on form 8-K for as long as the Convertible Notes may remain outstanding.
The Company shall file a current report on form 8-K disclosing the terms of this
Offering and the Securities within five (5) business days of the date of each
Closing.
5.8 Opinion of Counsel. Subscribers shall, concurrent with the purchase
of the Convertible Notes and accompanying Warrants in each of the First Closing
and the Second Closing, if applicable, pursuant to this Agreement, receive an
opinion letter from Mesirov Gelman Jaffe Cramer & Jamieson, LLP, 1735 Market
Street, Philadelphia, PA 19103-7598 Telephone: 215-994-1000 Facsimile:
215-994-1111 ("Counsel"), counsel to the Company, in the form attached as
Exhibit C.
5.9 Removal of Legend Upon Conversion. As contemplated by the
Convertible Notes, upon conversion of the Convertible Notes, Subscriber shall
submit a Notice of Conversion and Resale, substantially in the form attached
hereto as Exhibit J. The Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if, unless otherwise required by state securities laws, (a) such
Security is registered for sale under the Act, or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such Security may be made without registration under the Act, or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. Each Subscriber agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act. In the event the Legend is removed from
any Security or any Security is issued without the Legend and thereafter the
effectiveness of a registration statement covering the resale of such Security
is suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
Subscriber holding such Security, the Company may require that the Legend be
placed on any such Security that cannot then be sold pursuant to an effective
registration statement or Rule 144 or with respect to which the opinion referred
to in clause (b) next above has not been rendered, which Legend shall be removed
when such Security may be sold pursuant to an effective registration statement
or Rule 144 or such holder provides the opinion with respect thereto described
in clause (b) next above.
5.10 Listing. Subject to the remainder of this Section 5.10, the Company
shall ensure that its shares of Common Stock (including all Conversion Shares)
are listed and available for trading on the New York Stock Exchange (the
"NYSE"). Thereafter, the Company shall (i) use its best efforts to continue the
listing and trading of its Common Stock on the NYSE, or on the NASDAQ National
Market ("NMS") or the American
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<PAGE>
Stock Exchange ("AMEX") or any other national exchange or over-the-counter
market system; and (ii) comply in all respects with the Company's reporting,
filing and other obligations under the by-laws or rules of the NYSE, the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall file a subsequent listing application with the
NYSE to list the Warrant Shares and will use its best efforts to obtain a letter
from the NYSE (the "NYSE Warrant Listing Letter"), as soon as possible after the
Last Closing, stating that the Warrant Shares have been approved for listing on
the NYSE subject to the 20% Approval (as defined in Section 5.14 below), and
will promptly deliver a copy of the NYSE Warrant Listing Letter to the Holder
upon its receipt. The Company shall use its best efforts to cause the Warrant
Shares to become listed and available for trading on the NYSE as soon as
possible after the 20% Approval.
5.11 The Company's Instructions to Transfer Agent. The Company will
issue to its Transfer Agent the Irrevocable Instructions to Transfer Agent in
the form of Exhibit D instructing the Transfer Agent to issue certificates,
registered in the name of each Subscriber or its nominee, for the Conversion
Shares and Warrant Shares in such amounts as specified from time to time by such
Subscriber to the Company upon conversion of the Convertible Notes and exercise
of the Warrants. Such certificates shall bear a Legend only to the extent
permitted by Section 5.9 hereof. The Company warrants that no instruction, other
than such instructions referred to in Section 5.9 hereof or in this Section 5.11
and stop transfer instructions to give effect to Section 3.7 hereof in the case
of Conversion Shares and Warrant Shares prior to registration of the Conversion
Shares and Warrant Shares under the Act, will be given by the Company to its
Transfer Agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section shall
affect in any way each Subscriber's obligations and agreement set forth in
Sections 2.3.3 or 2.3.4 hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of
applicable securities laws. If (a) a Subscriber provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration or (b) a Subscriber transfers
Securities to an affiliate which is an accredited investor pursuant to Rule 144,
the Company shall permit the transfer, and, in the case of Conversion Shares and
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denomination as specified by such
Subscriber. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Subscriber by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5.11 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5.11, that a
Subscriber shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required. The Company hereby agrees that it will not unilaterally
terminate its relationship with the Transfer Agent for any reason prior to the
date which is three (3) years and one (1) month after the Last Closing Date or
one (1) month after the first date that no Convertible Notes and no Warrants are
outstanding, whichever is earlier (the "Ending Date"), unless the Company's
Transfer Agent continues acting as transfer agent pursuant to the terms of the
Irrevocable Instructions to Transfer Agent until such time that a successor
transfer agent (i) is appointed by the Company; (ii) is approved by seventy-five
percent (75%) of the Subscribers of outstanding Convertible Notes; and (iii)
executes and agrees to be bound by the terms of the Irrevocable Instructions to
Transfer Agent.
5.12 No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the issuance of the Securities being offered or sold
hereunder under the Securities Act or cause the Offering to be integrated with
any other
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offering of securities by the Company for purposes of any shareholder
approval provision applicable to the Company or its securities.
5.13 Shareholder's Meeting. The Company, acting through its Board of
Directors (the "Board"), will, in accordance with applicable law and the
Company's Articles and Bylaws, duly call, give notice of, convene and hold a
special or annual meeting (including any adjournment or postponement thereof,
the "Meeting") of its shareholders as soon as practicable following the date of
this Agreement, for the purpose of considering and taking action upon the
approval of the issuance of the number of shares issuable upon the conversion of
the Convertible Notes and upon exercise of the Warrants (which approval is a
precondition to the listing and the use of said shares) and any other related
matters required under applicable law to be approved by such shareholders. The
Board shall recommend such approval by the shareholders and shall take all
reasonable, lawful action to solicit such approval by its shareholders.
5.14 Proxy Statement. The Company will (i) as promptly as practicable
following the date of this Agreement, prepare and file with the SEC, and use its
best efforts to have cleared by the SEC and thereafter mail to its shareholders
as promptly as practicable, a proxy statement and a form of proxy, in connection
with the vote of the Company's shareholders with respect to the issuance of the
shares issuable upon conversion of the Convertible Notes and upon exercise of
the Warrants, (ii) use its best efforts to obtain the necessary "20% Approval"
(as defined in the Convertible Note) by its shareholders and (iii) otherwise
comply with all legal requirements applicable to the Meeting.
6. Subscriber Covenant/Miscellaneous
6.1 Representations and Warranties Shall Survive the Closing;
Severability. Subscriber's representations and warranties shall survive the
Closing of the transactions contemplated by this Agreement notwithstanding any
due diligence investigation made by or on behalf of the party seeking to rely
thereon. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
6.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Subscriber may assign Subscriber's rights hereunder, in
connection with any private sale of the Convertible Notes of such Subscriber, so
long as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement.
6.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York without respect to conflict of laws
principles. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereby irrevocably waives any right it may have, and agrees not to
request, a jury trial for the adjudication of any dispute hereunder or in
connection herewith or arising out of this agreement or any transaction
contemplated hereby.
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6.4 Execution in Counterparts Permitted. This Agreement may be executed
in any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
6.5 Titles and Subtitles; Gender. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
6.6 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile, addressed to the parties at the addresses and/or
facsimile telephone number of the parties set forth in Section 10 of this
Agreement, or such other address as a party may request by notifying the other
in writing.
6.7 Expenses. Except as set forth in Section 8 hereof and Section 9 of
the Registration Rights Agreement, each of the Company and Subscriber shall pay
all costs and expenses that it respectively incurs, with respect to the
negotiation, execution, delivery and performance of this Agreement.
6.8 Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Convertible Notes, the Warrants, the
Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Instructions to Transfer Agent and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
6.9 Arbitration. Any controversy or claim arising out of or related to
this Agreement or the breach thereof, shall be settled by binding arbitration in
New York, New York in accordance with the Expedited Procedures (Rules 53-57) of
the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). A proceeding shall be commenced upon written demand by Company or any
Subscriber to the other. The arbitrator(s) shall enter a judgment by default
against any party which fails or refuses to appear in any properly noticed
arbitration proceeding. The proceeding shall be conducted by one (1) arbitrator,
unless the amount alleged to be in dispute exceeds two hundred fifty thousand
dollars ($250,000), in which case three (3) arbitrators shall preside. The
arbitrator(s) will be chosen by the parties from a list provided by the AAA, and
if they are unable to agree within ten (10) days, the AAA shall select the
arbitrator(s). The arbitrators must be experts in securities law and financial
transactions. The arbitrators shall assess costs and expenses of the
arbitration, including all attorneys' and experts' fees, as the arbitrators
believe is appropriate in light of the merits of the parties' respective
positions in the issues in dispute. Each party submits irrevocably to the
jurisdiction of any state court sitting in New York, New York or to the United
States District Court sitting in New York, New York for purposes of enforcement
of any discovery order, judgment or award in connection with such arbitration.
The award of the arbitrator(s) shall be final and binding upon the parties and
may be enforced in any court having jurisdiction. The arbitration shall be held
in such place as set by the arbitrator(s) in accordance with Rule 55.
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7. Subscription and Wiring Instructions; Irrevocability.
7.1 Subscription
(a) Wire transfer of Subscription Funds. Subscriber shall send this
signed Agreement by facsimile to the Placement Agent at (770)
640-7150, and send the subscription funds by wire transfer, to
the Escrow Agent as follows:
First Union National Bank
ABA No. 053000219
Account No. 465946
Re: EA Industries, Inc.
A/C: #3072238787
Contact: Sabrina Fuller
Telephone No.: (404) 225-4250
SWIFT Code: FUNBUS33
(b) Irrevocable Subscription. Subscriber hereby acknowledges and
agrees, subject to the provisions of any applicable laws
providing for the refund of subscription amounts submitted by
Subscriber, that this Agreement is irrevocable and that
Subscriber is not entitled to cancel, terminate or revoke this
Agreement or any other agreements executed by such Subscriber and
delivered pursuant hereto, and that this Agreement and such other
agreements shall survive the death or disability of such
Subscriber and shall be binding upon and inure to the benefit of
the parties and their heirs, executors, administrators,
successors, legal representatives and assigns. If the Securities
subscribed for are to be owned by more than one person, the
obligations of all such owners under this Agreement shall be
joint and several, and the agreements, representations,
warranties and acknowledgments herein contained shall be deemed
to be made by and be binding upon each such person and his heirs,
executors, administrators, successors, legal representatives and
assigns. Notwithstanding the foregoing, (i) if the conditions to
Closing are not satisfied or (ii) if the Disclosure Documents are
discovered prior to Closing to contain statements which are
materially inaccurate, or omit statements of material fact,
Subscriber may revoke or cancel this Agreement.
(c) Company's Right to Reject Subscription. Subscriber understands
that this Agreement is not binding on the Company until the
Company accepts it. This Agreement shall be accepted by the
Company when the Company countersigns this Agreement. Subscriber
hereby confirms that the Company has full right in its sole
discretion to accept or reject the subscription of Subscriber, in
whole or in part, provided that, if the Company decides to reject
such subscription, the Company must do so promptly and in
writing. In the case of rejection, the Company will promptly
return any rejected payments and (if rejected in whole) copies of
all executed subscription documents (including without limitation
this Agreement) to Subscriber. In the event of rejection, no
interest will be payable by the Company to Subscriber on any
return of payment, provided however, that any such interest
accrued on such funds in the Escrow Account shall be returned to
the Subscriber by the Escrow Agent.
7.2 Acceptance of Subscription. In the case of acceptance of
Subscriber's subscription, ownership of the number of securities being purchased
hereby will pass to Subscriber upon the Closing.
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7.3 Subscriber to Forward Original Signed Subscription
Agreement to Company. Subscriber agrees to courier to Company his, her or its
original inked signed Subscription Agreement within two (2) days after faxing
said signed agreement to Placement Agent.
8. Indemnification.
In consideration of each Subscriber's execution and delivery of this
Agreement, Registration Rights Agreement, Irrevocable Instructions to Transfer
Agent (the "Transaction Documents") and acquiring the Securities thereunder and
in addition to all of the Company's other obligations under the Transaction
Documents and the Convertible Notes, the Company agrees to indemnify and hold
harmless Subscriber and the Placement Agent and each of their respective
officers, directors, employees and agents, and each person who controls
Subscriber or the Placement Agent within the meaning of the Act or the Exchange
Act (each, a "Subscriber Indemnified Party") from and against any and all
actions, causes of action, suits, cost, penalties, fees, losses, claims, damages
or liabilities and expenses in connection therewith, joint or
several,(irrespective of whether any such indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorney's fees and disbursements and costs incurred in connection with the
collection of the Convertible Notes (the "Indemnified Liabilities"), incurred by
any Subscriber Indemnified Party as a result of, or arising out of, or relating
to (a) any misrepresentation or breach of any representation or warranty made by
the Company in the Transaction Documents or any other certificate, instrument or
documents contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents,
the Disclosure Documents or the Convertible Notes or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit or claim, derivative or otherwise, by any shareholder of the
Company based on a breach or alleged breach by the Company or any of its
officers or directors of their fiduciary or other obligations to the
shareholders of the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which it would be required to make if such foregoing undertaking was
enforceable which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 8, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 8 to the
extent the Indemnified party is prejudiced, but the omission to so deliver
written notice to the Indemnitor will not relieve it of any liability that it
may have to any Indemnified Party other than under this Section 8 to the extent
it is prejudicial.
9. Certain Additional Legends and Information.
FOR FLORIDA RESIDENTS:
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE
HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA SECURITIES
ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF
FLORIDA. IN
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ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE
PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE
BY SUCH SUBSCRIBER TO THE ISSUER, AN AGENT OF THE ISSUER, OR AN ESCROW AGENT OR
WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO
SUCH SUBSCRIBER, WHICHEVER OCCURS LATER.
FOR MAINE RESIDENTS:
THESE SECURITIES ARE BEING SOLD PURSUANT TO AN EXEMPTION FROM
REGISTRATION WITH THE BANK SUPERINTENDENT OF THE STATE OF MAINE UNDER SECTION
10502(2)(R) OF TITLE 32 OF THE MAINE REVISED STATUTES. THESE SECURITIES MAY BE
DEEMED RESTRICTED SECURITIES AND AS SUCH THE HOLDER MAY NOT BE ABLE TO RESELL
THE SECURITIES UNLESS PURSUANT TO REGISTRATION UNDER STATE OR FEDERAL SECURITIES
LAWS OR UNLESS AN EXEMPTION UNDER SUCH LAWS EXISTS.
FOR PENNSYLVANIA RESIDENTS:
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE SECURITIES BEING
OFFERED HEREBY AGREES NOT TO SELL THESE SECURITIES FOR A PERIOD OF TWELVE MONTHS
AFTER THE DATE OF PURCHASE UNLESS SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE.
UNDER PROVISION OF THE PENNSYLVANIA SECURITIES ACT OF 1972 (THE "1972 ACT"),
EACH PENNSYLVANIA RESIDENT SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE
WITHOUT INCURRING ANY LIABILITY, TO THE SELLER, UNDERWRITER (IF ANY) OR ANY
PERSON, WITHIN TWO (2) BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF
HIS WRITTEN BINDING CONTRACT OF PURCHASE OR IN THE CASE OF A TRANSACTION IN
WHICH THERE IS NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS
AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED. TO
ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LETTER OR TELEGRAM TO
THE SELLING AGENT AT THE ADDRESS SET FORTH IN THE TEXT OF THE MEMORANDUM,
INDICATING HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE
SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED SECOND BUSINESS DAY.
IT IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED.
IF THE REQUEST IS MADE ORALLY (IN PERSON OR BY TELEPHONE, TO THE SELLING AGENT
AT THE NUMBER LISTED IN THE TEXT OF THE MEMORANDUM) A WRITTEN CONFIRMATION THAT
THE REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
FOR NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
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10. Principal Amount Purchased and Purchase Price. Subscriber subscribes
for $ in principal amount of Convertible Notes and the accompanying Warrants
against payment by wire transfer in the amount of $_________ ("Purchase Price").
11. Accredited Investor. Subscriber is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust or partnership, with total assets in
excess of $5,000,000, not formed for the specific
purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person who
has such knowledge and experience in financial and
business matters that he is capable of evaluating the
merits and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner
of the issuer of the securities being offered or sold
or a director, executive officer or general partner
of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth
with that person's spouse, at the time of his
purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other [specify] ____________________________________
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and
certify under penalty of perjury that the foregoing statements are true and
correct and that Subscriber by the following signature(s) executed this
Agreement.
Dated this __th day of July, 1998.
- --------------------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
- -------------------------------------------- DELIVERY INSTRUCTIONS:
Name: Please Print Please type or print address where
your security is to be delivered
ATTN.:
- -------------------------------------------- ----------------------------
Title/Representative Capacity (if applicable)
- -------------------------------------------- ----------------------------------
Name of Company You Represent (if applicable) Street Address
- -------------------------------------------- ----------------------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
----------------------------------
Phone Number (For Federal Express)
and Fax Number (re: Notice)
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $______________
ON THE 16th DAY OF July, 1998.
EA Industries, Inc.
By:
------------------------------
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NOTICE OF CONVERSION [AND RESALE]
(To be Executed by the Registered Holder
in order to Convert the Convertible Notes)
The undersigned hereby elects to convert _____________ principal amount of
Convertible Notes (the "Convertible Notes") into shares of common stock ("Common
Stock") of _______________, Inc. (the "Company") according to the conditions of
the Convertible Notes, as of the date written below [in connection with the
resale of the underlying Common Stock unless otherwise indicated below]. If
shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates. No fee will be charged to the Holder for
any conversion, except for transfer taxes, if any. A copy of each of the
Convertible Notes being converted is attached hereto. The undersigned agrees to
deliver a Prospectus in connection with any sale made pursuant to the
Registration Statement, as provided in Section 5.9 of the Securities Purchase
Agreement.
____ Check here if this conversion is not being made in connection with
the resale of the Common Stock.
