EXHIBIT 10.3
Form of Subscription Agreement and Debenture
THE DEBENTURE, AND ANY SHARES OF COMMON STOCK ACQUIRED UPON CONVERSION
THEREOF, HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS, EXCEPT AS EXPRESSLY
PROVIDED IN PARAGRAPH 5 OF THIS SUBSCRIPTION AGREEMENT, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL ACCEPTABLE TO COUNSEL FOR
THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE PROPOSED TRANSFER
MAY BE MADE WITHOUT VIOLATION OF THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW.
SUBSCRIPTION AGREEMENT
This Subscription Agreement ("Agreement"), made as of May __, 1996 and effective
as set forth herein, by (i) the undersigned subscriber ("Subscriber"), on the
one hand, and (ii) EA Industries, Inc., a New Jersey corporation ("Seller"), on
the other hand, will confirm the complete understanding and agreement among the
parties with respect to the following.
1. Purchase, Sale and Delivery of Debentures.
(a) Upon the terms and conditions herein set forth, and on the basis of
the respective representations herein contained, Subscriber hereby subscribes
for and agrees to purchase from the Seller, 9% subordinated convertible
debentures ("Debentures") of Seller in the form of, and containing the terms set
forth in, Exhibit "A" attached hereto. The principal amount of the Debentures
subscribed for by Subscriber, the purchase price to be paid by Subscriber
("Purchase Price") and the conversion price for the shares of common stock of
Seller into which the Debentures are convertible ("Shares") (Debentures and
Shares which are issued or issuable upon conversion of the Debentures, are
sometimes hereinafter collectively referred to as "Securities") are set forth in
Schedule 1 annexed hereto (the "Schedule").
(b) The Subscriber agrees to pay the Purchase Price and shall deliver
to Seller herewith by wire transfer as set forth on Schedule 1 the full amount
of the Purchase Price payable to Seller, which sum represents full payment for
the Debentures.
(c) The Subscriber understands and agrees that upon receipt of such
funds delivered by him pursuant to this Paragraph 1 a closing ("Closing") on the
Debentures will have occurred, and that the amount of such check will be
returned without interest, if such Closing does not occur on or before May 3,
1996.
(d) The Subscriber understands that the proceeds will be used for
working capital purposes and for a private purchase of stock in a publicly held
company.
(e) Upon Closing, a certificate in the form of Exhibit "A"
evidencing the Debentures shall be delivered by the Seller to the Subscriber.
2. Representations and Covenants of Subscriber. Subscriber hereby
represents, warrants and covenants to the Seller as follows:
(a) Subscriber has full power and lawful authority to execute and
deliver this Agreement and to purchase the Debentures in accordance with the
terms hereof and this Agreement constitutes the legally valid and binding
agreement of Subscriber;
(b) The execution and delivery of this Agreement and the consummation
of the sale of the Debentures and the transactions contemplated hereby do not
and will not conflict with or result in the breach by Subscriber of any of the
terms or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust or other material agreement or instrument to which the Subscriber
is a party or by which Subscriber or any of the Subscriber's properties or
assets are bound, or any existing applicable law, rule or regulation or any
applicable decree, judgment or order of any court, regulatory body,
administrative agency or other governmental body having jurisdiction over any of
Subscriber's properties or assets;
(c) Subscriber has made its own investigation of Seller and its
business prospects and of the risks associated with an investment in Seller's
Securities and has received, read and understands the information contained in
the Amendment No. 6 on Form S-3 to Seller's Form S-1 Registration Statement
dated August 11, 1995, Seller's Form S-3 Registration Statement dated January
17, 1996 (including all supplements and post-effective amendments with respect
thereto), the Seller's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1995, the Quarterly Report on Form 10-Q for the quarterly period
ended April 1, 1995, the Quarterly Report on Form 10-Q for the quarterly period
ended July 1, 1995, the Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1995, the Current Report on Form 8-K dated January 4, 1995
as amended by the Form 8-K/A dated March 17, 1995, the Current Report on Form
8-K dated January 16, 1995 as amended by the Form 8-K/A dated March 30, 1995,
the Current Report on Form 8-K dated May 24, 1995, the Current Report on Form
8-K dated August 3, 1995 as amended on Form 8-K/A dated August 10, 1995, and the
Definitive Proxy Statement dated April 29, 1996, all delivered by Seller to
Subscriber, and acknowledges that no representation or warranty with respect to
Seller's business prospects has been made in this Agreement by or on behalf of
Seller;
(d) Subscriber is acquiring the Debentures for his own account, for
investment only, and not with a view toward resale or distribution in a manner
that would require registration under the Securities Act of 1933, as amended
(the "Securities Act"), or any applicable state securities laws, and that he
will not sell or otherwise transfer the Debentures or the underlying Shares,
except in compliance with state and federal law;
(e) Subscriber has, either alone or together with his Purchaser
Representative, if any, such knowledge and experience in financial and business
matters that he (or they) is (are) capable of evaluating the merits and risks of
his investment in the Securities;
(f) Subscriber is able to bear the economic risk of losing his
entire investment in the Securities;
(g) Subscriber's overall commitment to investments which are not
readily marketable is not disproportionate to his net worth and current and
foreseeable needs, and his investment in the Securities will not cause such
overall commitment to become excessive;
(h) That (i) if a natural person, Subscriber is at least twenty-one
(21) years of age, (ii) he has adequate means of providing for his current and
foreseeable needs and personal contingencies, (iii) he is aware that no market
exists or may exist for the resale of the Debentures or the underlying Shares
and he has no need for liquidity in his investment in the Debentures or the
underlying Shares, (iv) he maintains his domicile (and is not a transient or
temporary resident) at the address shown on the Schedule, (v) all of his
investments in and commitments to non-liquid investments are, and after his
purchase of the Debentures will be, reasonable in relation to the undersigned's
net worth and current and foreseeable needs and (vi) the personal financial
information provided by the undersigned accurately reflects his financial
condition, with respect to which he does not anticipate any material adverse
changes;
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(i) Subscriber agrees and understands that Seller shall have the right,
in its sole discretion, to accept or reject this subscription, in whole or in
part, at any time prior to Closing, or to allocate to him only part of the
Debentures for which he has subscribed. Seller will notify him whether this
subscription is accepted or rejected. In the event his subscription is rejected,
his payment will be returned to him, without interest, and all of his
obligations hereunder shall terminate;
(j) Subscriber agrees, acknowledges and understands that neither the
Debentures or underlying Shares have been registered under the Securities Act of
1933, as amended, or the securities law of any state and, as the result thereof,
is subject to substantial restrictions on transfer, which restrictions are
described herein;
(k) Subscriber agrees and understands that he will not sell or
otherwise transfer any Securities or any interest therein except pursuant to an
effective registration statement under the Securities Act and applicable state
law or unless the Subscriber provides Seller with an opinion of counsel which is
reasonably satisfactory to counsel for Seller (both as to the issuer of the
opinion and the form and substance thereof) that the transfer of Security: (i)
may be effected without registration under the Securities Act, and (ii) does not
cause the violation of any state securities law (including any investment
suitability standards) applicable to Seller.
