Exhibit 10.1
AFP IMAGING CORPORATION
Subscription Agreement
AFP Imaging Corporation
250 Clearbrook Road
Elmsford, New York 10523
Dear Sirs and Madams:
Based upon the representations and warranties of AFP Imaging
Corporation, a New York corporation (the "Company"), to the extent and as set
forth in Article 1 below, and subject to the other terms and conditions
hereinafter provided, the undersigned hereby irrevocably subscribes (the
"Subscription") to purchase the number of shares (each, a "Share") of the common
stock, par value $.01 per share (the "Common Stock") of the Company set forth in
the Execution Section of this Agreement, at a per Share purchase price (the
"Subscription Price") equal to $1.80 per Share, pursuant to and in accordance
with the terms set forth in the Private Placement Memorandum of the Company,
dated April 18, 2006 (as such may be amended or supplemented, the "Memorandum")
and hereby tenders in full the aggregate Subscription Price for the Shares in
one of the permitted forms of payment as set forth in the Memorandum. The
undersigned has been advised, and the Subscription is being made based upon such
advice, that (a) the Company is offering (the "Private Placement") for sale
pursuant to the Memorandum shares (collectively, the "Private Placement Shares")
of Common Stock, including the Shares, on an "any or none, best efforts, no
minimum, $5 million aggregate Subscription Price maximum" basis, (b) the Private
Placement Shares are being offered for a period (the "Offering Period")
commencing on the date of the Memorandum and terminating 21 days thereafter, (c)
the Offering Period may be extended, at the discretion of the Company and
Gabelli & Company, Inc., the placement agent for the Private Placement (in such
capacity, the "Placement Agent"), for an additional 30 days (the "Extension
Period"), (d) all subscription proceeds of the Private Placement, including the
funds representing the aggregate Subscription Price subject to the Subscription,
will be deposited in a non-interest bearing escrow account (the "Escrow
Account") maintained by the attorneys for Gabelli & Company, Kramer Leven
Naftalis & Frankel LLP, as escrow agent (in such capacity, the "Escrow Agent"),
at CitiBank, NA in the name of "Kramer Levin Naftalis & Frankel LLP IOLA
Account," (e) the minimum subscription for Private Placement Shares is $10,000,
although the Company reserves the right to accept subscriptions for less than
$10,000, (f) the Private Placement will terminate upon the earlier of (i) the
close of business on the last day of the Offering Period, unless the Private
Placement is extended by the Company and the Placement Agent, in their sole
discretion, for the Extension Period, and, in such an event, the close of
business on the last day of the Extension Period, (ii) the acceptance by the
Company of subscriptions for Private Placement Shares in the aggregate
Subscription Price of $5 million or (iii) such earlier date as may be determined
by the Company and the Placement Agent, in their sole discretion, and (g) (i)
the event that (A) the Private Placement is withdrawn pursuant to Section 3
hereof or (B) the Subscription is rejected for any reason whatsoever, then the
Subscription and this Subscription Agreement shall automatically become null and
void, except that the aggregate Subscription Price subject to the Subscription
shall be promptly returned to the undersigned, without interest or deduction,
and (ii) in all other events, on the date (the "Closing Date") on which the
Shares are sold and issued by the Company, the funds representing the aggregate
Subscription Price subject to the Subscription, to the extent the Subscription
is accepted by the Company, and the funds representing subscriptions made by
others whose subscriptions to purchase Private Placement Shares pursuant to the
Private Placement are accepted by the Company on the Closing Date, shall be
released from the Escrow Account to the Company. It is further understood, and
by the Company's acceptance of the Subscription the Company is deemed to have
agreed, that the Company and Placement Agent will designate the Closing Date for
the closing (the "Closing") of the Private Placement. On the Closing Date, the
subscription funds for the aggregate Subscription Price for the Private
Placement Shares subscribed for by the investors and accepted by the Company on
the Closing Date will become available for use by the Company, net of amounts
payable to the Placement Agent as its fees and reimbursement of expenses with
respect to the subscriptions accepted at the Closing; provided, however, that
the Company may not accept subscriptions to purchase Private Placement Shares
for an aggregate Subscription Price exceeding $5 million at the Closing.