Date of Conversion:________________________
Applicable Conversion Price:_______________
Number of Shares of
Common Stock to be Issued:_________________
Signature:_________________________________
Name:______________________________________
Address: __________________________________
21
EXHIBIT 99.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
July ___, 1998, by and among EA Industries, Inc., a corporation duly
incorporated and existing under the laws of the State of New Jersey ("Company"),
Swartz Investments, LLC ("Swartz"), a Georgia limited liability company, and the
subscribers (hereinafter referred to as "Subscribers") to the Company's Offering
("Offering") of up to Four Million Five Hundred Thousand Dollars ($4,500,000)
original principal amount of 6% Convertible Notes (the "Convertible Notes")
pursuant to the Regulation D Subscription Agreement between the Company and each
of the Subscribers ("Subscription Agreement").
1. Definitions. For purposes of this Agreement:
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act"), and
pursuant to Rule 415 under the Act or any successor rule, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The number of shares of "Registrable Securities then outstanding"
shall be determined by adding the number of shares of Common Stock which have
been issued and have not been resold in a public transaction or are issuable
upon conversion of the Convertible Notes and exercise of the then outstanding
Warrants at the time of such determination;
(c) For purposes hereof, the term "Registrable Securities" means the
shares of the Company's Common Stock together with any capital stock issued in
replacement of, in exchange for or otherwise in respect of such Common Stock
(the "Common Stock"), issuable or issued upon (i) conversion of or otherwise
pursuant to the terms of the Convertible Notes and (ii) exercise of the warrants
to purchase Common Stock to be issued to the Subscribers in connection with the
Offering (the "Subscriber Warrants"), and (iii) exercise of the Warrant to
purchase Common Stock issued to Swartz or to persons designated by Swartz in
connection with the Offering (the "Placement Agent Warrants," together with the
Subscriber Warrants, collectively referred to as the "Warrants"), by Swartz, its
designees or any subsequent Holder of the Warrant or portion thereof.
Notwithstanding the above:
1. Common Stock which would otherwise be deemed to be Registrable
Securities shall not constitute Registrable Securities if and to the
extent that those shares of Common Stock may be resold in a public
transaction, pursuant to Rule 144(k) under the Act; and
2. any Registrable Securities resold in a public transaction shall
cease to constitute Registrable Securities.
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(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof;
(e) The term "Initiating Holders" means (i) one or more holders of
Registrable Securities obtained or obtainable upon conversion of at least
$500,000 in principal amount of Convertible Notes; and
(f) The term "Filing Date" means the date which is thirty (30) days
after the Closing Date (as defined in the Convertible Notes) and the term "Due
Date" means the date which is one hundred five (105) days after such Closing
Date.
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2. Required Registration.
(a) The Company shall, by the Filing Date, file a registration
statement ("Registration Statement") on Form S-3 (or, if Form S-3 is not
available, another suitable form, at the Company's discretion, but subject to
the reasonable approval of Holders), covering the resale of all Registrable
Securities. Such Registration Statement shall initially cover the number of
shares issuable upon exercise of the Warrants plus at least Two Million Four
Hundred Thousand (2,400,000) shares of Common Stock attributable to conversions
of the Convertible Notes and shall cover, to the extent allowed by applicable
law, such additional indeterminate number of shares of Common Stock as are
required to effect conversion of the Convertible Notes due to fluctuations in
the price of the Company's Common Stock. The Company shall use its best efforts
to have the Registration Statement declared effective as soon as possible but in
any event by the Due Date and to the extent allowable under the Securities Act
and the Rules thereunder (including Rule 416), shall state that such
Registration Statement also covers such indeterminate number of shares of Common
Stock as may become issuable upon conversion of the Convertible Notes and
exercise of the Warrants (i) to prevent dilution resulting from stock splits,
dividends, or similar transactions or (ii) as a result of decreases in the
Conversion Price of the Convertible Notes. In the event that the Company (i)
delivers a Rule 416 Notice (as defined in subsection (d) below) to the Holders
or the Holders who hold a majority in interest of the Registrable Securities
shall reasonably determine, or the SEC shall state formally or informally, that
Rule 416 under the Act does not permit a registration statement to cover
securities which may become issuable upon conversion or exercise of convertible
or exercisable securities by reason of reductions in the conversion or exercise
price of such securities and (ii) determines, which determination shall be made
by the Company within five (5) business days after the last business day of each
month after the Due Date or is notified at any time by a Holder, that the
Registration Statement does not cover a sufficient number of shares of Common
Stock to effect the resales of a number of shares of Common Stock equal to one
hundred twenty five percent (125%) of the number of shares of Common Stock
issuable to each Subscriber upon conversion of all outstanding Convertible Notes
then eligible for conversion, at the Conversion Price (as defined in the
Convertible Notes) in effect on the last business day of such month (the
"Assumed Conversion Price"), and upon exercise of all the outstanding Warrants
(a "Registration Shortfall"), the Company shall, within ten (10) business days,
amend the Registration Statement or file a new Registration Statement (an
"Amended" or "New" Registration Statement, respectively), as appropriate, to add
such number of additional shares as would be necessary to effect the resales of
a number of shares of Common Stock equal to at least two hundred percent (200%)
of the number of shares of Common Stock issuable to each Subscriber upon
conversion of all outstanding Convertible Notes then eligible for conversion, at
the Assumed Conversion Price then in effect and upon exercise of all the
outstanding Warrants. If the Registration Statement is not filed by the Filing
Date, Company shall pay Subscriber an amount equal to two percent (2%) per month
of the aggregate Stated Value of outstanding Convertible Notes held by such
Subscriber, accruing daily until the Registration Statement is filed, payable in
cash or Common Stock, at the Subscriber's option, as set forth below ("Late
Filing Payment"). If (i) the Registration Statement is not declared effective by
the Due Date, (ii) any Amended or New Registration Statement required to be
filed hereunder is not declared effective within two (2) calendar months of the
date it is required to be filed or (iii) at any time after the Due Date, the
Registration Statement ceases to be effective or is not useable for resale of
the Registrable
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Securities, the Company shall pay each Subscriber an amount equal to two percent
(2%) per month of the aggregate Stated Value of outstanding Convertible Notes
held by such Subscriber, accruing daily until the Registration Statement or a
registration statement filed pursuant to Section 3 of this Agreement is declared
effective (the "Late Registration Payment") and is useable for resale of the
Registrable Securities. Any Late Filing Payment or Late Registration Payment
shall be payable in cash or Common Stock, at the Subscriber's option, as
follows: If Subscriber elects to be paid in cash, such Late Filing Payment or
Late Registration Payment shall be paid to such Subscriber within five (5)
business days following the end of the month in which such Late Filing Payments
or Late Registration Payment was accrued. If Subscriber elects to be paid in
Common Stock, such number of shares shall be determined as follows:
Upon conversion of any Convertible Note(s) or portion thereof, the
Company shall issue to the Subscriber the number of shares of Common
Stock determined as set forth in Section 5(a) of the Convertible Notes,
plus an additional number of shares of Common Stock attributable to
such Convertible Note(s) (the "Additional Shares") determined as set
forth below:
Additional Shares = Late Registration Payment + Late Filing Payment
-----------------------------------------------
Conversion Price
"Conversion Price" has the definition ascribed to it in the Convertible Notes.
Such Additional Shares shall also be deemed "Registrable Securities" as defined
herein. The Company covenants to use its best efforts to use Form S-3 (or, if
Form S-3 is not available, another suitable form, at the Company's discretion,
but subject to the reasonable approval of the Subscribers) for the registration
required by this Section during all applicable times contemplated by this
Agreement.
(b) The Registration Statement shall be prepared as a "shelf"
registration statement under Rule 415, and shall be maintained effective until
all Registrable Securities cease to exist.
(c) The Company represents that it is presently eligible to effect the
registration contemplated hereby on Form S-3 and will use its best efforts to
continue to take such actions as are necessary to maintain such eligibility.
(d) The Company and the Holders each acknowledge that an indeterminate
number of Registrable Securities shall be registered pursuant to Rule 416 under
the Act so as to include in such Registration Statement any and all Registrable
Securities which may become issuable (i) to prevent dilution resulting from
stock splits, stock dividends or similar transactions and (ii) by reason of
reductions in the Conversion Price of the Convertible Notes in accordance with
the terms thereof, including, but not limited to, the terms which cause the
Variable Conversion Price to decrease to the extent that the bid price of the
Common Stock decreases (collectively, the "Rule 416 Securities"). In this
regard, the Company agrees to take all steps necessary to ensure that the
maximum number of Registrable Securities which may be registered pursuant to
Rule 416 under the Act are covered by the Registration Statement and, absent
guidance from the SEC or other definitive authority to the contrary, the Company
shall
4
<PAGE>
affirmatively support and not take any action adverse to the position that
the Registration Statements filed hereunder cover all of the Rule 416
Securities. If the Company determines that the Registration Statements filed
hereunder do not cover all of the Rule 416 Securities, the Company shall
immediately provide to each Investor written notice (a "Rule 416 Notice")
setting forth the basis for the Company's position and the authority therefor.
(e) The initial number of Registrable Conversion Shares included in any
Registration Statement and each increase in the number of Registrable Conversion
Shares included therein shall be allocated pro rata among the Holders of
Registrable Conversion Shares based on the number of Registrable Conversion
Shares held by each Holder at the time the Registration Statement covering such
initial number of Registrable Conversion Shares or increase thereof is declared
effective by the SEC. In the event that a Holder of Registrable Conversion
Shares sells or otherwise transfers any of such person's Registrable Conversion
Shares (other than pursuant to the Registration Statement), each transferee
shall be allocated a pro rata portion of the then remaining number or
Registrable Conversion Shares included in such Registration Statement for such
transferor. Any shares of Common Stock included in a Registration Statement and
which remain allocated to any person which ceases to hold any Registrable
Securities shall be allocated to the remaining of Holders of Convertible Notes,
pro rata based on the number of Registrable Conversion Shares then held by such
Holder.
3. Piggyback Registration. If the Registration Statement described in
Section 2 is not effective, and if (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its Common Stock
under the Act in connection with the public offering of such securities solely
for cash (other than a registration relating solely for the sale of securities
to participants in a Company stock plan or a registration on Form S-4
promulgated under the Act or any successor or similar form registering stock
issuable upon a reclassification, upon a business combination involving an
exchange of securities or upon an exchange offer for securities of the issuer or
another entity), the Company shall, at such time, promptly give each Holder
written notice of such registration (a "Piggyback Registration Statement"). Upon
the written request of each Holder given by fax within ten (10) days after
mailing of such notice by the Company, the Company shall cause to be included in
such registration statement under the Act all of the Registrable Securities that
each such Holder has requested to be registered ("Piggyback Registration") to
the extent such inclusion does not violate the registration rights of any other
security holder of the company granted prior to the date hereof; nothing herein
shall prevent the Company from withdrawing or abandoning the registration
statement prior to its effectiveness. The election of initiating Holders to
participate in a Piggyback Registration Statement shall not impact the amount
payable to investors pursuant to Section 2(a) herein except that the Late
Registration Payment shall cease to accrue as of the date of effectiveness of
the Piggyback Registration Statement.
4. Limitation on Obligations to Register.
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises in
writing that the inclusion in the registration statement of all Registrable
Securities proposed to be included would interfere with the successful marketing
of the securities proposed to be registered by the
5
<PAGE>
Company, then the number of such Registrable Securities to be included in the
registration statement, if any, to the extent such Registrable Securities may be
included in such Piggyback Registration Statement shall be allocated among all
Holders who had requested Piggyback Registration pursuant to the terms hereof,
in the proportion that the number of Registrable Securities which each such
Holder, including Swartz, seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders, including Swartz.
If required by the managing underwriter of such an underwritten public offering,
the Holders shall enter into a reasonable agreement limiting the number of
Registrable Securities to be included in such Piggyback Registration Statement.
(b) In the event the Company believes that shares sought to be
registered under Section 2 or Section 3 by Holders do not constitute
"Registrable Securities" by virtue of Section 1(b) of this Agreement, and the
status of those shares as Registrable Securities is disputed, the Company shall
provide, at its expense, an Opinion of Counsel, reasonably acceptable to the
Holders of the Securities at issue (and satisfactory to the Company's transfer
agent to permit the sale and transfer) that those securities may be sold
immediately, without volume limitation or other material restrictions, without
registration under the Act, by virtue of Rule 144(k) or similar provisions.
5. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
cause such registration statement to become effective and to remain effective in
accordance with the terms hereof until there are no Registrable Securities.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders of the
Registrable Securities covered by such registration statement, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing
6
<PAGE>
underwriter of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such an agreement.
(f) As promptly as practicable after becoming aware of such event,
notify each Holder of Registrable Securities of the happening of any event of
which the Company has knowledge, as a result of which the prospectus included in
the registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and subject to Section 6 promptly prepare
and file a supplement or amendment to the registration statement to correct such
untrue statement or omission, and deliver a number of copies of such supplement
or amendment to each Holder as such Holder may reasonably request.
(g) Provide Holders with written notice of the date that a registration
statement and any amendment thereto registering the resale of the Registrable
Securities is declared effective by the SEC on such date, and the date or dates
when the Registration Statement is no longer effective.
(h) Provide Holders and their representatives the opportunity to
conduct a reasonable due diligence inquiry of Company's pertinent financial and
other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement.
(i) Provide Holders and their representatives the opportunity to review
the registration statement and all amendments thereto a reasonable period of
time prior to their filing with the SEC if so requested by Holder in writing,
and the Company shall not file a Registration Statement to which the Holder
reasonably objects.
(j) Provide each Holder with prompt notice of the issuance by the SEC
or any state securities commission or agency of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceeding
for such purpose. The Company shall use its best efforts to prevent the issuance
of any stop order, and, if any is issued to obtain the removal thereof at the
earliest possible date.
(k) Use its best efforts to list the Registrable Securities covered by
the registration statement with all securities exchanges or markets on which the
Common Stock is then listed and prepare and file any required filing with the
New York Stock Exchange, the NASD or any such exchange or market.
(l) At the request of any Holder, the Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
6. Black Out. In the event that, during the time that the Registration
Statement is effective, the Company reasonably determines, based upon advice of
counsel, that due to the existence of material non-public
7
<PAGE>
information, disclosure of such material non-public information would be
required to make the statements contained in the Registration Statement not
misleading, and the Company has a bona fide business purpose for preserving as
confidential such material non-public information, the Company shall have the
right to suspend the use of the Registration Statement, and no Holder shall be
permitted to sell any Registrable Securities pursuant thereto, until such time
as such suspension is no longer required hereunder; provided, however, that such
time shall not exceed a period of thirty (30) days. If the Company exceeds such
thirty (30) day limit, the Late Registration Payments shall accrue and the
Holder shall have such other remedies that may be available at law or in equity.
As soon as such suspension is no longer required hereunder, the Company shall,
if required, promptly, but in no event later than the date the Company files any
documents with the Securities and Exchange Commission ("SEC") referencing such
material information, file with the SEC an amendment to the Registration
Statement disclosing such information and use its best efforts to have such
amendment declared effective as soon as possible.
In the event that the use of the Registration Statement is suspended by
the Company pursuant hereto, the Company shall promptly notify all Holders whose
securities are covered by the Registration Statement of such suspension, and
shall promptly notify each such Holder as soon as the use of the Registration
Statement may be resumed. Notwithstanding anything to the contrary, the Company
shall cause the Transfer Agent to deliver unlegended shares of Common Stock to a
transferee of a Holder in accordance with the terms of the Convertible Notes in
connection with any sale of Registrable Securities with respect to which such
Holder has entered into a contract for sale prior to receipt of notice of such
registration black out and for which such Holder has not yet settled. The
Company shall be entitled to effect no more than two such suspensions (i) each
not exceeding thirty (30) days and (ii) and in the aggregate not exceeding an
aggregate of forty-five (45) days during any twelve month period.
7. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
regard to each selling Holder that such selling Holder shall furnish to the
Company such information regarding Holder, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of its Registrable Securities or to
determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act.
8. Expenses. All expenses other than underwriting discounts and
commissions and fees and expenses of counsel to the selling Holders incurred in
connection with registrations, filings or qualifications pursuant hereto,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, shall be borne by the Company.
9. Indemnification. In the event any Registrable Securities are
included in a Registration Statement or a Piggyback Registration Statement under
this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers, directors and agents of each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which
8
<PAGE>
they may become subject under the Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements
or omissions: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, and the Company will reimburse each such Holder, officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder, severally and
not jointly, will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Act, any
underwriter and any other Holder selling securities in such registration
statement or any of its directors or officers or any person who controls such
Holder, against any losses, claims, damages, or liabilities (joint or several)
to which the Company or any such director, officer, controlling person, or
underwriter or controlling person, or other such Holder or director, officer or
controlling person may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any statement or
omission in each case to the extent (and only to the extent) that such statement
or omission is made in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration
statement; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company and any such director, officer, controlling
person, underwriter or controlling person, other Holder, officer, director, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld provided further, however, that each Holder shall
be liable under this Agreement (including this Section 9(b) and (d) of this
Agreement) for only that amount as does not exceed the net proceeds actually
received by such Holder as a result of the sale of Registrable Securities
pursuant to such Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section 9
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 9, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the
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indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
9 only to the extent it is prejudiced thereby, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 9.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 9 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and each Holder agree to contribute to the
aggregate claims, losses, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company and one or more of the Holder may
be subject in such proportion as is appropriate to reflect the relative fault of
the Company and the Holders in connection with the statements or omissions which
resulted in such Losses. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Company or by the Holders. The Company and the Holders agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 10(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9, each person who controls a
Holder of Registrable Securities within the meaning of either the Securities Act
or the Exchange Act and each director, officer, partner, employee and agent of a
Holder shall have the same rights to contribution as such holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act and each director of the Company, and each officer of the Company
who has signed the registration statement, shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d). Notwithstanding anything in this Agreement to
the contrary, each holder shall be liable under this Section 9(d) for only that
amount as does not exceed the net proceeds actually received by such Holder as a
result of the sale of Registrable Securities pursuant to such Registration
Statement.
(e) The obligations of the Company and Holders under this Section 9
shall survive the prepayment, repayment and conversion, if any, of the
Convertible Notes, the completion of any offering of Registrable Securities in a
Registration Statement under this Agreement, and otherwise.