(l) Subscriber may be precluded from selling or otherwise transferring
or disposing of any Securities, or any portion thereof for an indefinite period
of time or at any particular time and may, therefore, have to bear the economic
risk of investment in the Securities for an indefinite period;
(m) Subscriber understands that an investment in Seller involves
certain risks and has taken full cognizance of and understands all of the risk
factors relating to the purchase of Debentures;
(n) Subscriber understands that no federal or state agency has approved
or disapproved the Debentures, passed upon or endorsed the merits of the
offering thereof, or made any finding or determination as to the fairness of the
Debentures for investment;
(o) Subscriber acknowledges that Seller has made available to him and
his Purchaser Representative, if any, the opportunity to ask questions of, and
receive answers from, Seller concerning the terms and conditions of the offering
and to obtain any additional information, to the extent that Seller or any
officer thereof possesses such information, or can acquire it without
unreasonable effort or expense, necessary to verify the accuracy of the
information given to him or otherwise to make an informed investment decision;
(p) Subscriber acknowledges that, if he has used the services of a
Purchaser Representative in connection with his investment in Seller, his
Purchaser Representative has disclosed, by submitting to him a Purchaser
Representative's Letter, in the form given to him by Seller, any material
relationship between such Purchaser Representative or his affiliates and Seller
and its affiliates, which now exists or mutually is understood to be
contemplated or which has existed at any time during the previous two (2) years,
and further setting forth any compensation received or to be received as a
result of such relationship;
(q) SUBSCRIBER ACKNOWLEDGES THAT HE UNDERSTANDS THAT IF HE IS A
PENNSYLVANIA RESIDENT, HE HAS THE RIGHT TO CANCEL AND WITHDRAW THIS SUBSCRIPTION
AGREEMENT AND HIS PURCHASE OF DEBENTURES WITHOUT INCURRING ANY LIABILITY TO
SELLER, UNDERWRITER (IF ANY) OR ANY OTHER PERSON, UPON WRITTEN NOTICE TO SELLER
GIVEN WITHIN TWO BUSINESS DAYS FOLLOWING THE DATE OF RECEIPT BY SELLER OF HIS
WRITTEN BINDING CONTRACT FOR THE PURCHASE OF THE DEBENTURES, OR IF THERE IS NO
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WRITTEN BINDING CONTRACT OF PURCHASE FOR THE DEBENTURES, TWO BUSINESS DAYS AFTER
HE MAKES THE INITIAL PAYMENT FOR THE DEBENTURES BEING OFFERED. UPON SUCH
CANCELLATION OR WITHDRAWAL, HE WILL HAVE NO OBLIGATION OR DUTY UNDER THIS
SUBSCRIPTION AGREEMENT TO SELLER, OR TO ANY OTHER PERSON AND WILL BE ENTITLED TO
THE FULL RETURN OF ALL MONIES PAID BY HIM PURSUANT TO THIS SUBSCRIPTION
AGREEMENT. THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT HE UNDERSTANDS THAT ANY
NOTICE OF CANCELLATION OR WITHDRAWAL SHOULD BE MADE BY TELEGRAPH OR CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, POSTAGE OR OTHER TRANSMITTAL FEES
PAID, AND SHOULD BE SENT AND POSTMARKED BY THE END OF THE AFOREMENTIONED SECOND
BUSINESS DAY. THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT HE UNDERSTANDS THAT IF
HE MAKES HIS REQUEST TO WITHDRAW ORALLY, HE SHOULD ASK FOR WRITTEN CONFIRMATION
THAT THE REQUEST HAS BEEN RECEIVED;
(r) SUBSCRIBER ACKNOWLEDGES AND AGREES THAT IF HE IS A PENNSYLVANIA
RESIDENT, HE MAY NOT RESELL ANY OF THE DEBENTURES OR UNDERLYING SHARES UPON
CONVERSION FOR A PERIOD OF 12 MONTHS FROM AND AFTER THE DATE OF PURCHASE, EXCEPT
IN ACCORDANCE WITH REGULATION SECTION 204.011 PROMULGATED UNDER THE PENNSYLVANIA
SECURITIES ACT OF 1972;
(s) SUBSCRIBER ACKNOWLEDGES THAT IF HE IS A NEW YORK RESIDENT, NEITHER
THIS SUBSCRIPTION AGREEMENT NOR ANY OTHER OFFERING MATERIAL HAS BEEN FILED WITH
OR REVIEWED BY THE ATTORNEY GENERAL OF THE STATE OF NEW YORK PRIOR TO ITS
ISSUANCE AND USE AND THAT THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THE OFFERING;
(t) SUBSCRIBER ACKNOWLEDGES THAT IF HE IS A NEW JERSEY RESIDENT,
NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW JERSEY NOR THE BUREAU OF
SECURITIES OF THE STATE OF NEW JERSEY HAS PASSED ON OR ENDORSED THE MERITS OF
THE DEBENTURES OR THE OFFERING THEREOF. THIS SUBSCRIPTION AGREEMENT HAS NOT BEEN
FILED WITH OR OTHERWISE APPROVED BY THE BUREAU OF SECURITIES OF THE STATE OF NEW
JERSEY;
(u) Subscriber does not own, as of May 3, 1996, directly or indirectly
(within the meaning of the attribution rules set forth in Section 318 of the
Internal Revenue Code of 1986, as amended), any stock or other interests in
Seller or any member of its affiliated group as that term is defined in Section
1504(a) of the Internal Revenue Code of 1986, as amended;
(v) Subscriber is an "accredited investor" as such term is defined
in Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act;