The Subscription is subject to and is made pursuant to the
following terms and conditions:
1. Representations, Warranties and Covenants of the Company. By its acceptance
of this Subscription Agreement, the Company shall be deemed to represent and
warrant to and covenant with the undersigned as follows:
(a) Corporate Status. The Company (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
(ii) has all necessary corporate power and authority to own, operate or lease
the properties and assets now owned, operated or leased by the Company and to
carry on the business of the Company, as it is now being conducted, and (iii) is
duly licensed or qualified and in good standing as a foreign corporation
authorized to do business in each jurisdiction wherein the character of the
properties owned or leased by the Company and/or the nature of the activities
conducted by the Company makes such licensing or qualification necessary, except
where the failure to be so licensed or qualified and in good standing would not
prevent the Company from performing any of its material obligations under this
Subscription Agreement and would not have a material adverse effect on the
business, operations, prospects or financial condition of the Company (each, a
"Material Adverse Effect");
(b) Authority of Agreement. The Company has the power and authority to
accept the Subscription and to execute and deliver this Subscription Agreement
and, upon acceptance by the Company (in whole or part), to carry out its
obligations under this Subscription Agreement; and the execution, delivery and
performance by the Company of this Subscription Agreement and the consummation
of the transactions contemplated by this Subscription Agreement have been duly
authorized by all necessary corporate action on the part of the Company and this
Subscription Agreement, upon acceptance by the Company (in whole or part),
constitutes the valid and legally binding obligations of the Company enforceable
against the Company in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally now or hereafter in effect and
subject to the application of equitable principles and the availability of
equitable remedies; the Shares to be issued hereunder will be duly authorized,
validly issued fully paid and non-assessable;
(c) Consents and Approvals; No Conflict.
(i) The acceptance, execution and delivery of this
Subscription Agreement by the Company does not, and the performance by
the Company of its obligations under this Subscription Agreement, upon
acceptance by the Company (in whole or part), will not, require any
consent, approval, authorization or other action by, or filing with or
notification to, any governmental or regulatory authority, other than
in connection with state securities or "blue sky" laws, except where
failure to obtain such consent, approval, authorization or action, or
to make such filing or notification, would not prevent the Company from
performing any of its material obligations under this Subscription
Agreement and would not have a Material Adverse Effect on the Company;
and
(ii) The acceptance, execution, delivery and performance of
this Subscription Agreement by the Company and the other agreements and
documents to be executed, delivered and performed by the Company
pursuant to this Subscription Agreement and the consummation of the
transactions contemplated by this Subscription Agreement and such other
agreements and documents by the Company do not and will not conflict
with, violate or result in a breach or termination of any provision of,
or constitute a default under (or event which with the giving of notice
or lapse of time, or both, would become a default under) the
Certificate of Incorporation or By-laws of the Company or, except as
would not prevent the Company from performing any of its material
obligations under this Subscription Agreement and would not have a
Material Adverse Effect on the Company, any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award
applicable to the Company or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation
of any lien or encumbrance on any of the assets or properties of the
Company pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument
relating to such assets or properties to which the Company is a party
or by which any of such assets or properties is bound;
(d) Absence of Litigation. No claim, action, proceeding or
investigation is pending which seeks to delay or prevent the consummation of the
transactions contemplated by this Subscription Agreement or which would be
reasonably likely to adversely affect the Company's ability to consummate the
transactions contemplated by this Subscription Agreement or which would have a
Material Adverse Effect on the Company, except as disclosed in the SEC Reports
(as such term is defined below);
(e) Extent of Private Placement. Subject in part to the truth and
accuracy of the undersigned's representations set forth in Section 2 of this
Subscription Agreement and the compliance by all agents of the Company with Rule