(f) If the Registration Statement or any Piggyback Registration
involves an underwritten offering, the Company shall enter into such customary
agreements for secondary
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offerings (including a customary underwriting agreement with the underwriter or
underwriters) and take all such other reasonable actions reasonably requested by
the Holders in connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities and in such connection:
(i) make such representations and warranties to the Holders
and the underwriter or underwriters in form, substance and scope as are
customarily made by issuers to underwriters in secondary offerings;
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters opinions of independent counsel
to Company on and dated as of the date of delivery of any Registrable Securities
sold pursuant to the Registration Statement, which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the Holders and
the underwriter(s) and their counsel and covering, without limitation, such
matters as the due authorization and issuance of the securities being registered
and compliance with securities laws by Company in connection with the
authorization, issuance and registration thereof and other matters that are
customarily given to underwriters in underwritten offerings, addressed to the
Holders and each underwriter;
(iii) if required by the underwriters, cause to be delivered,
immediately prior to the effectiveness of the Registration Statement and at the
time of delivery of any Registrable Securities sold pursuant thereto, a
"comfort" letter from Company's independent certified public accountants
addressed to the Holders and each underwriter stating that such accountants are
independent public accountants within the meaning of the Securities Act and the
applicable published rules and regulations thereunder, and otherwise in
customary form and covering such financial and accounting matters as are
customarily covered by letters of the independent certified public accountants
delivered in connection with secondary offerings;
(iv) the underwriting agreement shall include customary
indemnification and contribution provisions to and from the underwriters and
procedures for secondary underwritten offerings; and
(v) deliver such documents and certificates as may be
reasonably requested by the Holders of the Registrable Securities being sold or
the managing underwriter or underwriters to evidence compliance with clause (i)
above and with any customary conditions contained in the underwriting agreement.
10. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the 1934
Act; and
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11. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of a majority of the Registrable
Securities provided that the amendment treats all Holders equally. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
Holder, each future Holder, and the Company.
12. Notices. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: EA Industries, Inc., 185 Monmouth Parkway,
West Long Branch, NJ 07764-9989 Attn: James Crofton Telephone: 732-229-1100
Facsimile: 732-229-6162 and (ii) the Holders at the addresses and/or facsimile
telephone number of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing. Any
notice, except as otherwise provided in this Agreement, shall be made by fax and
shall be deemed given when delivered personally, or by facsimile.
13. Termination. This Agreement shall terminate on the date all
Registrable Securities cease to exist; but without prejudice to (i) the parties'
rights and obligations arising from breaches of this Agreement occurring prior
to such termination (ii) other indemnification and contribution obligations
under this Agreement.
14. Assignment. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a Piggyback
Registration, a writing executed by such transferee agreeing to be bound as a
Holder by the terms of this Agreement), and the Company hereby agrees to file a
new registration statement or an amended registration statement including such
transferee or a selling security holder thereunder.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
16. Execution in Counterparts Permitted. This Agreement may be executed
in any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
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17. Specific Performance. The Holder shall be entitled to the remedy of
specific performance in the event of the Company's breach of this Agreement, the
parties agreeing that a remedy at law would be inadequate.
18. Entire Agreement. This Agreement, including the Exhibits attached
hereto, the Subscription Agreements, the Convertible Notes, the Warrants, the
Irrevocable Instructions to Transfer Agent, and the other documents delivered
pursuant hereto and thereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this ___th day of July, 1998.
EA INDUSTRIES, INC. SWARTZ INVESTMENTS, LLC
<TABLE>
<S> <C>
By: /s/ Howard P. Kamins By: /s/ Eric S. Swartz
------------------------ --------------------
Howard P. Kamins, Vice President Eric S. Swartz, President
Address: 185 Monmouth Parkway Address: 1080 Holcomb Bridge Road
West Long Branch, NJ 07764-9989 Bldg. 200, Suite 285
Telephone: (732) 229-1100 Roswell, GA 30076
Facsimile: (732) 229-6162 Telephone: (770) 640-8130
Facsimile: (770) 640-7150
</TABLE>
INVESTOR:
- ---------------------------------
By:________________________________
(Signature)
Address:
14
EXHIBIT 99.4
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (the "Pledge") is made this ________ day of
July, 1998, by EA INDUSTRIES, INC., a corporation duly organized under the laws
of the State of New Jersey (the "Pledgor"), for the benefit of each of the
undersigned pledgees executing this Agreement (individually referred to as the
"Pledgee" and collectively referred to as the "Pledgees"). Pledgor and Pledgees,
intending to be legally bound, agree as follows:
1. DEFINITIONS. For purposes of this Pledge,
1.1 "Affiliate" shall mean, each person or entity that directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under the common control with, the person or entity in question.
1.2 "Code" shall mean the Uniform Commercial Code as adopted by the
State of New York, as the same may be amended from time to time.
1.3 "Collateral" shall mean (i) the Stock, and (ii) all dividends,
cash, securities and property issued, paid, declared and/or distributed in
connection with the Stock, or any portion thereof, and (iii) all cash,
securities and other property paid, issued and/or distributed to or for the
benefit of Pledgor in exchange, redemption or substitution for the Stock, or any
portion thereof, and (iv) all other cash, securities and property paid, issued
and/or distributed to or for the benefit of Pledgor as a consequence of
Pledgor's ownership of the Stock, or any portion thereof, and (v) all proceeds
of the foregoing.
1.4 "Collateral Agent" shall mean Talisman Capital until such time as
the Talisman Capital Note is either paid in full, converted in full pursuant to
the terms thereof, or redeemed pursuant to the terms thereof, and thereafter
shall mean the remaining Pledgee with the then highest Percentage Interest.
1.5 "Convertible Notes" shall mean (i) the Talisman Capital Notes, (ii)
those certain Convertible Notes dated of even date in the aggregate original
principal amount of $700,000 from Pledgor, as maker, in favor of Stonehill
Partners, L.P., (iii) those certain Convertible Notes dated of even date in the
aggregate original principal amount of $700,000 from Pledgor, as maker, in favor
of Stonehill Institutional Partners, L.P., (iv) those certain Convertible Notes
dated of even date in the aggregate original principal amount of $600,000 from
Pledgor, as maker, in favor of Stonehill Offshore Partners Limited, and (v)
those certain Convertible Note dated of even date in the aggregate original
principal amount of $500,000 from Pledgor, as maker, in favor of LaRocque
Trading Group, LLC.
1.6 "Event of Default" shall mean any and all events described in
Section 9 below.
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1.7 "Indebtedness" shall mean the aggregate of all obligations and
indebtedness of Pledgor to all Pledgees, whether now or hereafter owing, under
the Convertible Notes and all obligations of Pledgor to reimburse Pledgees for
payments made by them, or any of them, at any time or from time to time, for the
preservation and/or protection of the Collateral.
1.8 "Majority of Pledgees" shall mean, at any time, Pledgees holding
Percentage Interests aggregating at least sixty-six and two thirds percent
(66 2/3%) of the Indebtedness at any time.
1.9 "Percentage Interest" shall mean at any time a ratio the numerator
of which is the then outstanding principal balance under all Convertible Notes
owed to a Pledgee, and the denominator of which is the then aggregate
outstanding principal balances under the Convertible Notes.
1.10 "proceeds" and "security" shall have the meanings given such terms
in the Code.
1.11 "SAI" shall mean Service Assembly, Inc., a corporation duly
organized under the laws of Massachusetts and a wholly-owned subsidiary of
Pledgor.
1.12 "Stock" shall mean stock certificate number 26, dated March 18,
1998, evidencing 1,000 shares of common stock issued by SAI to Pledgor,
representing all of the issued and outstanding capital stock of SAI.
1.13 "Talisman Capital Notes" shall mean those certain Convertible
Notes dated of even date herewith in the aggregate original principal amount of
$2,000,000 from Pledgor, as maker, in favor of Talisman Capital Opportunity Fund
Ltd., the undersigned Pledgee
2. SECURITY INTEREST. Pledgor hereby pledges and grants to Collateral
Agent on behalf of each Pledgee a security interest in and a lien on the
Collateral. Pledgor acknowledges and Pledgees agree that Collateral Agent shall
have a first lien security interest in the Collateral for the benefit of each
Pledgee, and the proceeds thereof shall be shared by each Pledgee on a pari
passu, pro rata basis (based on each Pledgee's Percentage Interest).
3. OBLIGATIONS SECURED. The Collateral and the continuing security
interest granted therein shall secure all of the Indebtedness. IT IS THE EXPRESS
INTENTION OF PLEDGOR THAT THE COLLATERAL SHALL SECURE ALL PLEDGOR'S EXISTING AND
FUTURE OBLIGATIONS UNDER THE CONVERTIBLE NOTES.
4. DELIVERY. All original certificates representing or evidencing the
Collateral, or any portion thereof, and the stock ledger of SAI, shall be
delivered to and held by Collateral Agent pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignments in blank, all in form and substance
satisfactory to Pledgees. Collateral Agent shall deliver the aforementioned
certificates, the stock ledger, and any instruments or assignments held by it in
connection with the Collateral
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to any successor Collateral Agent within thirty (30) days after such Collateral
Agent ceases to be the Collateral Agent hereunder.
5. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby represents
and warrants as follows, which representations and warranties shall be true and
correct as of the date hereof, and until the Indebtedness has been paid in full:
5.1 Organization, Good Standing and Qualification. Pledgor is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of New Jersey USA, and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. Pledgor is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of Pledgor and its
subsidiaries taken as a whole. Pledgor is not the subject of any pending or, to
its knowledge, threatened or contemplated investigation or administrative or
legal proceeding by the Internal Revenue Service, the taxing authorities of any
state or local jurisdiction, or the Securities and Exchange Commission ("SEC"),
or any state securities commission, or any other governmental entity, which have
not been disclosed in the Disclosure Documents, as that term is defined in the
Pledgor's Regulation D Subscription Agreement of even date.
5.2 Title to Collateral. The Collateral is and until the Indebtedness
is paid in full, will be owned by Pledgor free and clear of all liens and other
encumbrances of any kind (including liens or other encumbrances upon properties
acquired or to be acquired under conditional sales agreements or other title
retention devices), excepting only the liens in favor of Pledgees granted
hereunder. Pledgor will defend the Collateral against any claims of all persons
or entities other than a Pledgee.
5.3 Due Authorization and Issuance. The Stock has been duly authorized
and issued to or for the benefit of Pledgor by SAI and is outstanding, fully
paid, and non-assessable.
5.4 Authorization. All corporate action on the part of Pledgor by its
officers, directors, and shareholders necessary for the authorization,
execution, and delivery of this Agreement and the performance of all obligations
of Pledgor hereunder has been taken, and this Agreement constitutes a valid and
legally binding obligation of Pledgor, enforceable in accordance with its terms,
except insofar as the enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally or by principles governing the availability of equitable remedies.
Pledgor has obtained all consents and approvals required for it to execute,
deliver, and perform each agreement referenced in the previous sentence.
5.5 Governmental Consents. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority by Pledgor is
required in connection with the execution, delivery or performance by Pledgor of
this Agreement or the consummation of the transactions contemplated hereby.
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<PAGE>
5.6 Pending Litigation or Proceedings. There is no material claim,
litigation, or administrative proceeding pending or, to the best of Pledgor's
knowledge, threatened against the Pledgor or the Collateral, or any portion
thereof, except as disclosed in the Disclosure Documents.
5.7 Taxes. Pledgor has filed all tax returns which Pledgor is required
to file and has paid, or made provision for the payment of, all taxes which have
or may have become due pursuant to such returns or pursuant to any assessment
received by Pledgor except such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided. Such tax returns are
complete and accurate in all respects. Pledgor does not know of any proposed
additional assessment or basis for any assessment of additional taxes.
5.8 Accuracy of Representations and Warranties. No representation or
warranty by Pledgor contained herein or in any certificate or other document
furnished by Pledgor pursuant hereto or in connection herewith fails to contain
any statement of material fact necessary to make such representation or warranty
not misleading in light of the circumstances under which it was made. There is
no fact which Pledgor knows or should know and has not disclosed to Pledgees,
which does or may materially and adversely affect Pledgor, or the Collateral, or
any portion thereof.
6. REPRESENTATIONS AND WARRANTIES OF PLEDGEES. Each Pledgee, as
applicable, hereby represents and warrants to every other Pledgee as follows:
6.1 Valid Organization, Good Standing and Qualification. Talisman
Capital represents and warrants that it is a corporation duly incorporated,
validly existing, and in good standing under the laws of the State of New York.
Pledgee, ________________________ represents and warrants that it is a
________________ duly ________________, validly existing, and in good standing
under the laws of the ______________ of _______________.
6.2 Authorization. All corporate action on the part of each Pledgee by
its officers, directors, and shareholders necessary for the authorization,
execution, and delivery of this Agreement has been taken, and this Agreement
constitutes a valid and legally binding obligation of Pledgees, enforceable in
accordance with their terms, except insofar as the enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, or other similar laws
affecting creditors' rights generally or by principles governing the
availability of equitable remedies. Pledgees have obtained all consents and
approvals required for them to execute, deliver, and perform each agreement
referenced in the previous sentence.
7. COVENANTS. Pledgor covenants and agrees with each Pledgee that until
the portion of the Indebtedness payable to such Pledgee has been paid in full,
Pledgor shall:
7.1 Sale of Collateral. Not sell, lease, transfer, assign or otherwise
dispose of the Collateral, or any portion thereof, without the prior written
consent of Pledgees.
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7.2 Creation of Liens. Not create, incur or permit to exist any
mortgage, pledge, encumbrance, lien, security interest or charge of any kind on
the Collateral, or any portion thereof, except as contemplated hereby.
7.3 Limitation on Indebtedness. Cause SAI not to incur at any time any
indebtedness, except:
(a) current accounts payable incurred in the ordinary course of SAI's
business, accrued expenses and other current items arising out of transactions
(other than borrowings) in the ordinary course of SAI's business including
indebtedness for the purchase price or lease of equipment or other assets used
in SAI's business;
(b) indebtedness for borrowed money pursuant to any revolving credit
facility (the "Revolver") which is hereafter established as the primary credit
facility of SAI; provided that such facility contains terms no more restrictive
on SAI than the current Revolving Credit Facility and security agreement between
IBJ Bank & Trust Company and Tanon Manufacturing Inc. imposes on Tanon.
(c) any other existing indebtedness for borrowed money and capitalized
leases described on Schedule 7.3.
7.4 Disposition or Encumbrance of Assets. Cause SAI not to sell, lease,
transfer or otherwise dispose of all, substantially all, or any material portion
of its assets, except for sales in the ordinary course for fair consideration
and to not create, incur or permit to exist any mortgage, pledge, encumbrance,
lien, security interest or charge of any kind on its assets, whether now owned
or hereafter acquired, or upon any income, profits or proceeds therefrom,
except:
(a) the pledge and security interest created under this Agreement;
(b) liens incurred or deposits made in the ordinary course of business
(i) in connection with worker's compensation, unemployment insurance, social
security and other laws or (ii) to secure the performance of statutory
obligations, not incurred in connection with either (A) the borrowing of money
or (B) the deferred purchase price of goods or inventory;
(c) purchase money liens or leases, provided that:
(i) the property subject to any of the foregoing is acquired
or leased by SAI in the ordinary course of its business and the lien on any such
property is created contemporaneously with such acquisition;
(ii) purchase money indebtedness or lease obligations so
created shall not exceed eighty percent (80%) of the lesser of cost or fair
market value as of the time of acquisition or lease of the property covered
thereby; and
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(iii) the purchase money indebtedness or lease obligation
shall only be secured by the property so acquired or leased.
(d) other liens and security interests listed on Schedule 7.4 attached
hereto.
7.5 Distributions. Cause SAI not to pay dividends on account of its
ownership interest.
7.6 Transactions with Affiliates. Except as noted in Section 7.3, cause
SAI not to
a. enter into or conduct any transaction with any Affiliate except on
terms that would be usual and customary in a similar transaction between persons
or entities not affiliated with each other;
b. make any loans or extensions of credit to any of its Affiliates in
excess of $200,000 plus 50% of SAI's cumulative net income earned after July 1,
1998, subject to Section 7.6(c) below;
c. if and so long as the Revolver is in effect, transfer, dividend or
distribute any assets to any of its Affiliates, on account of its ownership
interest or otherwise, or use any assets to pay any indebtedness to any of its
Affiliates, except for normal intercompany transfers for cash management and/or
other treasury purposes.
7.7 Other Actions. Without obtaining Pledgees' prior written consent,
not take any action which would or could result in (i) the dissolution,
consolidation, or merger of SAI with or into another entity, or (ii) a material
change or amendment to the Articles of Incorporation of By-Laws of SAI, or (iii)
SAI engaging in any other business venture or undertaking other than those in
which SAI is currently engaged, or (iv) SAI applying for or consenting to the
appointment of a receiver, trustee, or liquidator for itself or any of its
property, or (v) SAI admitting in writing its inability to pay its debts as they
mature, or (vi) the general assignment by SAI for the benefit of creditors, or
(vii) the adjudication of SAI as bankrupt or insolvent, or (viii) the filing by
SAI of a voluntary petition in bankruptcy or a petition or answer seeking
reorganization or an arrangement with creditors.
7.8 Taxes; Claims for Labor and Materials. Pledgor will pay or cause to
be paid when due all taxes, assessments, governmental charges or levies imposed
upon Pledgor or SAI or upon their respective income, profits, payroll, or any
property belonging to Pledgor or SAI, including, without limitation, all
withholding taxes, and all claims for labor, materials and supplies which, if
unpaid, would become a lien or charge upon any of their properties or assets;
provided that Pledgor shall not be required to pay or cause to be paid by SAI
any such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings promptly initiated
and diligently conducted by Pledgor or SAI, and neither execution nor
foreclosure sale or similar proceedings shall have been commenced in respect
thereof (or such proceedings shall have been stayed pending the disposition of
such
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contest of validity), and Pledgor or SAI shall have set aside on their
respective books adequate reserves with respect thereto.