(w) If the Subscriber is a corporation, trust, partnership or
other entity, it was not formed for the specific purpose of acquiring the
Debentures;
(x) Subscriber agrees and understands that he is not entitled to
cancel, terminate or revoke this subscription or any agreement hereunder, except
as set forth elsewhere herein;
(y) Subscriber has relied solely upon his own knowledge and experience,
or that of his personal advisors, in determining the economic and tax benefits,
if any, of the investment with respect to his individual economic and tax
situation and in determining the tax consequences to him of being an investor in
Seller;
(z) Subscriber understands that the Debentures are being offered and
sold in reliance on specific exemptions from the registration requirements of
federal and state securities laws and that Seller
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and controlling persons thereof are relying upon the truth and accuracy of the
representations, warranties, covenants, agreements, acknowledgements, and
understandings set forth herein in order to determine the applicability of such
exemptions and the suitability of the Subscriber to acquire such Debentures;
(aa) The information set forth herein and in the Confidential
Purchaser Questionnaire concerning the Subscriber is true and correct; and
(ab) Subscriber acknowledges that, if he is purchasing the Debentures
subscribed for hereby in a fiduciary capacity, the above representations,
warranties, covenants, agreements, acknowledgements and understandings in this
Paragraph 2 shall be deemed to have been made on behalf of the person or persons
for whom he is so purchasing.
3. Representations of Seller. Seller represents and warrants to
Subscriber that:
(a) Seller is an issuer (other than an investment company registered or
required to register under the U.S. Investment Company Act of 1940, as amended)
that (i) has a class of securities registered pursuant to Section 12(b) or 12(g)
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or
is required to file reports pursuant to Section 15(d); and (ii) has timely filed
all material required to be filed by it pursuant to Section 13(a) or 15(d) of
the Exchange Act for at least the twelve (12) months immediately preceding the
date hereof;
(b) Subject to Paragraph 3(c) hereof, the Seller presently has, and as
of the Closing will have, full legal right, power and capacity and all necessary
consents, approvals and authorizations as may be required to execute and deliver
this Agreement and to issue and sell the Debentures to Subscriber pursuant
hereto and thereto and in the manner contemplated hereby and thereby;
(c) THE CONVERSION OF THE DEBENTURES INTO SHARES OF COMMON STOCK IS
EXPRESSLY CONDITIONED UPON, AMONG OTHER THINGS, THE LISTING OF THE SHARES INTO
WHICH THE DEBENTURE IS CONVERTIBLE ON THE NEW YORK STOCK EXCHANGE, AND, IF
CONVERSION RESULTS IN THE ISSUANCE OF SHARES IN AN AMOUNT EQUAL TO OR EXCEEDING
20% OF THE SELLER'S THEN ISSUED AND OUTSTANDING SHARES, APPROVAL OF A MAJORITY
OF THE SELLER'S STOCKHOLDERS.
(d) When delivered pursuant hereto, the Debentures will be duly and
validly authorized and issued, and free and clear of any and all liens, charges,
restrictions (except as may be imposed by U.S. federal and state securities
laws), claims and encumbrances and will not subject the holders thereof to any
liability by reason of holding such securities;
(e) Seller is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New Jersey;
(f) When executed and delivered by Seller, this Agreement will be duly
and validly executed and delivered by Seller and will be Seller's legally
binding obligation enforceable against Seller in accordance with its terms,
except to the extent that: (i) such enforcement may be limited by bankruptcy,
insolvency or similar laws now or hereafter in effect relating to creditors'
rights and remedies generally; and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought;
(g) The execution and delivery of this Agreement and the
consummation of the issuance of the Debentures and the transactions contemplated
hereby do not and will not conflict with or result in
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the breach by Seller of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust or other material
agreement or instrument to which such Seller is a party or by which Seller or
any of such Seller's properties or assets are bound, or any existing applicable
law, rule or regulation or any applicable decree, judgment or order of any
court, Federal or State regulatory body, administrative agency or other
governmental body having jurisdiction over any of Seller's properties or assets;
and
(h) There are no preemptive rights, rights of first refusal, repurchase
rights or any other right of Seller or any third party as to the Debentures,
except as described in the Debenture.