7.9 Additional Documents and Future Actions. Pledgor will, at its sole
cost, take such actions and provide Collateral Agent from time to time with such
agreements, financing statements, and additional instruments, documents, or
information as Collateral Agent may in its discretion deem necessary or
advisable to perfect, protect, and maintain the security interests in the
Collateral, or any portion thereof, or to permit Collateral Agent to protect its
interest in the Collateral. Pledgor hereby authorizes and appoints Collateral
Agent as Pledgor's attorney-in-fact, with full power of substitution, to take
such actions as Collateral Agent may deem advisable to protect the Collateral
and its interests therein and Collateral Agent's rights hereunder, to execute on
Pledgor's behalf and file at Pledgor's expense financing statements, and
amendments thereto, in those public offices deemed necessary or appropriate by
Collateral Agent to establish, maintain and protect a continuously perfected
security interest in the Collateral, including, without limitation, to receive,
endorse and collect all certificates, instruments and securities made payable to
or issued to Pledgor representing any dividend, interest, or other distribution
in respect of the Collateral, or any portion thereof, and to execute on
Pledgor's behalf such other documents and notices as Collateral Agent may deem
advisable to protect the Collateral and Collateral Agent's interests therein and
Collateral Agent's rights hereunder. Such power being coupled with an interest
is irrevocable unilaterally by Pledgor. Pledgor irrevocably authorizes the
filing of a carbon, photographic or other copy of this Agreement, or of a
financing statement, as a financing statement and agrees that such filing is
sufficient as a financing statement.
7.10 Requested Information. With reasonable promptness, deliver to
Pledgees all such other data and information in respect of the financial
condition and affairs of Pledgor and the value of the Collateral, as any Pledgee
may reasonably request from time to time.
7.11 Tri-Star. Pledgor is currently negotiating to buy certain assets
and assume certain liabilities related to the assembly operations of Tri-Star
Technologies Co., Inc. (the "Business"). If Pledgor buys the Business, Pledgor
expects to initally include the Business in the line of credit facility
established pursuant to the Revolving Credit Facility and Security Agreement
between IBJ Bank & Trust Company and Tanon Manufacturing, Inc. If the Revolver
will provide sufficient working capital (at least $300,000 in working capital
for the Business in addition to availability at approximately the current
working capital level of SAI) of the operations of SAI and of the Business, the
Company will at the time the Revolver is established contribute the assets and
liabilities of the Business to SAI.
8. COLLATERAL AGENT.
8.1 Collateral Agent shall act as agent for each Pledgee under this
Agreement, and each Pledgee irrevocably authorizes Collateral Agent to take such
action on its behalf under the provisions of this Agreement, and to exercise
such powers and to perform such duties hereunder as are specifically delegated
to Collateral Agent by the terms hereof, and such powers as are reasonably
incidental thereto. Except as expressly set forth in this Agreement to the
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contrary, Pledgor is authorized by Pledgees to deal solely with Collateral Agent
in all matters which affect Pledgees under this Agreement.
8.2 Collateral Agent shall hold all Collateral for the pro rata benefit
of the Pledgees in accordance with their respective Percentage Interests. To the
extent any other Pledgee from time to time holds any Collateral, it shall hold
such Collateral for the pro rata benefit of all Pledgees in accordance with
their respective Percentage Interests.
8.3 Collateral Agent may perform any of its duties hereunder by or
through its agents or employees. The Collateral Agent may exercise its
discretion to take or refrain from taking any action unless directed to act or
refrain from acting upon the written instructions or direction of a Majority of
Pledgees. If Collateral Agent is required to act or to refrain from acting under
the terms of this Agreement upon the instructions of a Majority of Pledgees, it
shall be fully protected in so acting or refraining from acting upon the
required instructions. Notwithstanding the foregoing, Collateral Agent shall not
be required to take any action which exposes Agent to liability or which is
contrary to this Agreement or applicable law. Collateral Agent may require that
it be furnished with an indemnification from each Pledgee in form reasonably
satisfactory to Collateral Agent as a condition of its acting or refraining from
acting upon the instructions of a Majority of Pledgees.
8.4 To the extent Collateral Agent is required to obtain or otherwise
elects to seek the consent of Pledgees to an action Collateral Agent desires to
take, if any Pledgee fails to notify Collateral Agent, in writing, of its
consent or dissent to any request of Collateral Agent hereunder within five (5)
business days of such Pledgee's receipt of such written request, such Pledgee
shall be deemed to have given its consent thereto.
8.5 Collateral Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement. Neither Collateral Agent nor any of
its officers, directors, employees, or agents shall be (a) liable for any action
taken or omitted by them hereunder or in connection herewith, unless caused by
their gross negligence, recklessness or willful misconduct, or (b) responsible
in any manner to any Pledgee for any recitals, statements, representations, or
warranties made by Pledgor or any officer thereof contained herein or in any
certificate, report, statement, or other documents referred to or provided for
in, or received by Collateral Agent or any Pledgee under or in connection with
this Agreement, or for the value, validity, effectiveness, genuineness,
enforceability, or sufficiency of this Agreement or the Collateral, or for any
failure of Pledgor to perform its obligations hereunder. Any liability of the
Collateral Agent to the Pledgees hereunder shall be limited only to direct loss
or liability suffered by such Pledgee, and shall not be for indirect,
consequential, or incidental liability. Collateral Agent shall not be under any
obligation to any Pledgee to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, or to inspect the books or records of Pledgor. The duties of the
Collateral Agent shall be mechanical and administrative in nature. Collateral
Agent shall not have, by reason of this Agreement, a fiduciary relationship in
respect of any Pledgee. Nothing in this Agreement, expressed or implied, is
intended to or shall be so construed as to impose upon Collateral Agent any
obligation in respect of this Agreement, except as expressly set forth herein.
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9. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:
9.1 The occurrence of any event of default or default under any of the
Convertible Notes or under any of the documents executed or delivered in
connection therewith, after expiration of any applicable notice and/or grace
period permitted in such documents.
9.2 The failure of Pledgor to duly perform or observe any obligation,
covenant or agreement on its part contained herein, if such failure shall not be
cured within five (5) days after receipt of written notice by the Pledgor of
such default.
9.3 Any representation or warranty of Pledgor herein is discovered to
be untrue in any material respect or any statement, certificate or data
furnished by Pledgor pursuant hereto is discovered to be untrue in any material
respect as of the date as of which the facts therein set forth are stated or
certified and such untruth has an adverse impact on either the value of the
Collateral, the perfection of the security interest granted herein or the rights
of the Pledgees hereunder.
10. RIGHTS OF PLEDGOR AND PLEDGEES.
10.1 Before Event of Default. Prior to the occurrence of an Event of
Default:
(a) Voting. Pledgor shall be entitled to exercise any and all
voting and other consensual rights arising under the Collateral, or any portion
thereof, for any purpose not inconsistent with the terms of any of the
Convertible Notes or this Agreement.
(b) Dividends; Distributions. Collateral Agent shall be
entitled to receive and retain any and all stock dividends and stock
distributions, declared, distributed or paid, with respect to the Collateral, or
any portion thereof.
10.2 After Event of Default. Upon the occurrence of an Event of Default
and at all times thereafter:
(a) Voting. All rights of Pledgor to exercise voting and other
consensual rights which Pledgor would otherwise be entitled to exercise,
pursuant to Section 10.1(a), shall cease, and all such rights shall thereupon
become absolutely vested in Collateral Agent. Collateral Agent shall thereafter
have the sole and absolute right to exercise all voting and other consensual
rights without any further notice to, or consent of, Pledgor.
(b) Dividends Held In Trust. All dividends and interest
payments which are received by Pledgor contrary to the provisions of Section
10.1(b) shall be (i) received in trust for the benefit of Pledgees, (ii) shall
be segregated from other property or funds of Pledgor and (iii) forthwith
delivered to the Collateral Agent as Collateral in the same form as received
(with any necessary documents, endorsements or assignments in blank with
guaranteed signatures).
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(c) Collateral Agent's Right to Act. Upon the occurrence of an
event of default under any Convertible Note, the Pledgee-holder of such
Convertible Note shall deliver to each other Pledgee written notice of such
event of default. Collateral Agent shall take such action as may be directed by
the Majority of Pledgees, provided that until it receives such direction,
Collateral Agent shall have the sole and exclusive right to exercise or refrain
from exercising any and all rights and remedies hereunder, or available at law
or in equity, with respect to the Collateral, on behalf of all Pledgees, as
Collateral Agent shall deem advisable in the best interest of the Pledgees to
protect and enforce the rights of the Pledgees, including, without limitation,
instituting and pursuing legal action to foreclose on and sell the Collateral,
defending any and all actions brought against Pledgees with respect the
Collateral or incurring any expenses or otherwise making expenditures to protect
the Collateral or Pledgees' rights and remedies. Collateral Agent shall not,
without the prior written consent of a Majority of Pledgees, release Pledgor
from its obligations under this Agreement, or release or subordinate any
Pledgee's security interest in any of the Collateral.
(d) Sale of Collateral. Collateral Agent may exercise, in
respect of the Collateral and in addition to other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of a
secured party upon default under the Code. Collateral Agent may also, without
notice to Pledgor, except as specified below, sell the Collateral, or any part
thereof, in one or more blocks at public or private sale, at any exchange or
otherwise or for future delivery, and at such price or prices and upon such
other terms as Collateral Agent may deem commercially reasonable. Pledgor agrees
that, to the extent notice of sale shall be required by law, five (5) days
notice to Pledgor of the time and place of any public sale or private sale is to
be made shall constitute reasonable notification. Collateral Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. Collateral Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(e) Application of Proceeds. Any cash held by Collateral Agent
as Collateral, and all cash proceeds received by Pledgees in respect of any sale
of, collection from, or other realization upon the Collateral, or any portion
thereof, may, in the discretion of Collateral Agent be held by Collateral Agent
as Collateral for, and/or then or at any time thereafter distributed to Pledgees
based upon their respective Percentage Interests (after payment of any amounts
payable to Collateral Agent pursuant to Sections 10.2(e) and (f),) and applied
by Pledgees against all or any part of their respective Indebtedness, in such
order as Pledgees shall elect. Any surplus of such cash or cash proceeds held by
a Pledgee and remaining after payment in full of all Indebtedness shall be paid
to Pledgor or to whomsoever may be lawfully entitled to receive such surplus.
(f) Indemnification. To the extent Collateral Agent is not
reimbursed by Pledgor, the Pledgees will reimburse and indemnify the Collateral
Agent in proportion to their respective Percentage Interests, for and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including, without limitation, attorney's fees, which may be imposed
on, incurred by or asserted against Collateral Agent in performing its duties
hereunder.
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(g) Costs and Expenses. All out-of-pocket costs and expenses
incurred by Collateral Agent and not reimbursed on demand by Pledgor in
connection with the enforcement of this Agreement and/or the exercise of the
Pledgees' rights and remedies hereunder (including, without limitation, audit
expenses; counsel fees; expenditures to protect, preserve, and defend Collateral
Agent's and each Pledgee's rights and interest hereunder; and costs connected
with any sale of the Collateral) shall be shared and paid on demand by Pledgees,
pro rata based on their respective Percentage Interests. Any such sums not paid
on demand shall accrue interest at the rate of ten percent (10%) per annum until
paid. Collateral Agent may deduct from payments or distributions to be made to
Pledgees such funds as may be necessary to pay or reimburse Collateral Agent for
the reimbursement, indemnification and expense obligations of Pledgees described
in this Section 10.2 or under Section 8. Collateral Agent shall, at the request
of any Pledgee, provide an accounting describing such expenses and
indemnification obligations. Except in the case of manifest error in
computation, such accounting shall be conclusive and binding upon Pledgees for
sums due for the reimbursement, indemnification and expense obligations of
Pledgees under this Agreement.
(h) Collateral Registration. Collateral Agent shall have the
right, in its discretion and without notice to Pledgor, to transfer to or to
register in the name of Pledgees or any of Pledgees' nominees, the Collateral,
or any portion thereof.
11. REASONABLE CARE. Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which Collateral Agent accords its own property.
12. DELAY OR OMISSION NOT WAIVER. Neither the failure nor any delay on
the part of Collateral Agent to exercise any right, remedy, power, or privilege
under this Pledge, upon the occurrence of any Event of Default or otherwise,
shall operate as a waiver thereof or impair any such right, remedy, power, or
privilege. No waiver of any Event of Default shall affect any later Event of
Default or shall impair any rights of any Pledgee not encompassed in such
waiver. No single, partial, or full exercise of any rights, remedies, powers,
and privileges by the Pledgees shall preclude further or other exercise thereof.
No course of dealing between Pledgees and Pledgor shall operate as or be deemed
to constitute a waiver of any Pledgee's rights under this Pledge or affect the
duties or obligations of Pledgor.
13. REMEDIES CUMULATIVE; CONSENTS. The rights, remedies, powers, and
privileges provided for herein shall not be deemed exclusive, but shall be
cumulative and shall be in addition to all other rights, remedies, powers, and
privileges in any Pledgee's favor, at law or in equity. Whenever any Pledgee's
consent or approval is required or permitted, such consent or approval shall be
at the sole and absolute discretion of any such Pledgee.
14. TIME IS OF THE ESSENCE. Time is of the essence in Pledgor's
performance of Pledgor's obligations under the Convertible Notes.
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15. MISCELLANEOUS.
15.1 Communications and Notices. All notices, requests and other
communications made or given in connection with this Pledge shall be in writing
and, unless receipt is stated herein to be required, shall be deemed to have
been validly given if delivered personally to the individual or division or
department to whose attention notices to a party are to be addressed, or by
private carrier, or registered or certified mail, return receipt requested, or
by telecopy with the original forwarded by first-class mail, in all cases, with
charges prepaid, addressed as follows, until some other address (or individual
or division or department for attention) shall have been designated by notice
given by one party to the other:
To Pledgor:
EA Industries, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764
Attention: Frank Brandenberg, President
Telecopy No.: (732) 229-6162
Telephone No.: (732) 229-1100
With a copy to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
Philadelphia, Pa 19103
Attention: Richard P. Jaffe, Esquire
Telecopy No.: (215) 994-1111
Telephone No.: (215) 994-1046
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To Talisman Capital:
Talisman Capital International
16101 LaGrande Drive
Suite 100
Little Rock, AR 72211
Attention: Brian Ladin
Telecopy No.: (501) 821-6888
Telephone No.: (501) 614-8891
To Stonehill Offshore Partners Limited:
Stonehill Offshore Partners Limited
110 East 59th Street
30th Floor
New York, NY 10022
Attention: Wayne Teetsel
Telecopy No.: (212) 644-4264
Telephone No.: (212) 355-5200
To LaRocque Trading Group, LLC:
LaRocque Trading & Affiliates
440 South LaSalle Street
Suite 740
Chicago, IL 60605
Attention: Andrew Curtis
Telecopy No.: (312) 362-4924
Telephone No.: (312) 362-4933
16. LIMITATION ON LIABILITY. Pledgor shall be responsible for and
Collateral Agent is hereby released from any claim or liability in connection
with:
(a) Safekeeping any Collateral, other than as provided in
Section 11;
(b) Any loss or damage to any Collateral;
(c) Any diminution in value of the Collateral; or
(d) Any act or default of another person or entity.
Collateral Agent shall only be liable for any act or omission on its
part constituting recklessness, gross negligence or willful misconduct. In the
event that Collateral Agent breaches its required standard of conduct, Pledgor
agrees that Collateral Agent's liability shall be only for direct damages
suffered and shall not extend to consequential or incidental damages. If Pledgor
brings suit against Collateral Agent in connection with the transactions
contemplated hereunder, and Collateral Agent is found not to be liable, Pledgor
will indemnify and hold Collateral Agent
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harmless from all costs and expenses, including attorney's fees, incurred by
Collateral Agent in connection with such suit.
17. WAIVERS. In connection with any proceedings hereunder, including,
without limitation, any action by Pledgees in replevin, foreclosure, or other
court process, Pledgor waives:
(a) all errors, defects and imperfections in such proceedings;
(b) all benefits under any present or future laws exempting
any property, real or personal, or any part of any proceeds thereof from
attachment, levy or sale under execution, or providing for any stay of execution
to be issued on any judgment recovered in connection with the Indebtedness or in
any replevin or foreclosure proceeding, or otherwise providing for any
valuation, appraisal or exemption;
(c) presentment for payment, demand, notice of demand, notice
of non-payment, protest and notice of protest of any of the Indebtedness;
(d) any requirement for bonds, security or sureties required
by statute, court rule or otherwise;
(e) any demand for possession of Collateral prior to
commencement of any suit; and
(f) all rights to claim or recover attorney's fees and costs
in the event that Pledgor is successful in any action to remove, suspend or
enforce a judgment entered by confession.
18. EXCLUSIVE JURISDICTION. Pledgor hereby consents to the exclusive
jurisdiction of any state or federal court located within the State of New York,
and irrevocably agrees that, subject to the Collateral Agent's election, all
actions or proceedings relating to this Pledge or the transactions contemplated
hereunder shall be litigated in such courts, and Pledgor waives any objection
which Pledgor may have based on improper venue or forum non conveniens to the
conduct of any proceeding in any such court and waives personal service of any
and all process upon Pledgor, and consents that all such service of process be
made by mail or messenger directed to Pledgor at the address set forth in
Section 15. Pledgor hereby irrevocably appoints Richard P. Jaffe, Esquire, as
Pledgor's agent for the purpose of accepting service of any process within the
State of New York. Nothing contained in this Section 18 shall affect the right
of Pledgees to serve legal process in any other manner permitted by law or
affect the right of Pledgees to bring any action or proceeding against Pledgor
or Pledgor's property in the courts of any other jurisdiction.
19. COSTS, EXPENSES, AND EXPENDITURES. Pledgor agrees to pay to
Collateral Agent, on demand, all costs and expenses in connection with the
enforcement, protection, and preservation of the Collateral Agent's or other
Pledgees' rights or remedies under this Pledge, or in connection with legal
advice relating to the rights or responsibilities of
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Collateral Agent (including, without limitation, courts costs, reasonable
attorneys' fees, and reasonable expenses of accountants and appraisers). With
respect to any amount required to be paid by Pledgor under this Section 19, in
the event Pledgor fails to pay such amount on demand, Pledgor shall also pay to
Collateral Agent interest thereon at a default rate equal to ten percent (10%)
per annum.
20. MISCELLANEOUS PROVISIONS.
20.2 Severability. The provisions of this Pledge are deemed to be
severable, and the invalidity or unenforceability of any provision shall not
affect or impair the remaining provisions which shall continue in full force and
effect.
20.3 Headings. The headings of the Articles, Sections, paragraphs and
clauses of this Pledge are inserted for convenience only and shall not be deemed
to constitute a part of this Pledge.
20.4 Binding Effect. This Pledge and all rights and powers granted
hereby will bind and inure to the benefit of the parties hereto and their
respective permitted successors and assigns.
20.5 Amendment. No modification of this Pledge shall be binding or
enforceable unless in writing and signed by or on behalf of the party against
whom enforcement is sought.
20.6 Governing Law. This Pledge has been made, executed and delivered
in the State of New York and will be construed in accordance with and governed
by the laws of such Commonwealth.
20.7 No Third Party Beneficiaries. The rights and benefits of this
Pledge shall not inure to the benefit of any third party.
20.8 Exhibits and Schedules. All exhibits and schedules attached hereto
are hereby made a part of this Pledge.
20.9 Counterparts. This Pledge may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Pledge by signing any
such counterpart.
20.10 No Joint Venture. Nothing contained herein is intended to permit
or authorize Pledgor to make any contract on behalf of any Pledgee, nor shall
this Pledge be construed as creating a partnership, joint venture or making any
Pledgee an investor in Pledgor.
21. WAIVER OF RIGHT TO TRIAL BY JURY. PLEDGOR AND PLEDGEES WAIVE ANY
RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (A)
ARISING UNDER THIS PLEDGE OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN
OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR
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RELATED OR INCIDENTAL TO THE DEALINGS OF ANY PLEDGEE WITH RESPECT TO THIS PLEDGE
OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. PLEDGOR AND PLEDGEES AGREE
AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS PLEDGE MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT, AS
WRITTEN EVIDENCE OF THE CONSENT OF PLEDGOR AND PLEDGEES TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
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IN WITNESS WHEREOF, the parties hereto have executed this Pledge as of
the day and year first above written.
PLEDGOR:
EA INDUSTRIES, INC.
[CORPORATE SEAL]
By:
-------------------------------------
Howard P. Kamins, Vice President
PLEDGEE:
---------------------------------------
Pledgee's Name
By:____________________________________
(Signature)
Address: ___________________________
---------------------------
---------------------------
17
EXHIBIT 99.5
PLACEMENT AGENT AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 17th day of July, 1998,
by and between EA INDUSTRIES, INC., a corporation organized under the laws of
the state of New Jersey ("Company"), and SWARTZ INVESTMENTS, LLC, a Georgia
limited liability company (the "Agent").
WITNESSETH:
WHEREAS, the Company proposes to issue and sell its 6% Convertible
Notes, dated on or about July 16, 1998 (the "Convertible Notes"), which are
accompanied by a warrant or warrants to purchase a number of shares of Common
Stock of the Company (together the "Securities") resulting in gross proceeds to
the Company of a minimum of Two Million Dollars ($2,000,000) and a maximum of
Four Million Five Hundred Thousand Dollars ($4,500,000), in an offering (the
"Offering") not involving a public offering under the Securities Act of 1933, as
amended (the "Act"), pursuant to an exemption from the registration requirements
of the Act under Regulation D promulgated under the Act ("Regulation D"), as
described below; and
WHEREAS, the Agent has offered to assist the Company in placing the
Securities on a "best efforts" basis with respect to sales of Securities
thereafter up to the Maximum Shares (as defined below), and the Company desires
to secure the services of the Agent on the terms and conditions hereinafter set
forth;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
promises, conditions and covenants herein contained, the parties hereto do
hereby agree as follows:
1. Engagement of Agent. The Company on the basis of the representations and
warranties contained herein, but subject to the terms and conditions herein set
forth, hereby appoints the Agent as its exclusive placement agent for the
Offering, to sell a minimum of Two Million Dollars ($2,000,000) (the "Minimum
Amount") and a maximum of Four Million Dollars Five Hundred Thousand
($4,500,000) (the "Maximum Amount"), on a "best efforts basis", resulting in
gross proceeds to the Company of a minimum of Two Million Dollars ($2,000,000)
(the "Minimum Proceeds") and a maximum of Four Million Five Hundred Dollars
($4,500,000) (the "Maximum Proceeds"). The Agent, on the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, accepts such appointment and agrees to use its best
efforts to find purchasers for the Securities. This appointment shall be
irrevocable for the period commencing on the date of the executed Letter of
Agreement, and ending July 31, 1998 which period may be extended by the mutual
consent of the Company and the Agent (the "Offering Period").
2. Representations and Warranties of the Company. In order to induce the
Agent to enter into this Agreement, the Company hereby represents and warrants
to and agrees with the Agent as follows:
2.1 Offering Documents. The Company (with the assistance of the Agent)
has prepared a Subscription Agreement, certain exhibits thereto, the Convertible
Notes, Irrevocable Instructions to the Transfer Agent, and a Registration Rights
Agreement, which documents have been or will be sent to proposed investors. In
addition, the Company will assure that proposed investors have received or will
receive prior to closing, copies of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, and the Company's quarterly report on Form
10-Q for the quarters ended March 28, 1998 ("SEC Documents"). The SEC Documents
were prepared in conformity in all material respects with the requirements (to
the extent applicable) of the Securities Exchange Act of 1934, as amended, (the
"`34 Act") and the rules and regulations ("Rules and Regulations") of the
Commission promulgated thereunder. As used in this Agreement, the term "Offering
Documents" refer to and mean the SEC Documents, the Subscription Agreement and
all amendments, exhibits and supplements thereto, together with any other
documents which are provided to the Agent by, or approved for Agent's use by,
the Company for the purpose of this Offering (including but not limited to the
Convertible Notes, Registration Rights Agreement, Irrevocable Instructions to
Transfer Agent, and Company investor packets).
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2.2 Provision of Offering Documents. The Company shall deliver to the
Agent, without charge, as many copies of the Offering Documents as the Agent may
reasonably require for the purposes contemplated by this Agreement. The Company
authorizes the Agent, in connection with the Offering of the Securities, to use
the Offering Documents as from time to time amended or supplemented in
connection with the offering and sale of the Securities and in accordance with
the applicable provisions of the Act and Regulation D.
2.3 Accuracy of Offering Documents. The Offering Documents, at the time
of delivery to subscribers for the Securities, conformed in all material
respects with the requirements, to the extent applicable, of the `34 Act and the
applicable Rules and Regulations and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. On the Closing Date (as hereinafter
defined), the Offering Documents will contain all statements which are required
to be stated therein in accordance with the Act and the Rules and Regulations
for the purposes of the proposed Offering, and all statements of material fact
contained in the Offering Documents will be true and correct, and the Offering
Documents will not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.4 Duty to Amend. If during such period of time as in the opinion of
the Agent or its counsel an Offering Document relating to this financing is
required to be delivered under the Act, any event occurs or any event known to
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the Company relating to or affecting the Company shall occur as a result of
which the Offering Documents as then amended or supplemented would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it is necessary at any time after
the date hereof to amend or supplement the Offering Documents to comply with the
Act or the applicable Rules and Regulations, the Company shall forthwith notify
the Agent thereof and shall prepare such further amendment or supplement to the
Offering Documents as may be required and shall furnish and deliver to the Agent
and to others, whose names and addresses are designated by the Agent, all at the
cost of the Company, a reasonable number of copies of the amendment or
supplement (or of the amended or supplemented Offering Documents) which, as so
amended or supplemented, will not contain an untrue statement of a material fact
or omit to state any material fact necessary in order to make the Offering
Documents not misleading in the light of the circumstances when delivered to a
purchaser or prospective purchaser, and which will comply in all respects with
the requirements (to the extent applicable) of the `34 Act and the applicable
Rules and Regulations.
2.5 Corporation Condition. The Company's condition is as described in
its Offering Documents, except for changes in the ordinary course of business
and normal year-end adjustments that are not in the aggregate materially adverse
to the Company. The Offering Documents, taken as a whole, present fairly the
business and financial position of the Company as of the Closing Date, in all
material respects.
2.6 No Material Adverse Change. Except as may be reflected in or
contemplated by the Offering Documents, subsequent to the dates as of which
information is given in the Offering Documents, and prior to the Closing Date,
taken as a whole, there has not been any material adverse change in the
condition, financial or otherwise, or in the results of operations of the
Company or in its business.
2.7 No Defaults. Except as disclosed in the Offering Documents or in
writing to the Agent, the Company is not in default in any material respect in
the performance of any obligation, agreement or condition contained in any
material debenture, note or other evidence of indebtedness or any material
indenture or loan agreement of the Company. The execution and delivery of this
Agreement, and the consummation of the transactions herein contemplated, and
compliance with the terms of this Agreement will not conflict with or result in
a breach of any of the terms, conditions or provisions of, or constitute a
default under, the Certificate of Incorporation or By-Laws of the Company (in
any respect that is material to the Company), any material note, indenture,
mortgage, deed of trust, or other agreement or instrument to which the Company
is a party or by which the Company or any property of the Company is bound, or
to the Company's knowledge, any existing law, order, rule, regulation, writ,
injunction or decree of any government, governmental instrumentality, agency or
body, arbitration tribunal or court, domestic or foreign, having jurisdiction
over the Company or any property of the Company. The consent, approval,
authorization or order of any court or governmental instrumentality, agency or
body is not required for the consummation of the transactions herein
contemplated except such as may be required under the Act or under the Blue Sky
or securities laws of any state or jurisdiction.
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2.8 Incorporation and Standing. The Company is, and at the Closing Date
will be, duly formed and validly existing in good standing as a corporation
under the laws of the State of New Jersey and with full corporate power and
authority to own its properties and conduct its business, present and proposed,
as described in the Offering Documents; the Company, has full corporate power
and authority to enter into this Agreement; and the Company is duly qualified
and in good standing as a foreign entity in each jurisdiction in which the
failure to so qualify would have a material adverse effect on the Company or its
properties.
2.9 Legality of Outstanding Securities. Prior to the Closing Date, the
outstanding securities of the Company have been duly and validly authorized and
issued, and are fully paid and non-assessable, and conform in all material
respects to the statements with regard thereto contained in the Offering
Documents.
2.10 Legality of Securities. The Securities when sold and delivered in
accordance with the Offering Documents, and the Warrants to Agent or its
designees when issued and delivered, will constitute legal, valid and binding
obligations of the Company, enforceable in accordance with the terms thereof,
and the Securities shall be duly and validly issued and outstanding, fully paid
and nonassessable. The Common Stock into which the Securities are convertible
and the Common Stock into which the Agent's Warrants are exercisable, when
issued upon conversion of the Securities in accordance with the Company's
Certificate of Incorporation and Convertible Notes or upon exercise of the
Agent's Warrants, as applicable, shall be duly and validly issued and
outstanding, fully paid and non-assessable.
2.11 Litigation. Except as set forth in the Offering Documents, there is
now, and at the Closing Date there will be, no action, suit or proceeding before
any court or governmental agency, authority or body pending or, to the knowledge
of the Company, threatened, which might result in judgments against the Company
not adequately covered by insurance or which collectively might result in any
material adverse change in the condition (financial or otherwise) or business of
the Company or which would materially adversely affect the properties or assets
of the Company.
2.12 Finders. The Company does not know of any outstanding claims for
services in the nature of a finder's fee or origination fees with respect to the
sale of the Securities hereunder for which the Agent may be responsible, and the
Company will indemnify the Agent from any liability for such fees (including the
payment of attorney's fees incurred by Agent due to any claim by any such finder
or originator) by any party who has a claim for such compensation from the
Company and for which person the Agent is not legally responsible. In the event
of such claim, Agent shall properly notify Company thereof and the Company may,
at its option and at its sole cost and expense, take over the defense of such a
claim with counsel of its choice, reasonably satisfactory to Agent. Agent shall
not settle any such claims or litigation arising hereunder without the prior
written consent of the Company.
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2.13 Tax Returns. The Company has filed all federal and state and local
tax returns which are required to be filed, and has paid all material taxes
shown on such returns and on all assessments received by it to the extent such
taxes have become due (except for taxes the amount of which the Company is
contesting in good faith). All taxes with respect to which the Company is
obligated have been paid, or adequate accruals have been set up to cover any
such unpaid taxes.
2.14 Authority. The execution and delivery by the Company of this
Agreement have been duly authorized by all necessary action, and this Agreement
is the valid, binding and legally enforceable obligation of the Company except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws, by principles governing
enforcement of equitable remedies and, with respect to indemnification against
liabilities under the Act, matters of public policy.
2.15 Actions by the Company. The Company will not voluntarily take any
action which will impair the effectiveness of the transactions contemplated by
this Agreement.
3. Issue, Sale and Delivery of the Securities.
3.1 Deliveries of Securities. Certificates in such form that, subject to
applicable transfer restrictions as described in the Subscription Agreement,
they can be negotiated by the purchasers thereof (issued in such denominations
and in such names as the Agent may direct the Company to issue) for the
Securities, and Warrants representing the Agent's Warrant compensation described
in Section 3.5 below ("Warrants"), shall be delivered by the Company to the
Escrow Agent, with copies made available to the Agent for checking at least one
(1) full business day prior to the Closing Date, it being understood that the
directions from the Agent to the Company shall be given at least two (2) full
business days prior to the Closing Date. The certificates for the Securities and
the Warrants shall be delivered at the initial Closing and at each Subsequent
Closing (as defined hereinafter).
3.2 Escrow of Funds. Pursuant to the Escrow Agreement, a copy of which
is attached hereto as Exhibit "A" (the "Escrow Agreement"), executed by the
Company, the Agent and the escrow agent (the "Escrow Agent"), the subscribers
shall place all funds for purchase of Securities in an escrow account set up by
the Company. The Company shall have the right in its sole and absolute
discretion, for any reason or no reason, to approve or reject the subscriptions
of each subscriber, as described in the Subscription Agreement. At such time as
subscribers subscribing for at least the Minimum Shares (but not more than the
Maximum Shares, unless otherwise agreed by the Company and Agent, and consented
to by the subscribers) have delivered to the Escrow Agent their signed
subscription documents, those subscribers have been approved by the Company and
all other Closing conditions have been met, Escrow Agent shall release the
subscription funds and signed documents to the Company and release the
certificates representing the Securities to the subscribers (the "Initial
Closing"). In the event that the Initial Closing shall be for an amount of
Securities less than the Maximum Amount, the Offering may be continued, and
additional Closings may be held (each a "Subsequent Closing") throughout the
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Offering Period. In no event, however, shall any Closing occur after July 31,
1998 or such later date as may be agreed by the Company and the Agent (the
"Termination Date"). In the event that the Escrow Agent is holding funds on the
Termination Date, after completion of any proper Subsequent Closing on the
Termination Date, the Escrow Agent shall return all funds to the subscribers who
deposited them in accordance with the Escrow Agreement.
3.3 Closing Date. The Initial Closing and any Subsequent Closing shall
take place at the offices of Escrow Agent at such time and date ("Closing Date")
as will be fixed either orally or in writing by notice to be given by the Agent
to the Company after consultation with the Company, such Closing Date to be not
less than one (1) full business day after the date on which such notice shall
have been given and not more than ten (10) full business days after the date on
which the Escrow Agent shall have given written notice to the Company and the
Agent that funds deposited with the Escrow Agent total at least the Minimum
Proceeds. The Closing Date may be changed by mutual agreement of the Agent and
the Company.
3.4 Agent's Compensation. At the Initial Closing and any subsequent
Closing, the Company shall pay the Agent the following, which shall be the full
amount payable to the Agent for its services, fees and expenses in connection
with this Offering:
(i) A placement fee ("Cash Placement Fee") equal to five percent
(5%) of the aggregate gross proceeds resulting from the sale of the securities
in the Offering; plus
(ii) a non-accountable expense allowance equal to two percent (2%)
of the aggregate gross proceeds resulting from the sale of the Securities in the
Offering (the "Non-Accountable Expense Allowance", together with the Cash
Placement Fee, referred to as the ("Cash Fee")).
3.5 Agent's Warrants. In addition to the fees and reimbursement of costs
set forth above, the Company shall also issue to Agent or its designees
warrants, designated as Series D Warrants ("Warrants") to purchase a number of
shares of the Company's Common Stock equal to the sum of (i) six percent (6%)
(the "Warrant Percentage") multiplied by the dollar amount of Securities placed
all divided by the Warrant Exercise Price (defined as the Market Price, as
defined below, at the time of Closing), subject to a minimum of 50,000 shares,
exerciseable at the Warrant Exercise Price.
For purposes hereof, "Market Price" shall equal the lowest Closing Bid
Price (as defined in the Convertible Notes) occurring during the twenty (20)
consecutive trading days ending on the trading day immediately preceding the
Last Closing Date (as defined in the Convertible Notes).
The term of the Warrants shall be five (5) years commencing with the
date of issuance thereof. The initial exercise price for the Warrants shall be
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the Warrant Exercise Price (as defined above). The Warrants shall have cashless
exercise provisions and reset provisions. The shares of Common Stock issuable
upon exercise of the Warrants shall be included in the next registration
statement filed by the Company, and shall have the rights set forth in the
Registration Rights Agreement, dated on or about July 16, 1998, by and among the
Company, the Agent, and the Subscribers. The Warrants shall be delivered by the
Company to the Escrow Agent prior to each Closing, and the Escrow Agent shall
deliver to the Agent the Warrants applicable to each Closing simultaneous with
the respective Closing.
3.6 Payment of Fees. The Escrow Agent shall be instructed to pay all
fees and cost reimbursements and Warrants pursuant to Sections 3.4 and 3.5 of
this Agreement, directly to the Agent from the proceeds of the Closing and all
Subsequent Closings, simultaneous with the transfer of proceeds to the Company.