4. Indemnification. The Subscriber acknowledges that he understands the meaning
of the representations, warranties, covenants, agreements, acknowledgments and
understandings made by him in this Subscription Agreement and hereby agrees to
indemnify and hold harmless Seller, and each shareholder officer, director,
employee or agent of any of the foregoing, from and against any and all losses,
costs, expenses, damages, liabilities and interest (including, without
limitation, court costs and attorneys' fees) arising out of or due to a breach
by the Subscriber or any inaccuracy or incompleteness, of any such
representations, warranties, covenants, agreements, acknowledgments or
understandings contained in sections 3(a)-(h), (u)-(w) and (y) hereof. All such
representations, warranties, covenants, agreements, acknowledgments and
understandings contained in sections 3(a)-(h) (u)-(w) and (y) hereof shall
survive the delivery of this Subscription Agreement and the purchase by the
undersigned of any Debentures.
5. Registration Rights. (a) Seller shall use its best efforts to file within six
months after the Closing Date hereof, and cause to be declared effective within
eight months after the Closing Date hereof, a registration statement on Form
S-3, or such other Form as the Company shall select, with respect to the
offering and sale of the Shares which may be acquired by Subscriber upon
conversion of the Debentures purchased hereunder, provided, however, that the
filing of such registration statement shall not, in the Seller's reasonable
discretion, have a material adverse effect on the Seller. Seller shall use its
best efforts to maintain the effectiveness of such registration statement for a
period of nine months. Seller shall use its best efforts to obtain approval from
the New York Stock Exchange for the listing of the Shares within six months
after the Closing Date hereof. In addition, Subscriber shall have such piggyback
registration rights as Seller and Subscriber shall reasonably agree upon.
(b) In the event within eight months from the date hereof, either (i)
such registration statement is not declared effective, or (ii) the Shareholder
consent referred to in 3(c), if necessary, has not been obtained, or (iii) the
New York Stock Exchange has not approved the listing of the Shares, the Seller
shall immediately pay, in cash, an amount equal to ten percent (10%) of the then
outstanding principal amount of the Debentures and the holder of the Debentures
at its option may declare the entire unpaid principal and interest payable at
that time or may elect to waive its rights to such acceleration and continue to
hold the Debentures. In such event, Seller shall continue to use its best
efforts to effect such registration, listing and Shareholder consent. In
addition, Subscriber shall have such piggyback registration rights as Seller and
Subscriber shall reasonably agree upon.
(c) In the event that within nine months from the date hereof, either
(i) such registration statement is not declared effective, or (ii) the
Shareholder consent referred to 3(c), if necessary, has not been obtained, (iii)
the New York Stock Exchange has not approved the listing of the Shares, the
Seller shall immediately pay, in cash, an additional amount equal to fifteen
percent (15%) of the then outstanding principal amount of the Debentures and the
holder of the Debentures at its option may declare the entire unpaid principal
and interest payable at that time or may elect to waive such acceleration and
continue to hold the Debentures. In such event, Seller shall continue to use its
best efforts to effect such registration, listing and Shareholder consent. In
addition, Subscriber shall have such piggyback registration rights as Seller and
Subscriber shall reasonably agree upon.
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(d) In the event that (i) a Court with jurisdiction over the matter
renders a judgment that, or (ii) Subscriber presents Seller with a written
opinion of counsel demonstrating to the reasonable satisfaction of the Seller
that, the provisions of sections (b) and (c) of this paragraph 5 are
unenforceable, the Conversion Price as defined in the Debentures shall be
reduced by fifty percent (50%) and the provisions of (b) and (c) shall be
inapplicable. In such event, Seller shall continue to use its best efforts to
affect such registration and listing as described in section (a) and the
piggyback registration rights described in section (a) shall also continue to
apply.
6. Effective Date/Closing Date. This Agreement shall become effective
upon, and the Closing Date will occur on May 3, 1996.
7. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey of the United States without
regard to the conflicts of laws rules thereof.
8. Presumption. In interpreting the terms of this Agreement, no
presumption shall arise as a result of the role of any party in the drafting of
this Agreement.
9. Counterparts and Facsimile. This Agreement may be executed on
facsimile copies in two (2) or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
10. No Assignment. The undersigned agrees not to transfer or assign this
Subscription Agreement or any interest of the undersigned in the subscription in
the Debentures hereunder. Any attempted transfer or assignment shall be void and
without force or effect.
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11. Binding Agreement; Survival. This Subscription Agreement (a) shall be
binding upon the undersigned and the heirs, executors, administrators, personal
representatives and successors of the undersigned, (b) shall survive the
purchase of the Debentures, and (c) shall, if the undersigned consists of more
than one person, be the joint and several obligation of all such persons. For
purposes of this Subscription Agreement, the singular shall include the plural
and the plural shall include the singular, and the masculine shall include the
feminine and the neuter, as the context may require.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.