3.7 Press Release. The Agent shall have the right to approve any press
release issued by the Company in connection with the Offering which approval
shall not be unreasonably withheld.
4. Offering of the Securities on Behalf of the Company.
4.1 In offering the Securities for sale, the Agent shall offer them
solely as an agent for the Company, and such offer shall be made upon the terms
and subject to the conditions set forth in the Offering Documents. The Agent
shall commence making such offer as an agent for the Company as soon as possible
following delivery of the final Company approved Offering Documents to Agent (or
notification by Company or its Counsel the latest version of any Offering
Documents on Agent's computer system is acceptable for faxing to subscribers).
4.2 The Agent will only make offers to sell the Securities to, or
solicit offers to subscribe for any Securities from, persons or entities that
Agent reasonably believes are "accredited investors" as defined in Regulation D.
5. Right of First Refusal. The Company hereby grants Agent rights of
first refusal as follows:
5.1 The Agent has the right of first refusal to act as placement agent
for any future private financings of the Company, whether equity securities,
convertible debt securities, or securities or instruments convertible into or
exchangeable for debt or equity securities of the Company, excluding public
offerings, joint ventures, mergers, acquisitions, or similar transactions. It is
understood that the Agent shall have no right of first refusal with respect to
straight (non-convertible) debt issuances by the Company, provided however that
Agent shall have the right to receive notice of any non-convertible debt
issuance in the manner provided in this Section 5. The duration of the Agent's
right of first refusal under this Section 5.1 shall be for a period of one (1)
year following the last Closing of this Offering.
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5.2 In the event that the Company wishes to undertake a transaction
described in this Section 5, the Company must send Agent a written notice of the
proposed transaction (whether the transaction is initiated by the Company or is
offered to the Company by a third party), in sufficient specificity to allow the
Agent to understand the proposed transaction clearly. This notice must be
delivered to Agent at least twenty (20) days prior to the proposed closing of
the transaction. The Agent shall have ten (10) days from receipt of that notice
to determine whether or not it wishes to exercise its right of first refusal
with respect to that transaction. The Agent shall notify the Company in writing
of its decision to exercise or waive its right of first refusal with respect to
the transaction described in the notice. If the Agent waives its right of first
refusal with respect to a particular transaction, the Company may proceed with
that transaction; provided, however, that if prior to any Closing in the
proposed transaction the terms of the transaction are changed in any material
way from the terms set forth in the notice to the Agent, the Agent's right of
first refusal shall commence again.
5.3 In the event that Company breaches Section 5.1 of this Agreement,
Agent shall be entitled to receive compensation based upon the aggregate
purchase price of securities placed in such transaction in an amount calculated
pursuant to Section 3.4 hereof.
6. Covenants of the Company. The Company covenants and agrees with the
Agent that:
6.1 After the date hereof, the Company will not at any time, prepare and
distribute any amendment or supplement to the Offering Documents, of which
amendment or supplement the Agent shall not previously have been advised and the
Agent and its counsel furnished with a copy within a reasonable time period
prior to the proposed adoption thereof, or to which the Agent shall have
reasonably objected in writing on the ground that it is not in compliance with
the Act or the Rules and Regulations (if applicable).
6.2 The Company will pay, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming effective
or is terminated, all costs and expenses incident to the performance of its
obligations under this Agreement, including all expenses incident to the
authorization of the Securities and their issue and delivery to the Agent, any
original issue taxes in connection therewith, all transfer taxes, if any,
incident to the initial sale of the Securities, the fees and expenses of the
Company's counsel (except as provided below) and accountants, the cost of
reproduction and furnishing to the Agent copies of the Offering Documents as
herein provided; provided, however, that the Company shall not be responsible
for the direct payment of fees and costs incurred by Agent, including attorney's
fees of or any costs incurred by the Agent's counsel.
6.3 As a condition precedent to the Initial Closing, the Company will
deliver to the Agent a true and correct copy of all documents requested by Agent
included in Agent's due diligence request, including but not limited to the
Certificate of Incorporation of the Company, and all amendments and certificates
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of designation of preferences of preferred stock, certified by the Secretary of
State of the State of New Jersey.
6.4 Prior to the Closing Date, the Company will cooperate with the Agent
in such investigation as it may make or cause to be made of all of the
properties, business and operations of the Company in connection with the
Offering of the Securities. The Company will make available to it in connection
therewith such information in its possession as the Agent may reasonably request
and will make available to the Agent such persons as the Agent shall deem
reasonably necessary and appropriate in order to verify or substantiate any such
information so supplied.
6.5 The Company shall be responsible for making any and all filings
required by the Blue Sky authorities of the State of New Jersey and filings
required by the laws of the jurisdictions in which the subscribers who are
accepted for purchase of Securities are located, if any.
7. Non-Circumvention & Confidentiality of Proprietary Agent Information.
7.1. Non-Circumvention. The investors who participate in the Offering
and the other investors introduced to Company by Swartz who are listed on the
schedule attached hereto as Exhibit B, and their affiliates, shall be
considered, for purposes of this Agreement, the property of Agent. The Company
on behalf of itself, its parent or its subsidiaries (collectively hereinafter
referred to as "Company") agree not to circumvent, directly or indirectly,
whether through another placement agent or broker or without any placement agent
or broker, Agent's relationship with these investors and their affiliates,
(hereinafter referred to singularly as an "Investor" and collectively as
"Investors") and Company will not directly or indirectly contact or negotiate
with any of these Investors, whether through another placement agent or broker
or without any placement agent or broker, regarding an investment in the
Company, or any other company, and will not enter into any agreement or
transaction with Investors, or disclose the names of Investors (provided,
however, that the Company may contact the Investors for purposes directly
related to the business of the Company not involving any agreement or
transaction with Investors and not involving an investment of funds by an
Investor), for a period of five (5) years from the date hereof without the prior
written approval of Agent; provided, however, that notwithstanding the above,
nothing contained in this Agreement shall prevent Company from, directly or
indirectly, selling securities to the Investors through a public offering or
from, directly or indirectly, contacting or negotiating with the Investors in
satisfaction of Company's obligations under the Subscription Agreements entered
into in connection herewith. In the event that the Company or one of its
subsidiaries, with Swartz's advance written permission. accepts an investment (a
"Subsequent Investment") from an Investor or Investors (other than in a public
offering), regardless of whether such investment is arranged without an agent
(including but not limited to investments arranged through direct solicitation
by the Company) or through an agent other than the Agent, during the period
beginning on the date hereof and terminating on the fifth (5th) anniversary of
the date of the Last Closing as described in the Subscription Agreement, the
Company agrees to pay to the Agent (i) a cash fee equal to seven percent (7%) of
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all amounts invested by such Investor(s) plus (ii) warrants to purchase a number
of shares of the Company's Common Stock equal to the quotient of (a) seven
percent (7%) multiplied by the dollar amount invested by such Investors, all
divided by (b) the Market Price, as defined above, at the time of closing of
such investment, exerciseable at the Market Price, as defined above, at the time
of closing of such investment. In the event that the Company accepts a
Subsequent Investment without Swartz's advance written permission, the Company
agrees to pay to the Agent (i) a fee equal to fourteen percent (14%) of all
amounts invested by such Investor(s) plus (ii) warrants to purchase a number of
shares of the Company's Common Stock equal to the quotient of (a) fourteen
percent (14%) multiplied by the dollar amount invested by such Investors, all
divided by (b) the Market Price, as defined above, at the time of closing of
such investment, exerciseable at the Market Price, as defined above, at the time
of closing of such investment.
7.2 Protection of Proprietary Customer Information. Furthermore, Company
agrees to safeguard in strict confidence and will not disclose to any other
person, business, partnership, corporation, fiduciary, agent or any entity of
any type whatsoever the names of any Investors introduced by Agent to Company or
information concerning any Investor (including the names of any individual,
employee, representative, fiduciary or agent of or related to such Investor)
except pursuant to a registration of the securities or other filing with the SEC
or any state securities commission, for purposes directly related to the
business of the Company, or as such disclosure may be required by any law, rule,
regulation, regulatory body, court or administrative agency, and upon prior
notice to Agent before disclosing such information under such compulsion of law.
7.3. [Intentionally Left Blank].
7.4. [Intentionally Left Blank].
7.5 Specific Performance and Attorneys Fees. The Company agrees to pay
to Agent (severally and not jointly) all costs and expenses incurred by Agent
relating to the enforcement of the terms of Sections 7.1 and 7.2 hereof due to
its own actions, whether by injunction, a suit for damages or both, including
reasonable fees and disbursements of counsel (both at trial and in appellate
proceedings).
8. Indemnification.
8.1 The Company agrees to indemnify and hold harmless the Agent, each
person who controls the Agent within the meaning of Section 15 of the Act and
the Agent's employees, accountants, attorneys and agents (the "Agent's
Indemnitees") against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act or the
`34 Act or any other statute or at common law and for any reasonable legal or
other expenses (including the costs of any investigation and preparation)
incurred by them in connection with any litigation, whether or not resulting in
any liability, but only insofar as such losses, claims, damages, liabilities and
litigation arise out of or are based upon (i) the Company's breach of its
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obligations under the Convertible Notes and the Subscription Agreement to
deliver shares of Common Stock to a Subscriber upon submission by Subscriber of
the required documentation, or (ii) any untrue statement of material fact
contained in the Offering Documents or any amendment or supplement thereto or
any application or other document filed in any state or jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof, or the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, under the circumstances under which
they were made, not misleading, or for Company's breach of contract respecting
this Placement, all as of the date of the Offering Documents or of such
amendment as the case may be, or (iii) any material breach of any
representation, warranty or covenant made by the Company in this Agreement;
provided, however, that the indemnity agreement contained in this Section 8.1
shall not apply to amounts paid in settlement of any such litigation, if such
settlements are made without the consent of the Company (but no such settlement
may be made without the Company's prior written consent), nor shall it apply to
the Agent's Indemnitees in respect to any such losses, claims, damages or
liabilities arising out of or based upon any such untrue statement or alleged
untrue statement or any such omission or alleged omission, if such statement or
omission was made in reliance upon information furnished in writing to the
Company by the Agent specifically for use in connection with the preparation of
the Offering Documents or any such amendment or supplement thereto or any
application or other document filed in any state or jurisdiction in order to
qualify the Securities under the Blue Sky or securities law thereof. This
indemnity agreement is in addition to any other liability which the Company may
otherwise have to the Agent's Indemnitees. The Agent's Indemnitees agree, within
ten (10) days after the receipt by them of written notice of the commencement of
any action against them in respect to which indemnity may be sought from the
Company under this Section 8.1, to notify the Company in writing of the
commencement of such action; provided, however, that the failure of the Agent's
Indemnitees to notify the Company of any such action shall not relieve the
Company from any liability which it may have to the Agent's Indemnitees on
account of the indemnity agreement contained in this Section 8.1, and further
shall not relieve the Company from any other liability which either may have to
the Agent's Indemnitees, and if the Agent's Indemnitees shall notify the Company
of the commencement thereof, the Company shall be entitled to participate in
(and, to the extent that the Company shall wish, to direct) the defense thereof
at its own expense, but such defense shall be conducted by counsel of recognized
standing and reasonably satisfactory to the Agent's Indemnitees, defendant or
defendants, in such litigation. The Company agrees to notify the Agent's
Indemnitees promptly of the commencement of any litigation or proceedings
against the Company or any of the Company's officers or directors of which the
Company may be advised in connection with the issue and sale of any of the
Securities and to furnish to the Agent's Indemnitees, at their request, and to
provide copies of all pleadings therein and to permit the Agent's Indemnitees to
be observers therein and apprise the Agent's Indemnitees of all developments
therein, all at the Company's expense.
8.2 With the exception provided below as to limitations of indemnity,
the Agent agrees, in the same manner and to the same extent as set forth in
Section 8.1 above, to indemnify and hold harmless the Company, and the Company's
and Company's employees, accountants, attorneys and agents (the "Company's
Indemnitees") with respect to (i) any statement in or omission from the Offering
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Documents or any amendment or supplement thereto or any application or other
document filed by the Company in any state or jurisdiction in order for the
Company to qualify the Securities under the Blue Sky or securities laws thereof,
or any information furnished pursuant to Section 2.4 hereof, if such statement
or omission was made in reliance upon information furnished in writing to the
Company by the Agent in a document executed by Agent on its behalf specifically
for use in connection with the preparation thereof or supplement thereto, or
(ii) any untrue statement of a material fact made by the Agent or its agents not
based on statements in the Offering Documents or authorized in writing by the
Company, or with respect to any misleading statement made by the Agent or its
agents resulting from the omission of material facts which misleading statement
is not based upon the Offering Documents, and any documents filed with public or
governmental authorities or agencies, and any public press releases or
information furnished in writing by the Company or, (iii) any material breach of
any representation, warranty or covenant made by the Agent in this Agreement.
The Agent shall not be liable for amounts paid in settlement of any such
litigation if such settlement was effected without its consent. In case of the
commencement of any action in respect of which indemnity may be sought from the
Agent, the Company's Indemnitees shall have the same obligation to give notice
as set forth in Section 8.1 above, subject to the same loss of indemnity in the
event such notice is not given, and the Agent shall have the same right to
participate in (and, to the extent that it shall wish, to direct) the defense of
such action at its own expense, but such defense shall be conducted by counsel
of recognized standing reasonably satisfactory to the Company. The Agent agrees
to notify the Company's Indemnitees, at their request, and to provide copies of
all pleadings therein and to permit the Company's Indemnitees to be observers
therein and appraise them of all the developments therein, all at the Agent's
expense. As to Damages, Company recognizes that since it is receiving the net
proceeds of the monies generated by this placement, that indemnity, if any, to
be paid by the Agent to the Company shall be strictly limited to the Agent's
Cash Fee, inclusive of attorney fees and costs of arbitration and/or court
proceedings.
9. Liquidated Damages. Company and Agent both acknowledge that it would
be extremely impractical and difficult to ascertain the actual damages to be
suffered by Company if Agent is found by an arbitrator or a court of competent
jurisdiction to have breached any of the representations, warranties and
covenants contained in this Agreement. Accordingly, should a breach of this
Agreement be proven and Agent found liable for said breach, Company and Agent
hereby agree that the damages shall be fixed at no more than $100,000, inclusive
of all attorney's fees and cost of court. This provision is not to be construed
as a penalty, but as full liquidated damages under Georgia law.
10. Effectiveness of Agreement. This Agreement shall become effective
(i) at 9:00 A.M., Atlanta, Georgia time, on the date hereof or (ii) upon release
by the Agent of the Securities for offering after the date hereof, whichever
occurs first. The Agent agrees to notify the Company immediately after the Agent
shall have taken any action by such release or otherwise wherein this Agreement
shall have become effective.
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11. Conditions of the Agent's Obligations. The Agent's obligations to
act as agent of the Company hereunder and to find purchasers for the Securities
shall be subject to the accuracy, as of the Closing Date, of the representations
and warranties on the part of the Company herein contained, to the fulfillment
of or compliance by the Company with all covenants and conditions hereof, and to
the following additional conditions:
11.1 Counsel to the Agent shall not have objected in writing or shall
not have failed to give his consent to the Offering Documents (which objection
or failure to give consent shall not have been done unreasonably).
11.2 The Agent shall not have disclosed to the Company that the Offering
Documents, or any amendment thereof or supplement thereto, contains an untrue
statement of fact, which, in the opinion of counsel to the Agent, is material,
or omits to state a fact, which, in the opinion of such counsel, is material and
is required to be stated therein, or is necessary to make the statements
therein, under the circumstances in which they were made, not misleading.
11.3 Between the date hereof and the Closing Date, the Company shall not
have sustained any loss on account of fire, explosion, flood, accident, calamity
or any other cause of such character as would materially adversely affect its
business or property considered as an entire entity, whether or not such loss is
covered by insurance.
11.4 Between the date hereof and the Closing Date, there shall be no
litigation instituted or threatened against the Company, and there shall be no
proceeding instituted or threatened against the Company before or by any federal
or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, franchises, license,
permits, operations or financial condition or income of the Company considered
as an entity.
11.5 Except as contemplated herein or as set forth in the Offering
Documents, during the period subsequent to the most recent financial statements
contained in the Offering Documents, if any, and prior to the Closing Date, the
Company (i) shall have conducted its business in the usual and ordinary manner
as the same is being conducted as of the date hereof in all material respects
and (ii) except in the ordinary course of business, the Company shall not have
incurred any material liabilities or obligations (direct or contingent) or
disposed of any material assets, or entered into any material transaction or
suffered or experienced any substantially adverse change in its condition,
financial or otherwise. At the Closing Date, the equity account of the Company
shall be substantially the same as reflected in the most recent balance sheet
contained in the Offering Documents except for reductions for matters discussed
in the Subscription Agreements and without considering the proceeds from the
sale of the Securities other than as may be set forth in the Offering Documents.
11.6 The authorization of the Securities by the Company and all
proceedings and other legal matters incident thereto and to this Agreement shall
be reasonably satisfactory in all respects to counsel to the Agent, who shall
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have furnished the Agent on the Closing Date with such favorable opinion with
respect to the sufficiency of all corporate proceedings and other legal matters
relating to this Agreement as the Agent may reasonably require, and the Company
shall have furnished such counsel such documents as he may have requested to
enable him to pass upon the matters referred to in this subparagraph.
11.7 The Company shall have furnished to the Agent the opinion, dated
the Closing Date, addressed to the Agent, from counsel to the Company, as
required by the Subscription Agreement in substantially the form attached to the
Subscription Agreement as Exhibit D.
11.8 The Company shall have furnished to the Agent a due diligence back
up certificate signed by the Chief Executive Officer and the Chief Financial
Officer of the Company (a copy of which is attached hereto as Exhibit C), dated
as of the Closing Date, to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects at and as of the Closing
Date (other than representations and warranties which by their terms are
specifically limited to a date other than the Closing Date), and the Company has
complied with all the agreements and has satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing Date;
(ii) the respective signers have each carefully examined the
Offering Documents, and any amendments and supplements thereto, and, to the best
of their knowledge, all statements contained in the Offering Documents, and any
amendments and supplements thereto, are true and correct, and neither the
Offering Documents, nor any amendment or supplement thereto, includes any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein under the
circumstances in which they were made not misleading, and since the date hereof,
there has occurred no event required to be set forth in an amended or
supplemented Offering Documents, which has not been set forth; except as set
forth in the Offering Documents, since the respective dates as of which the
periods for which the information is given in the Offering Documents and prior
to the date of such certificate, (a) there has not been any substantially
adverse change, financial and otherwise, in the affairs of condition in the
Company, and (b) the Company has not incurred any material liabilities, direct
or contingent, or entered into any material transactions, otherwise than in the
ordinary course of business; and
(iii) the Company has provided true and correct copies of all
documents in its possession or which it could obtain that were requested by
Agent pursuant to any due diligence inquiry.
12 Termination.
12.1 This Agreement may be terminated by the Agent by notice to the
Company in the event that the Company shall have failed or been unable to comply
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with any of the material terms, conditions or provisions of this Agreement on
the part of the Company to be performed, complied with fulfilled within the
respective times, if any, herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by the
Agent in writing. However, if any material breach by Company can be cured within
a reasonable period of time, Agent shall provide Company such reasonable period
to cure.
12.2 This Agreement may be terminated by the Company by notice to the
Agent in the event that the Agent shall have failed or been unable to comply
with any of the terms, conditions or provisions of this Agreement on the part of
the Agent to be performed, complied with or fulfilled within the respective
times, if any, herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by the Company in
writing. However, if any material breach by Agent can be cured within a
reasonable period of time, Company shall provide Agent such reasonable period to
cure.
12.3 This Agreement may be terminated by the Agent by notice to the
Company at any time, if, in the reasonable, good faith judgment of the Agent,
payment for and delivery of the Securities is rendered impracticable or
inadvisable because: (i) additional material governmental restrictions not in
force and effect on the date hereof shall have been imposed upon trading in
securities generally; (ii) a war or other national calamity shall have occurred;
or (iii) the condition of the market (either generally or with reference to the
sale of the Securities to be offered hereby) or the condition of any matter
affecting the Company or any other circumstance is such that it would be
undesirable, impracticable or inadvisable, in the judgment of the Agent, to
proceed with this Agreement or with the Offering.
12.4 Any termination of this Agreement pursuant to this Section 12 shall
be without liability of any character (including, but not limited to, loss of
anticipated profits or consequential damages) on the part of any party thereto,
except that the Company shall remain obligated to pay if due hereunder the costs
and expenses provided to be paid by it specified in Sections 3 and 5; and the
Company and the Agent shall be obligated to pay, respectively, all losses,
claims, damages or liabilities, joint or several, under Section 8.1 in the case
of the Company and Section 8.2 in the case of the Agent.
13. Agent's Representations, Warranties and Covenants. The Agent
represents and warrants to and agrees with the Company that:
13.1 The Placement Agent is a limited liability company duly organized
and existing under the laws of the state of Georgia. The Placement Agent is an
OSJ branch office of Dunwoody Brokerage Services, Inc., a licensed NASD
broker-dealer, and a member of SIPC.
13.2 There is not now pending or threatened or to the Agent's knowledge,
contemplated against the Agent any action or proceeding, either in any court of
competent jurisdiction, before the Commission or before any state securities
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commission or the NASD, concerning the Agent's activities which would impair the
ability of the Agent to conduct the Offering as contemplated by this Agreement.
13.3 In the event any action or proceeding of the type referred to in
Section 13.2 above shall be instituted or threatened against the Agent at any
time prior to the Closing Date or, in the event there shall be filed by or
against the Agent in any court, pursuant to any federal, state, local or
municipal statute, a petition in bankruptcy or insolvency or for reorganization
or for the appointment of a receiver or trustee of its assets or if the Agent
makes an assignment for the benefit of creditors, the Company shall have the
right, on three (3) days' written notice to the Agent, to terminate this
Agreement without any liability to the Agent of any kind, except for the payment
of all expenses provided herein, if due.
13.4 Agent understands and acknowledges that prior to issuance, the
Securities are not being registered under the Act, and that the Offering is to
be conducted pursuant to Regulation D under the Securities Act of 1933, as
amended, (the "Act"). Accordingly, in conducting its activities under this
Agreement:
(a) Agent has not offered or sold and will not offer or sell any
Securities to any investor which Agent does have reasonable grounds to believe,
or does not believe, is an "Accredited Investor," within the meaning of
Regulation D under the Act.
(b) Agent has not offered or sold and will not offer or sell any
Securities by means of any form of general solicitation or general advertising,
including, but not limited to, the following:
(1) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar medium or broadcast over
television or radio or internet; and
(2) any seminar or meeting whose attendees have been invited by
any general solicitation or general advertising.
(c) Agent will not solicit or accept the subscription of any person
unless immediately before accepting such subscription Agent has reasonable
grounds to believe and does believe that (i) such person is an Accredited
Investor and (ii) all representations made and information furnished by such
person in the Subscription Agreement and related documents are true and correct
in all material respects.
(d) [Intentionally Omitted].
(e) Upon notice from the Company that the Offering Documents are
required to be amended or supplemented, Agent will immediately cease use of the
Offering Documents until Agent has received such amendment or supplement and
thereafter will make use of the Offering Documents only as so amended or
supplemented, and Agent will deliver a copy of such amendment or supplement to
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<PAGE>
each prospective investor to whom a copy of the Offering Documents had
previously been delivered (and who has not returned such copy).
(f) Agent use its best efforts to conduct the offering of the
Securities in a manner that will allow the availability of the private offering
exemption from federal securities regulation provided by Regulation D
promulgated under the Securities Act of 1933, as amended, provided, however,
that agent is not responsible for the unavailability of such exemption caused by
the misrepresentations of the Company or of an Investor.
(g) Agent will notify the Company in writing promptly when any
event shall have occurred during the Offering Period as a result of which any
representation or warranty of the Agent herein would not be true.
13.5 Neither the Agent nor any of its Affiliates will take any action
which will impair the effectiveness of the transactions contemplated by this
Agreement.
13.6 All corporate actions by Agent required for the execution, delivery
and performance of this Agreement have been taken. The execution and delivery of
this Agreement by the Agent, the observance and performance thereof, and the
consummation of the transactions contemplated herein or in the Offering
Documents do not and will not constitute a material breach of, or a material
default under, any instrument or agreement by which the Agent is bound, and does
not and will not, to the best of the Agent's knowledge, contravene any existing
law, decree or order applicable to it. This Agreement constitutes a valid and
binding agreement of Agent, enforceable in accordance with its terms.
13.7 Agent understands that the Company is relying upon Agent's
representations and warranties in connection with the Offering and the sale of
the Securities contemplated by this Agreement.
13.8 Agent's representations and warranties under this Section 13 shall
be true and correct as of the Closing, and shall survive the Closing
indefinitely.
13.9 Upon closing of the Offering, Placement Agent agrees to provide the
following services (the "PLUS Package Aftermarket Services") for a period of one
(1) year following the Last Closing Date of the Offering (service may be
provided for periods following one (1) year subject to subsequent agreement
between Company and Placement Agent); provided, however, that Placement Agent,
in its discretion, may discontinue providing the PLUS Package Aftermarket
Services if there is a material adverse change to the Company's fundamentals or
business prospects after the date hereof.
1) Analyst Coverage and Reporting.
Placement Agent's analyst will prepare a full-scale research report
("Analyst Report") on the Company which is expected to include the
following:
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- Company's Technology
- Company's Target Market
- Industry overview
- Business plan & strategy
- Competitors
- Current contracts
- 3rd Party Partners
- Company Management and Board
The Analyst Report will be prepared following the Offering and will be
updated at least quarterly thereafter.
2) Identification of Target Institutions to Distribute Analyst Coverage.
Placement Agent will identify a minimum of twenty five (25) institutional
buy-side equity investors (together with the private equity investors in
the Offering, referred to as the "Target Affinity Group") which have
orientation toward the Company's specific industry and/or small
capitalization equity securities. Placement Agent will contact the
institutional investment manager of each member of the Target Affinity
Group and use its best efforts to get each to agree to participate in the
"PLUS" program. Placement Agent will thereafter distribute its Analyst
Report to the participating Target Affinity Group, including all Analyst
Report updates.
3) Quarterly Institutional Conference Calls.
Placement Agent will arrange and conduct Quarterly (post earnings)
conference calls between the Target Affinity Group and the Company
regarding the Company's progress and future prospects. Placement Agent will
bear the telephone expense of such conference calls.
4) Annual Investor Conference.
Placement Agent will arrange and conduct a New York based investor
conference to highlight the Company to the Target Affinity Group and other
institutional equity investors who have interest in attending the Company
presentation. The investor conference will be arranged by Placement Agent
approximately twelve (12) months after the Offering. Placement Agent will
make all arrangements, organize the event, contact and make invitations to
targeted participants and provide support personnel at the event. The
Company will be responsible for the expenses of all accommodations and
conference facilities as well as travel and lodging expenses for Company
and Placement Agent personnel during conference.
5) Competitive/Industry Tracking and Alert Service.
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Placement Agent will identify Company's top three publicly traded
competitors and will use reasonable efforts to provide timely "Fax Alerts"
to a person designated by Company highlighting significant announcements by
competition and of significant industry related news.
6) "PLUS - ONLINE" Services.
(i) Internet Site. Placement Agent will use its best efforts to provide,
within six (6) months of the closing of the Offering, an internet based
on-line system which will provide access to the Target Affinity Group and
others designated by the Company (as agreed between Placement Agent and
Company) of the following Company related information:
- Company overview/slideshow presentation
- A full motion video of the Company's overview
- Placement Agent Analyst Report coverage including quarterly updates
- A chronological archive of the Company's press releases
- Video/voice Archive of Company's quarterly earnings conference call
presentations
- A full motion video "Virtual Roadshow" or "Factory Tour"
- 10Q and 10K documents
Placement Agent will bear expense of the on-line internet system and
uploading/maintenance of all textual and static graphics materials. Company
will bear the expense and determine the extent of the full-motion video
based presentation material to be included in the on-line presentations.
(ii) E-mail Connectivity. The on-line internet system will include
electronic mail functions between Company management, Placement Agent
personnel and the participating "PLUS" Program members.
14. Company Acknowledgments.
14.1 Company understands and acknowledges that each of the Investors,
in their sole discretion, may elect to hold the Securities for various periods
of time, as provided in the Offering Documents, and the Company further
acknowledges that Agent makes no representations or warranties as to how long
the Securities will be held by each Investor or the Investors' trading history
or investment strategies.
14.2 Company understands that the Securities are convertible based upon
the market price at the time of conversion. Since there is no floor on the
variable conversion price of the Convertible Notes, there is the risk that
conversion of the Securities could result in significant dilution to the
Company's Common Stock if the price of the Company's Common Stock declines.
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14.3 Company understands that, although the redemption privilege
protects against unsatisfactory dilution, the Company must have available funds
or credit lines in order to effect a redemption. There is no assurance that the
Company will have available funds or credit lines in order to effect a
redemption at any given time.
14.4 Company understands that there is no assurance as to how the
market and/or market makers will respond to the private placement structure.
14.5 Company acknowledges that Agent has not made (either directly or
through any agent or representative) any representations, warranties or
covenants contrary to sections 14.1 through 14.4 and that Agent has disclosed
the risks inherent in the structure of the Offering including, without
limitation, risks associated with the activities contemplated in sections 14.1
through 14.4.
14.6 Company acknowledges that due to the existence of a variable
conversion price, future conversions of the Convertible Notes could result in
the issuance of more than twenty percent (20%) of the outstanding Common Stock
of Company.
14.7 Company acknowledges that it has conducted a thorough analysis and
has determined to its satisfaction that (i) the Offer and sales of the
Convertible Notes and the issuance of Common Stock upon conversion thereof will
not result in a violation of New York Stock Exchange ("NYSE") Listed Company
Manual Section 312.03(c) (or any successor rule) (the "NYSE 20% Rule") or any
other applicable NYSE Rules and (ii) this Offering will not be deemed to be
integrated with any prior placement of securities by the Company under Rule 502
of the Securities Act of 1933 or other applicable law.
15. Notices. Except as otherwise expressly provided in this Agreement:
15.1 Whenever notice is required by the provisions of this Agreement to
be given to the Company, such notice shall be in writing, addressed to the
Company, at:
If to Company: Attn: James S. Crofton, Chief Financial Officer
EA Industries, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764-9989
Telephone: (732) 229-1100
Facsimile: (732) 229-6162
With a Copy to: Attn: Richard P. Jaffe, Esq.
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
Philadelphia, PA 19103-7598
Telephone: (215) 994-1000
Facsimile: (215) 994-1111
15.2 Whenever notice is required by the provisions of this Agreement to
be given to the Agent, such notice shall be given in writing, addressed to the
Agent, at:
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If to the Agent: Attn: Eric Swartz, President
Swartz Investments, LLC
1080 Holcomb Bridge Road
200 Roswell Summit, Suite 285
Roswell, Georgia 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
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With a Copy to: Attn: Robert L. Hopkins, President
Dunwoody Brokerage Services, Inc.
8309 Dunwoody Place
Atlanta, Georgia 30350
Telephone: (770) 640-0011
Facsimile: (770) 993-1324
15.3 Any notice instructing the Escrow Agent to distribute monies or
Securities held in Escrow must be signed by authorized agents of both the
Company and the Agent in order to be valid.
16. Miscellaneous.
16.1 Benefit. This Agreement is made solely for the benefit of the
Agent and the Company, their respective officers and directors and any
controlling person referred to in Section 15 of the Act and their respective
successors and assigns, and no other person may acquire or have any right under
or by virtue of this Agreement, including, without limitation, the holders of
any Securities. The term "successor" or the term "successors and assigns" as
used in this Agreement shall not include any purchasers, as such, of any of the
Securities.
16.2 Survival. The respective indemnities, agreements, representations,
warranties, covenants and other statements of the Company and the Agent, or the
officers, directors or controlling persons of the Company and the Agent as set
forth in or made pursuant to this Agreement and the indemnity agreements of the
Company and the Agent shall survive and remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company or the
Agent or any such officer, director or controlling person of the Company or of
the Agent; (ii) delivery of or payment for the Securities; or (iii) the Closing
Date, and any successor of the Company or the Agent or any controlling person,
officer or director thereof, as the case may be, shall be entitled to the
benefits hereof.
16.3 Governing Law, Jurisdiction and Arbitration. The validity,
interpretation and construction of this Agreement and of each party hereof will
be governed by the Laws of the State of Georgia. Any controversy or claim
arising out of or related to this Agreement or the breach thereof, shall be
settled by binding arbitration in Atlanta, Georgia in accordance with the
Expedited Procedures (Rules 53-57) of the Commercial Arbitration Rules of the
American Arbitration Association (AAA). A proceeding shall be commenced upon
written demand by Company or any Holder to the other. The arbitrator(s) shall
enter a judgment by default against any party which fails or refuses to appear
in any properly noticed arbitration proceeding. The proceeding shall be
conducted by one (1) arbitrator, unless the amount alleged to be in dispute
exceeds two hundred fifty thousand dollars ($250,000), in which case three (3)
arbitrators shall preside. The arbitrator(s) will be chosen by the parties from
a list provided by the AAA, and if they are unable to agree within ten (10)
days, the AAA shall select the arbitrator(s). The arbitrators must be experts in
22
<PAGE>
securities law and financial transactions. The arbitrators shall assess costs
and expenses of the arbitration, including all attorneys' and experts' fees, as
the arbitrators believe is appropriate in light of the merits of parties'
respective positions in the issues in dispute. Each party submits irrevocably to
the jurisdiction of any state court sitting in Fulton County, Georgia or to the
United States District Court for the Northern District of Georgia for purposes
of enforcement of any discovery order, judgment or award in connection with such
arbitration. The award of the arbitrator(s) shall be final and binding upon the
parties and may be enforced in any court having jurisdiction. The arbitration
shall be held in such place as set by the arbitrator(s) in accordance with Rule
55.
16.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
16.5 Confidential Information. All confidential financial or business
information (except publicly available or freely usable material otherwise
obtained from another source) respecting either party will be used solely by the
other party in connection with the within transactions, be revealed only to
employees or contractors of such other party who are necessary to the conduct of
such transactions, and be otherwise held in strict confidence.
16.6 Public Announcements. Neither party hereto will issue any public
announcement concerning the within transactions without the approval of the
other party. The Agent shall have the right to approve any press release issued
by the Company in connection with the Offering which approval shall not be
unreasonably withheld.
16.7 Finders. Company represents that it is not obligated to pay any
compensation or other fees, costs or related expenditures in cash or securities
to any underwriter, broker, agent, finder or other representative other than
Agent. Company agrees to indemnify the Agent with respect to any other claim for
a fee in connection with the Offering. Agent agrees to indemnify the Company
with respect to any claim for a finder's fee which arises because of Agent's
agreement to pay a fee to the person or entity making such claim.
16.8 Recitals. The recitals to this Agreement are a material part
hereof, and each recital is incorporated into this Agreement by reference and
made a part of this Agreement.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly caused this Placement
Agent Agreement to be executed as of the day and year first above written.
"THE COMPANY"
EA INDUSTRIES, INC.
By: /s/ Howard P. Kamins
-----------------------------
Howard P. Kamins, Vice President
"THE AGENT"
SWARTZ INVESTMENTS, INC.
By: /s/ Eric S. Swartz
-----------------------------
Eric S. Swartz, President
24
EXHIBIT 99.6
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
LISTED FOR TRADING ON THE NEW YORK STOCK EXCHANGE ("NYSE") REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW, AND THIS WARRANT MAY NOT BE EXERCISED AND THE WARRANT AND THE
WARRANT SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF OR EXERCISED UNLESS (i) THE WARRANT SHARES HAVE BEEN LISTED FOR
TRADING ON THE NYSE AND (ii) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER,
SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SUBSCRIBERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH UNDER THAT CERTAIN REGULATION D
SUBSCRIPTION AGREEMENT BY AND BETWEEN THE COMPANY AND HOLDER REFERENCED THEREIN
AS EXHIBIT E.