"Subscriber"
---------------------
By: _____________________________
"Seller"
EA INDUSTRIES, INC.
a New Jersey corporation
By:______________________________
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SCHEDULE 1
TO THE
SUBSCRIPTION AGREEMENT
1. Principal Amount of Debentures:
2. Total Purchase Price:
3. Conversion Price: Equal to the lesser of (i) 80% of
the average closing price of the
Common Stock of the Company as
traded on the New York Stock
Exchange for the five days
immediately preceding the date of
Subscriber's notice to Company of
the exercise of its right to convert
the Debentures into shares of Common
Stock, or (ii) $4 per share,
provided that no less than $100,000
of the principal amount of the
Debentures may be converted at any
one time.
4. Name and Address of Subscriber:
5. Number of certificates:
6. Denominations:
7. Name appearing on Debentures:
8. Delivery method for Debentures: Bonded Courier
9. Closing Date: May 3, 1996
10. Wire Transfer Instructions for
Remittance of Principal Amount
of Debentures: Mellon Bank
Philadelphia, PA
ABA #031000037
a/c EA Industries, Inc.
#2 492 056
Att: Catherine M. McDonnell
(215) 553-4708
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Exhibit "A"
THIS DEBENTURE, AND ANY SHARES ACQUIRED UPON CONVERSION HEREOF, HAVE
NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAWS, EXCEPT AS EXPRESSLY PROVIDED
HEREIN, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF
COUNSEL ACCEPTABLE TO COUNSEL FOR THE ISSUER THAT SUCH REGISTRATION IS NOT
REQUIRED AND THAT THE PROPOSED TRANSFER MAY BE MADE WITHOUT VIOLATION OF THE ACT
AND ANY APPLICABLE STATE SECURITIES LAW.
No. ____
$_______ May 3, 1996
EA INDUSTRIES, INC.
9% CONVERTIBLE SUBORDINATED DEBENTURE
DUE MAY 3, 1998
EA INDUSTRIES, INC. (the "Company"), a New Jersey corporation, for
value received, and intending to be legally bound, hereby promises to pay to the
order of _____________________, or registered assigns, the principal amount of
_______________________________ ($_________) on May 3, 1998 or such earlier date
as provided in Paragraph (a) under the heading "Conversion of Debenture" below
("Maturity Date"), with interest from the date hereof (computed on the basis of
a 360-day year of twelve 30-day months) payable quarterly on the first day of
each calendar quarter, commencing July 1, 1996 on the unpaid principal balance
at the rate of 9% per annum until such unpaid principal balance shall become due
and payable (whether at maturity or by acceleration or otherwise). Overdue
principal payments and (to the extent permitted by applicable law) any overdue
interest shall accrue interest at the foregoing rate per annum until paid, which
interest shall be payable on demand.
Payments of principal and interest on this Debenture shall be made in
lawful money of the United States of America by delivery of a check payable in
New York Clearing House funds to the address provided by the payee as shown on
the Debenture Register. The Company may treat the person in whose name this
Debenture is registered (the "Holder") on the Debenture Register kept by the
Company as the owner of this Debenture for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary. This Debenture is transferable only (i) in accordance with the
terms hereof and (ii) by surrender thereof at an office or agency of the Company
where this Debenture is payable, duly endorsed or accompanied by a written
instrument duly executed by the Holder of this Debenture or his attorney duly
authorized in writing.
Conversion Of Debenture. This Debenture may be converted into shares of
Common Stock of the Company, as follows:
(a) Conversion. Subject to and upon compliance with the
provisions of this section captioned "Conversion of Debenture", at the option of
the Holder, at any time following the date hereof and prior to the close of
business on the Maturity Date, the unpaid principal balance of the Debenture may
be converted in whole, or from time to time in part, into fully-paid and
non-assessable shares of
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Common Stock, of the Company (the "Shares"), at a conversion price per Share
equal to the lesser of (i) eighty percent (80%) of the average closing price of
the Common Stock of the Company as traded on the New York Stock Exchange for the
five days immediately preceding the date of Holder's notice to Company of
Holder's intention to exercise its right of conversion as set forth herein, or
(ii) $4.00 per share (the "Conversion Price"), provided that in no event shall
Holder convert less than $100,000 unpaid principal balance of the Debenture at
any one time. The conversion as set forth herein shall be subject to such
adjustment or adjustments, if any, of such Conversion Price and of the
securities or other property issuable upon such conversion as set forth below,
upon delivery of the Debenture to the offices of the Company, together with the
form of conversion notice attached thereto (the "Conversion Notice"), duly
executed by the Holder thereof. The Conversion Notice shall state the principal
amount thereof to be so converted and shall include or be accompanied by
representations as to the Holder's investment intent substantially similar to
those contained in this Debenture. Shares issuable upon conversion of the
Debenture shall be issued in the name of the Holder and shall be transferable
only in accordance with all of the terms and restrictions contained herein and
in the Subscription Agreement of even date hereof to which the original Holder
hereof is a party. Upon such conversion, Company shall pay, in cash, all accrued
and unpaid interest through the conversion date on the Debenture or such part
thereof delivered for conversion. No fractional Shares shall be issued or
delivered upon conversion of the Debenture. In case the Debenture shall be
surrendered for the conversion of only a portion of the principal amount
thereof, the Company shall, at the time of issuing the Shares of Common Stock
issuable upon the conversion of such portion, execute and deliver to the Holder
of the Debenture so surrendered a new note equal in principal amount to the
unconverted portion of the surrendered Debenture, dated the most recent date to
which interest shall have been paid on the surrendered Debenture. The Company
shall use its best efforts to file, within six months of the date hereof, and
cause to be declared effective, within eight months of the date hereof, a
registration statement under the Securities Act of 1933, as amended, covering
the shares of Common Stock underlying this Debenture (the "Registration"). In
addition, Holder shall have such piggyback registration rights as Holder and
Company shall reasonably agree upon. NOTWITHSTANDING THE FOREGOING, THE
CONVERSION OF THE DEBENTURE INTO SHARES OF COMMON STOCK IS EXPRESSLY CONDITIONED
UPON (i) THE LISTING OF THE SHARES INTO WHICH THE DEBENTURE IS CONVERTIBLE ON
THE NEW YORK STOCK EXCHANGE ("LISTING"), AND (ii) IF CONVERSION RESULTS IN THE
ISSUANCE OF SHARES IN AN AMOUNT EQUAL TO OR EXCEEDING 20% OF THE HOLDER'S THEN
ISSUED AND OUTSTANDING SHARES, APPROVAL OF A MAJORITY OF THE HOLDER'S
STOCKHOLDERS. IN THE EVENT THE LISTING OR STOCKHOLDER APPROVAL DOES NOT OCCUR,
THIS DEBENTURE SHALL NOT BE CONVERTIBLE AS AFORESAID. THE COMPANY SHALL USE ITS
BEST EFFORTS TO AFFECT THE LISTING AND THE SHAREHOLDER APPROVAL, IF NECESSARY,
WITHIN SIX MONTHS AFTER THE DATE HEREOF. FURTHER, IN THE EVENT THAT EITHER
LISTING, SHAREHOLDER APPROVAL, IF NECESSARY, OR REGISTRATION HAS NOT OCCURRED
WITHIN EIGHT MONTHS FROM THE DATE HEREOF, THEN AN AMOUNT EQUAL TO TEN PERCENT
(10%) OF THE OUTSTANDING PRINCIPAL DUE HEREUNDER SHALL IMMEDIATELY BE DUE AND
PAYABLE TO HOLDER. IN ADDITION, IN SUCH EVENT HOLDER MAY AT ITS OPTION (i)
DECLARE ALL UNPAID PRINCIPAL AND ACCRUED INTEREST HEREUNDER IMMEDIATELY DUE AND
PAYABLE OR (ii) WAIVE ITS RIGHTS TO SUCH ACCELERATION AND CONTINUE TO HOLD THE
DEBENTURES, WHICH SHALL THEN CONTINUE TO BE CONVERTIBLE IN ACCORDANCE WITH THEIR
TERMS. IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS BEST EFFORTS TO AFFECT
SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF NECESSARY AND HOLDER
SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS. FURTHER, IN THE EVENT
THAT THE LISTING OR SHAREHOLDER APPROVAL HAS NOT OCCURRED OR THE REGISTRATION IS
NOT EFFECTIVE WITHIN NINE MONTHS FROM THE DATE HEREOF, THEN AN ADDITIONAL AMOUNT
EQUAL TO FIFTEEN PERCENT (15%) OF THE OUTSTANDING PRINCIPAL DUE HEREUNDER SHALL
IMMEDIATELY BE DUE AND PAYABLE TO HOLDER. IN ADDITION, IN SUCH EVENT HOLDER MAY
AT ITS OPTION (i) DECLARE ALL UNPAID PRINCIPAL AND ACCRUED INTEREST HEREUNDER
IMMEDIATELY DUE AND PAYABLE OR (ii) WAIVE ITS RIGHTS TO SUCH ACCELERATION AND
CONTINUE TO HOLD THE DEBENTURES, WHICH SHALL THEN CONTINUE TO BE CONVERTIBLE IN
ACCORDANCE WITH THEIR TERMS. IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS
BEST EFFORTS TO AFFECT SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF
NECESSARY, AND HOLDER SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS.
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IN THE EVENT THAT (i) A COURT WITH JURISDICTION OVER THE MATTER RENDERS A
JUDGMENT THAT, OR (ii) THE HOLDER PRESENTS THE COMPANY WITH A WRITTEN OPINION OF
COUNSEL DEMONSTRATING TO THE REASONABLE SATISFACTION OF THE COMPANY THAT,
ADDITIONAL PAYMENTS OF TEN PERCENT AND 15% ARE UNENFORCEABLE, SUCH PROVISIONS
SHALL BE INAPPLICABLE AND THE CONVERSION PRICE SHALL BE REDUCED BY FIFTY PERCENT
(50%). IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS BEST EFFORTS TO AFFECT
SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF NECESSARY, AND HOLDER
SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS.
(b) Adjustments.
(i) Shares Included in Computation. The number
of shares of Common Stock at any time outstanding for any purpose hereunder
shall not include any shares of Common Stock then owned or held by or for the
account of the Company.
(ii) Subdivision or Combination. Whenever the
Company shall subdivide or combine the outstanding shares of Common Stock
issuable upon conversion of this Debenture, including stock dividends and stock
splits, the Conversion Price in effect immediately prior to such subdivision or
combination shall be proportionately decreased in the case of subdivision or
increased in the case of combination effective at the time of such subdivision
or combination.
(iii) Reclassification or Change. Whenever any
reclassification or change of the outstanding shares of Common Stock shall occur
(other than a change in par value, or from par value to no par, or from no par
to par value, or as a result of a subdivision or combination) effective
provision shall be made whereby the Holder shall have the right, at any time
thereafter, to receive upon conversion of this Debenture the kind of stock,
other securities or property receivable upon such reclassification or change by
a holder of the number of shares of Common Stock issuable upon conversion of
this Debenture immediately prior to such reclassification or change. Thereafter,
the rights of the Holder with respect to the adjustment of the amount of
securities or other property obtainable upon conversion of this Debenture shall
be appropriately continued and preserved, so as to afford as nearly as may be
possible protection of the nature afforded by this paragraph (b). The provisions
of this clause (iii) shall apply to successive transactions of the nature to
which it relates.