Warrant to Purchase
_______ shares
Warrant to Purchase Common Stock
of
EA INDUSTRIES, INC.
THIS CERTIFIES that ________________ or any subsequent holder hereof
("Holder"), has the right to purchase from EA INDUSTRIES, INC., a New Jersey
corporation (the "Company"), up to _______________ fully paid and nonassessable
shares of the Company's common stock ("Common Stock"), subject to adjustment as
provided herein, at a price equal to the Exercise Price as defined in Section 3
below, at any time beginning on the Date of Issuance (defined below) and ending
at 5:00 p.m., New York, New York time, on July ___, 2001 (the "Exercise
Period").
Holder agrees with the Company that this Warrant to Purchase Common Stock
of EA Industries, Inc. (this "Warrant") is issued and all rights hereunder shall
be held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance.
This Warrant shall be deemed to be issued on July ___, 1998 ("Date of
Issuance").
<PAGE>
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby upon surrender of this Warrant, with the Exercise Form attached hereto as
Exhibit A (the "Exercise Form") duly completed and executed, together with the
full Exercise Price (as defined below) for each share of Common Stock as to
which this Warrant is exercised, at the office of the Company, EA Industries,
Inc., 185 Monmouth Parkway, West Long Branch, NJ 07764-9989 Attn: James Crofton
Telephone: 732-229-1100 Facsimile: 732-229-6162 , or at such other office or
agency as the Company may designate in writing, by overnight mail, with an
advance copy of the Exercise Form sent to the Company and its Transfer Agent by
facsimile (such surrender and payment of the Exercise Price hereinafter called
the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price shall equal $3.1625 per share ("Exercise Price").
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: subject to the last sentence of this Section 3,
surrender of this Warrant at the principal office of the Company together with
notice of cashless election, in which event the Company shall issue Holder a
number of shares of Common Stock computed using the following formula:
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X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average closing bid price of the Common Stock
for the five (5) trading days prior to the Date of Exercise
of this Warrant (the "Average Closing Price"), as reported
by the National Association of Securities Dealers Automated
Quotation System ("Nasdaq") Small Cap Market, or if the
Common Stock is not traded on the Nasdaq Small Cap Market,
the Average Closing Price in any other over-the-counter
market; provided, however, that if the Common Stock is
listed on a stock exchange, the Market Price shall be the
Average Closing Price on such exchange for the five (5)
trading days prior to the date of exercise of the Warrants.
If the Common Stock is/was not traded during the five (5)
trading days prior to the Date of Exercise, then the closing
price for the last publicly traded day shall be deemed to be
the closing price for any and all (if applicable) days
during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained herein, this Warrant may not
be exercised in a cashless exercise transaction if, on the Date of Exercise, the
shares of Common Stock to be issued upon exercise of this Warrant would upon
such issuance (x) be immediately transferable in the United States free of any
restrictive legend, including without limitation under Rule 144; (y) be then
registered pursuant to an effective registration statement filed pursuant to
that certain Registration Rights Agreement dated on or about July ___, 1998 by
and among the Company and certain investors; or (z) otherwise be registered
under the Securities Act of 1933, as amended.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This
3
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Warrant shall be canceled upon such surrender and, as soon as practicable
thereafter, the person to whom such transfer is made shall be entitled to
receive a new Warrant or Warrants as to the portion of this Warrant transferred,
and Holder shall be entitled to receive a new Warrant as to the portion hereof
retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise of
this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about July 14, 1998 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any time
effect a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give Holder the same notice it provides to holders of Common Stock
of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding year) then, in
any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of
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Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more. No adjustment made
pursuant to any provision of this Section 5 shall have the net effect of
increasing the Exercise Price. The number of shares of Common Stock subject
hereto shall increase proportionately with each decrease in the Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event that
at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
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<PAGE>
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for the Exercise of
this Warrant and payment of the Exercise Price. The Company covenants and agrees
that upon the Exercise of this Warrant, all shares of Common Stock issuable upon
such exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been issued in
a transaction exempt from the registration requirements of the Act by virtue of
Regulation D and exempt from state registration under applicable state laws. The
Warrant and the Common Stock issuable upon the Exercise of this Warrant may not
be pledged, transferred, sold or assigned except pursuant to an effective
registration statement or an exemption to the registration requirements of the
Act and applicable state laws.
(b) Assignment. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B, indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and Holder any legal or equitable right, remedy or claim
under this Warrant and this Warrant shall be for the sole and exclusive benefit
of the Company and Holder.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of New York,
without giving effect to conflict of law provisions thereof.
6
<PAGE>
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction
or mutilation of this Warrant, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Company, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to Attention:
President, EA Industries, Inc., 185 Monmouth Parkway, West Long Branch, NJ
07764-9989 Attn: James Crofton Telephone: 732-229-1100 Facsimile: 732-229-6162,
with a copy to Richard P. Jaffe, Esq., Mesirov Gelman Jaffe Cramer & Jamieson,
LLP, 1735 Market Street, Philadelphia, PA 19103 Telephone: 215-994-1000
Facsimile: 215-994-1111. Notices or demands pursuant to this Warrant to be given
or made by the Company to or on Holder shall be sufficiently given or made if
sent by certified or registered mail, return receipt requested, postage prepaid,
and addressed, to the address of Holder set forth in the Company's records,
until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of July, 1998.
EA INDUSTRIES, INC.
By:
-----------------------------------
Howard P. Kamins, Vice President
7
<PAGE>
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: EA INDUSTRIES, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of EA
INDUSTRIES, INC., a New Jersey corporation (the "Company"), evidenced by the
attached warrant (the "Warrant"), and herewith makes payment of the exercise
price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated:
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Print Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
8
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of EA INDUSTRIES,
INC., evidenced by the attached Warrant and does hereby irrevocably constitute
and appoint _______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: -------------------------------
Signature
Fill in for new registration of Warrant:
-----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of assignee
(including zip code number)
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
9
EXHIBIT 99.7
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION
WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF INVOLVES A HIGH DEGREE OF RISK. HOLDER MUST RELY ON HIS OWN ANALYSIS OF
THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET
FORTH IN THE DISCLOSURE DOCUMENTS UNDER THAT CERTAIN SUBSCRIPTION AGREEMENT FOR
6% CONVERTIBLE DEBENTURES ("DEBENTURES") BY AND BETWEEN THE COMPANY AND HOLDER
REFERENCED THEREIN AS EXHIBIT E.
Warrant to Purchase
100,465 shares
Warrant to Purchase Common Stock
of
EA INDUSTRIES, INC.
THIS CERTIFIES that Swartz Investments, LLC or any subsequent ("Holder")
hereof, has the right to purchase from EA INDUSTRIES, INC., a New Jersey
corporation (the "Company"), not more than 100,465 fully paid and nonassessable
shares of the Company's Common Stock ("Common Stock"), at a price equal to the
Exercise Price as defined in Section 3 below, subject to adjustment as provided
herein, at any time on or before 5:00 p.m., Atlanta, Georgia time, on July 17,
2003.
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Date of Issuance.
<PAGE>
This Warrant shall be deemed to be issued on July 17, 1998 ("Date of
Issuance").
2. Exercise.
(a) Manner of Exercise. This Warrant may be exercised as to all or any
lesser number of full shares of Common Stock covered hereby upon surrender of
this Warrant, with the Exercise Form attached hereto duly completed and
executed, together with the full Exercise Price (as defined in Section 3) for
each share of Common Stock as to which this Warrant is exercised, at the office
of the Company, EA Industries, Inc., 185 Monmouth Parkway, West Long Branch, NJ
07764-9989, Attention: James S. Crofton, Chief Financial Officer, Telephone No.
(732) 229-1100, Telecopy No. (732) 229-6162, or at such other office or agency
as the Company may designate in writing, by overnight mail, with an advance copy
of the Exercise Form attached as Exhibit A ("Exercise Form") sent by facsimile
to the Company and its Transfer Agent (such surrender and payment of the
Exercise Price hereinafter called the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company and its Transfer Agent, provided that
the original Warrant and Exercise Form are received by the Company within five
(5) business days thereafter. The original Warrant and Exercise Form must be
received within five (5) business days of the Date of Exercise, or the exercise
may, at the Company's option, be considered void. Alternatively, the Date of
Exercise shall be defined as the date the original Exercise Form is received by
the Company, if Holder has not sent advance notice by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the Date of Exercise, the Holder
hereof shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise, and if this Warrant is not exercised in full, the
Holder shall be entitled to receive a new Warrant or Warrants (containing terms
identical to this Warrant) representing any unexercised portion of this Warrant
in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to have become the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of such shares of Common Stock. Nothing in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price") shall equal $2.6875 ("Initial
Exercise Price") or, if the Date of Exercise is more than one (1) year after the
Date of Issuance, the lesser of (i) the Initial Exercise Price or (ii) the
"Lowest Reset Price", as that term is defined below. The Company shall calculate
a "Reset Price" on each anniversary date of the Date of Issuance which shall
equal one hundred percent (100%) of the average Closing Bid Price (as defined
below) of the Company's Common Stock for the five (5)
2
<PAGE>
trading days ending on such anniversary date of the Date of Issuance. The
"Lowest Reset Price" shall equal the lowest Reset Price determined on an
anniversary date of the Date of Issuance preceding the Date of Exercise, taking
into account, as appropriate, any adjustments made pursuant to Section 5 hereof.
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(a) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(b) Cashless Exercise: surrender of this Warrant at the principal office of
the Company together with notice of cashless election, in which event the
Company shall issue Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant
is being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(b), the "Market Price" shall be
defined as the average Closing Sale Price (as defined below) of
the Common Stock for the five (5) trading days prior to the Date
of Exercise of this Warrant (the "Average Closing Price"), as
reported by Nasdaq or if the Common Stock is not traded on
Nasdaq, the Average Closing Price in the over-the-counter market.
If the Common Stock is/was not traded during the five (5) trading
days prior to the Date of Exercise, then the Closing Sale Price
for the last publicly traded day shall be deemed to be the
closing price for any and all (if applicable) days during such
five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
As used herein, "Closing Bid Price" means, for any security as of any date, the
last closing bid price for such security on the New York Stock Exchange (the
"NYSE") as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the
NYSE is not the principal securities
3
<PAGE>
exchange or trading market for such security, the last closing bid price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as mutually determined by the Company and the holder of
this warrant. If the Company and the holder of this warrant are unable to agree
upon the fair market value of the Common Stock, then such dispute shall be
resolved by an investment banking firm mutually acceptable to the Company and
the holder of a this warrant.
As used herein, "Closing Sale Price" means, for any security as of any
date, the last closing trade price for such security on the NYSE as reported by
Bloomberg, or, if the NYSE is not the principal securities exchange or trading
market for such security, the last closing trade price of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing trade price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
last closing trade price is reported for such security by Bloomberg, the last
closing bid price of such security as reported by Bloomberg, or, if no last
closing bid price is reported for such security by Bloomberg, the average of the
bid prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Sale Price cannot
be calculated for such security on such date on any of the foregoing bases, the
Closing Sale Price of such security on such date shall be the fair market value
as mutually determined by the Company and the holders of a majority of the
principal amount of the Company's Debentures. If the Company and the holders of
Debentures are unable to agree upon the fair market value of the Common Stock,
then such dispute shall be resolved by an investment banking firm mutually
acceptable to the Company and the holders of a majority of the outstanding
principal amount of Debentures.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and the Holder of this Warrant shall be entitled to receive
a new Warrant or Warrants as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise of
this Warrant constitute "Registrable Securities" under that certain Registration
Rights Agreement dated on or about July 17, 1998 by and between the Company and
Swartz
4
<PAGE>
Investments, LLC and, accordingly, has the benefit of the registration rights
pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then the Holder hereof, upon Exercise of this
Warrant after the record date for the determination of Holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise of
this Warrant, in addition to the number of shares of Common Stock as to which
this Warrant is Exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been Exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any time
effect a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give the Warrant Holder the same notice it provides to holders of
Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute to Holders
of Common Stock cash, evidences of indebtedness or other securities or assets
(other than cash dividends or distributions payable out of earned surplus or net
profits for the current or preceding year) then, in any such case, the Holder of
this Warrant shall be entitled to receive, upon exercise of this Warrant, with
respect to each share of Common Stock issuable upon such Exercise, the amount of
cash or evidences of indebtedness or other securities or assets which such
Holder would have been entitled to receive with respect to each such share of
Common Stock as a result of the happening of such event had this Warrant been
Exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board in its discretion) and the denominator of which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event,
5
<PAGE>
as a result of which shares of Common Stock of the Company shall be changed
into the same or a different number of shares of the same or another class or
classes of stock or securities or other assets of the Company or another entity
or there is a sale of all or substantially all the Company's assets (a
"Corporate Change"), then this Warrant shall be assumed by the acquiring entity
or any affiliate thereof and thereafter this Warrant shall be exerciseable into
such class and type of securities or other assets as the Holder would have
received had the Holder exercised this Warrant immediately prior to such
Corporate Change; provided, however, that Company may not affect any Corporate
Change unless it first shall have given thirty (30) days notice to the Holder
hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, as it may be reset from time to time, until the occurrence of an event
stated in subsection (a), (b) or (c) of this Section 5 and thereafter shall mean
said price as adjusted from time to time in accordance with the provisions of
said subsection. No such adjustment under this Section 5 shall be made unless
such adjustment would change the Exercise Price at the time by $.001 or more;
provided, however, that all adjustments not so made shall be deferred and made
when the aggregate thereof would change the Exercise Price at the time by $.001
or more. No adjustment made pursuant to any provision of this Section 5 shall
have the effect of increasing the total consideration payable upon Exercise of
this Warrant in respect of all the Common Stock as to which this Warrant may be
exercised. Notwithstanding anything to the contrary contained herein, the
Exercise Price shall not be reduced to an amount below the par value of the
Common Stock.
(f) Adjustments: Additional Shares, Securities or Assets. In the event that
at any time, as a result of an adjustment made pursuant to this Section 5, the
Holder of this Warrant shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock) then,
wherever appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or assets;
and thereafter the number of such shares and/or other securities or assets shall
be subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
7. Reservation of Shares.
6
<PAGE>
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise and
payment of the Exercise Price of this Warrant. The Company covenants and agrees
that upon Exercise of this Warrant, all shares of Common Stock issuable upon
such Exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant and the Common
Stock issuable on Exercise hereof have not been registered under the
Securities Act of 1933, as amended, and may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of in the absence of registration or
the availability of an exemption from registration under said Act. All shares of
Common Stock issued upon Exercise of this Warrant shall bear an appropriate
legend to such effect, if applicable.
(b) Assignment. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Holder may sell,
transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in
part. Holder shall deliver a written notice to Company, substantially in the
form of the Assignment attached hereto as Exhibit B, indicating the person or
persons to whom the Warrant shall be assigned and the respective number of
warrants to be assigned to each assignee. The Company shall effect the
assignment within ten days, and shall deliver to the assignee(s) designated by
Holder a Warrant or Warrants of like tenor and terms for the appropriate number
of shares.
(c) Investment Intent. The Warrant and Common Stock issuable upon
conversion are intended to be held for investment purposes and not with an
intent to distribution, as defined in the Act.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person other
than the Company and the Holder of this Warrant any legal or equitable right,
remedy or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Company and the Holder of this Warrant.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of New Jersey, without giving
effect to conflict of law provisions thereof.
11. Loss of Warrant.
7
<PAGE>
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by the Holder of
this Warrant to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company, EA
Industries, Inc., 185 Monmouth Parkway, West Long Branch, NJ 07764-9989,
Attention: James S. Crofton, Chief Financial Officer, Telephone No. (732)
229-1100, Telecopy No. (732) 229-6162, with a copy to Richard P. Jaffe, Esq.,
Mesirov Gelman Jaffe Cramer & Jamieson, LLP, 1735 Market Street, Philadelphia,
PA 19103 Telephone: 215-994-1000 Facsimile: 215-994-1111. Notices or demands
pursuant to this Warrant to be given or made by the Company to or on the Holder
of this Warrant shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, Attn:
Holder, address: c/o Swartz Investments, LLC, 200 Roswell Summit, Suite 285,
1080 Holcomb Bridge Road, Roswell, Georgia 30076, until another address is
designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
17th day of July, 1998.
EA INDUSTRIES, INC.
By: Howard P. Kamins
--------------------------------
Howard P. Kamins,
Vice President
8
<PAGE>
EXHIBIT A
EXERCISE FORM
TO: ___________________.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock of EA INDUSTRIES, INC., a New Jersey
corporation, evidenced by the attached Warrant, and herewith makes payment of
the Exercise Price with respect to such shares in full, all in accordance with
the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any of such Common Stock, except in accordance with the provisions of
Section 8 of the Warrant, and consents that the following legend may be affixed
to the stock certificates for the Common Stock hereby subscribed for, if such
legend is applicable:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any
provincial or state securities law, and may not be sold, transferred,
pledged, hypothecated or otherwise disposed of until either (i) a
registration statement under the Securities Act and applicable provincial
or state securities laws shall have become effective with regard thereto,
or (ii) an exemption from registration under the Securities Act or
applicable provincial or state securities laws is available in connection
with such offer, sale or transfer."
The undersigned requests that stock certificates for such shares be issued,
and a warrant representing any unexercised portion hereof be issued, pursuant to
the Warrant in the name of the Registered Holder and delivered to the
undersigned at the address set forth below:
Dated:
- --------------------------------------------------------------------------------
Signature of Registered Holder
- --------------------------------------------------------------------------------
Name of Registered Holder (Print)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase _______ shares of the Common Stock of EA INDUSTRIES, INC. evidenced by
the attached Warrant and does hereby irrevocably constitute and appoint
_______________________ attorney to transfer the said Warrant on the books of
the Company, with full power of substitution in the premises.
Dated: ----------------------------
Signature
Fill in for new Registration of Warrant:
- -----------------------------------------
Name
- -----------------------------------------
Address
- -----------------------------------------
Please print name and address of assignee
(including zip code number)
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form or Assignment must correspond to
the name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
10