(c) Notices of Record Date. In case
(i) the Company shall declare a dividend (or
make any other distribution) on its shares of Common Stock payable otherwise
than in cash out of its earned surplus; or
(ii) the Company shall grant the holders of its
Common Stock the right to subscribe for or purchase any shares of its capital
stock of any class; or
(iii) the Company shall make any distribution on
or in respect of the Common Stock in connection with the dissolution,
liquidation or winding up of the Company; or
(iv) there is to be a reclassification or change
of the Common Stock of the Company (other than the subdivision or combination of
its outstanding shares of Common Stock), a consolidation or merger to which the
Company is a party and in connection with which approval of any class of
stockholders of the Company is required, or a sale or conveyance of the property
of the Company as an entirety or substantially as an entirety,
then and in each such event, the Company shall mail or cause to be mailed to the
Holder a notice specifying the date on which any record is to be taken for the
purpose of such dividend, distribution or granting of rights, or the date on
which such reclassification, consolidation or merger is expected to become
effective, and the time, if any, as of which the holders of record of Common
Stock shall be
3
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization or reclassification. Such notice
shall be mailed at least 30 days prior to the record or effective date therein
specified.
(d) Notice of Adjustment of Conversion Price, etc. If there
shall be any adjustment as provided in (b) hereof, or if securities or property
other than shares of Common Stock of the Company shall become issuable or
deliverable in lieu of shares of such Common Stock upon the conversion of this
Debenture, the Company shall forthwith cause written notice thereof to be sent
by registered or certified mail, postage prepaid, to the Holder, which notice
shall be accompanied by a certificate of the principal financial officer of the
Company setting forth in reasonable detail the facts requiring any such
adjustment and the Conversion Price and number of shares issuable upon the
conversion of this Debenture after such adjustment, or the kind and amount of
any such securities or property so issuable or deliverable upon the conversion
of this Debenture, as the case may be.
Subordination.
(a) Senior Debt. As used in this Debenture, the term "Senior
Debt" shall mean all amounts due and owing by the Company to banks and other
financial institutions regardless of whether such amounts were incurred on,
before or after the date of this Debenture and any renewals or extensions of any
such debt.
(b) Subordination. The Company covenants and agrees and the
Holder, by acceptance hereof, covenants, expressly for the benefit of the
present and future holders of Senior Debt, that the payment of the principal and
interest on this Debenture is expressly subordinated in right of payment to the
payment in full of principal and interest of the Senior Debt of the Company in
accordance with the provisions of this Section. There are no restrictions on the
Company's ability to issue additional Senior Debt. Accordingly, all present and
future Senior Debt of the Company will be superior to this Debenture and may be
incurred without the consent of Holder. In addition, the Company may issue
additional subordinated debt which is senior to the debentures under this
Debenture without the prior written consent of the holders of the principal
amount of such debentures.
Upon any default by the Company in the payment of all
or any portion of principal or of interest on any Senior Debt when due and
payable, no payment may be made on or in respect of this Debenture unless or
until such default has been cured or is waived. Upon any insolvency proceedings,
receivership, conservatorship, reorganization, readjustment of debt, marshalling
or assets and liabilities or similar proceedings or any liquidation or
winding-up of the Company, whether voluntary or involuntary, the Holder of this
Debenture shall not be entitled to receive thereafter, any amount in respect of
the principal and interest of this Debenture unless and until the above Senior
Debt shall have been paid or otherwise discharged. In the event of such
proceeding, and after payment in full of all sums owing with respect to such
Senior Debt, Holder shall be entitled to be paid from the remaining assets of
the Company the unpaid principal of, and the unpaid interest due on, this
Debenture. Such payment will be made before any payment or other distribution,
whether in cash, property or otherwise shall be made on account of any capital
stock of any obligations of the Company ranking junior to this Debenture.
(c) Rights Against the Company and Others. It is understood
that the provisions of this Section captioned "Subordination" are, and are
intended to be solely for the purpose of defining the relative rights of the
Holder of this Debenture on the one hand and the holder of the Senior Debt of
the Company on the other hand. Nothing contained in this Section or elsewhere in
this Debenture shall or is intended to impair, as between the Company, its
creditors other than the holder of the Senior Debt, and the Holder of this
Debenture, the unconditional and absolute obligation of the Company to pay the
Holder of the Debenture the principal of and interest on the Debenture as and
when the same shall become due and payable in accordance with its terms or
affect the relative rights of the holder of the
4
Debenture and the creditors of the Company, other than the holder of such Senior
Debt nor shall anything herein prevent the Holder of this Debenture from
exercising all remedies otherwise permitted by applicable law upon default under
this Debenture, subject to the rights, if any, of the holder of Senior Debt in
respect to cash, property or securities of the Company received upon the
exercise of any such remedy. The subordination herein provided applies to
payments or distributions by the Company only and shall not affect the right of
the Holder to collect and retain payment from any co-obligor, guarantor or
surety. Upon any payment or distribution of assets of the Company referred to in
this Section captioned "Subordination," the Holder of this Debenture shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or upon a certificate of the liquidating
trustee or agent or other person making any distribution to the Holder of this
Debenture, for the purpose of ascertaining the persons entitled to participate
in such distributions, the holders of Senior Debt and other debt of the Company,
the amounts thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section.
By accepting this Debenture, the Holder hereby acknowledges that,
except as expressly set forth herein, neither this Debenture nor any shares
issuable upon conversion hereof have been, or will be at the time of acquisition
of any shares upon conversion hereof, registered under the Securities Act of
1933, as amended, or any state securities laws and represents for himself and
his legal representative that he is acquiring this Debenture, and will acquire
any shares issued upon conversion hereof, for his own account, for investment
purposes only and not with a view to, or for sale in connection with, any
distribution of such securities, and agrees to reaffirm in writing this
investment representation at the time of exercise of the conversion right set
forth above.
If any of the following conditions or events ("Events of Default")
shall occur and be continuing:
(a) if the Company shall default in the payment of principal of this
Debenture when the same becomes due and payable, whether at maturity or by
declaration of acceleration or otherwise; or
(b) if the Company shall default in the payment of any interest on this
Debenture and shall fail to cure such default within ten days after written
notice thereof from the Holder to the Company; or
(c) if the Company shall materially default in the performance of or
compliance with any term contained herein and such default shall not have been
remedied within thirty days after written notice thereof from the Holder to the
Company; or
(d) if the Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or a voluntary petition for reorganization under Title 11 of the
United States Code ("Title 11") shall be filed by the Company or an order shall
be entered granting relief to the Company under Title 11 or a petition shall be
filed by the Company in bankruptcy, or the Company shall be adjudicated a
bankrupt or insolvent, or shall file any petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, or shall file any answer admitting or not contesting the material
allegations of a petition filed against the Company in any such proceeding, or
shall seek or consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company or if the Company or its directors or majority
shareholders shall take any action looking to the dissolution or liquidation of
the Company; or
(e) if within 120 days after the commencement of an action against the
Company seeking a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such action shall not have been dismissed or nullified or all
orders or proceedings thereunder affecting the operations or the business of the
Company stayed, or if the stay of any such order or proceeding shall thereafter
be set aside, or if, within 120 days after the
5
appointment without the consent or acquiescence of the Company of any trustee,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company such appointment shall not have been vacated;
then, and in any such event, the Holder may at any time (unless such Event of
Default shall theretofore have been remedied) at its option, by written notice
to the Company, declare the Debenture to be due and payable, whereupon the
Debenture shall forthwith mature and become due and payable, together with
interest accrued thereon, and thereafter interest shall be due, at the rate per
annum hereinabove provided, on the entire principal balance until the same is
fully paid, and on any overdue interest (but only to the extent permitted by
law), without presentment, demand, protest or notice, all of which are hereby
waived.
In case of a default in the payment of any principal of or interest on
the Debenture, the Company will pay to the Holder such further amount as shall
be sufficient to cover the cost and expenses of collection, including, without
limitation, reasonable attorneys' fees, expenses and disbursements. No course of
dealing and no delay on the part of Holder in exercising any right shall operate
as a waiver thereof or otherwise prejudice such Holder's rights, powers or
remedies. No right, power or remedy conferred by this Debenture upon Holder
shall be exclusive of any other right, power or remedy referred to herein or now
or hereafter available at law, in equity, by statute or otherwise.
Notwithstanding any provision contained in this Debenture to the
contrary, the Company's liability for payment of interest shall not exceed the
limits imposed by applicable usury law. If any provision hereof requires
interest payments in excess of the then legally permitted maximum rate, such
provision shall automatically be deemed to require such payment at the then
legally-permitted maximum rate.
All notices required or permitted to be given under this Debenture
shall be in writing (delivered by hand or sent certified or registered mail,
return receipt requested) addressed to the following addresses:
If to Holder: At its address on the Debenture
Register of the Company
If to Company: 185 Monmouth Parkway
West Long Branch, NJ 07764-9989
Attn: Stanley O. Jester
All notices shall be deemed given upon personal delivery or upon deposit of such
notice in the United States mails, with all postage affixed.
This Debenture has been made and delivered in West Long Branch, New
Jersey and shall be governed by the laws of the State of New Jersey.
EA INDUSTRIES, INC.
ATTEST:
______________________________ By:____________________________
Secretary
(SEAL)
6
CONVERSION NOTICE
TO: EA INDUSTRIES, INC.
185 Monmouth Parkway
West Long Branch, NJ 07764-9989
The undersigned Holder of this Debenture hereby irrevocably exercises
his right to convert [all] [or $___________] of this Debenture into ___________
shares of Common Stock of EA INDUSTRIES, INC. at the Conversion Price of
$_________________ per share in accordance with the terms of this Debenture, and
directs that the Shares issuable and deliverable upon such conversion be
registered in the name of the undersigned and delivered to the undersigned,
together with a Debenture for the balance of the principal amount of this
Debenture, if any.
The undersigned hereby acknowledges that the Shares (i) have not been
and will not be at the time of acquisition by the undersigned registered under
the Securities Act of 1933, as amended, or under any state securities laws,
except as set forth in this Debenture, and hereby represents and warrants to the
Company that he is acquiring the Shares for his own account, for investment, and
not with a view to, or for sale in connection with, any distribution of such
Shares; and (ii) are transferable only in accordance with all the terms and
restrictions contained in the Debenture and in the Subscription Agreement dated
November, 1995, to which the Holder is, or hereby agrees to become, a party.
Dated:_____________________ 19__
- -------------------------------- -----------------------------
Witness Signature of Holder
-----------------------------
(Print Name of Holder)
Social Security Number or
Taxpayer ID Number:__________
-----------------------------
-----------------------------
-----------------------------
Address
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