503(c) of Regulation D ("Regulation D") promulgated under the Securities Act of
1933, as amended (the "Securities Act"), the offer, sale and issuance of the
Private Placement Shares, as contemplated by this Subscription Agreement and the
Memorandum, are exempt from the registration requirements of the Securities Act
and are exempt or the Company has complied with registration requirements of
each state where the Private Placement Shares are offered or sold, and the
Company will not take any action hereafter that would cause the loss of such
exemption or registration;
(f) Accuracy of Reports and Information. The Company is in full
compliance, to the extent applicable, with all reporting obligations under
Section 12(b), 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); the Company has registered the Common Stock pursuant to
Section 12 of the Exchange Act and the has filed all material required to be
filed pursuant to all reporting obligations, under either Section 13(a) or 15(d)
of the Exchange Act, for a period of at least twelve months immediately
preceding the Memorandum;
(g) SEC Filings/Full Disclosure. None of the Company's filings with the
Securities and Exchange Commission (the "Commission") since July 1, 2004 contain
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; the
Company has, since July 1, 2004, timely filed all requisite forms, reports and
exhibits thereto with the Commission; and the Company's Annual Report on Form
10-K for the year ended June 30, 2005 and Quarterly Reports on Forms 10-Q for
the quarters ended September 30, 2005 and December 31, 2005 filed by the Company
with the Commission, including exhibits thereto (collectively, the "SEC
Reports") did not contain 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; true and correct conformed copies of the SEC Reports (minus
exhibits) have been attached as Exhibits B-1, B-2, and B-3 to the Memorandum,
and there is no fact known to the Company (other than general economic
conditions known to the public generally) that has not been disclosed in writing
to the undersigned which could reasonably be expected to materially and
adversely affect the ability of the Company to perform its obligations pursuant
to this Subscription Agreement;
(h) Absence of Undisclosed Liabilities. The Company has no material
liabilities or obligations, absolute or contingent (individually or in the
aggregate), except as set forth in the financial statements included in the SEC
Reports (collectively, the "Financial Statements") or as incurred in the
ordinary course of business after the date of the Financial Statements;
(i) Governmental Consent, etc. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Subscription Agreement, or the offer, sale or issuance of the
Private Placement Shares, or the consummation of any other transaction
contemplated by this Subscription Agreement, except the filing with the
Commission of a registration statement on an appropriate form for the purpose of
registering for resale the Private Placement Shares and any state securities
laws filings or registrations;
(j) Intellectual Property Rights. Except as disclosed in the SEC
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as contemplated therein; and, to
the Company's knowledge, neither the Company nor its products and services are
infringing or will infringe any trademark, trade name, patent right, copyright,
license, trade secret or other similar right of others currently in existence;
and there is no claim being made against the Company regarding any trademark,
trade name, patent, copyright, license, trade secret or other intellectual
property right which could have a Material Adverse Effect on the Company;
(k) Material Contracts. Except as set forth in the SEC Reports or
disclosed to the undersigned, the agreements to which the Company is a party
described in the SEC Reports are valid agreements, in full force and effect, the
Company is not in material breach or material default (with or without notice or
lapse of time, or both) under any of such agreements, and, to the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default (with or without notice or lapse of time, or both)
under any of such agreements;
(l) Title to Assets. Except as set forth in SEC Reports, the Company
has good and marketable title to all properties and material assets described
therein as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than such as are not material to
the business of the Company;
(m) Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
association or other business entity, except as stated in the SEC Reports;
(n) Required Governmental Permits. The Company is in possession of and
operating in compliance with all authorizations, licences, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect;
(o) No Issuances Since December 31, 2005. Since December 31, 2005 and
through the date of the Memorandum, the Company has not issued any shares of
Common Stock; and, as of the date of the Memorandum, the Company has 9,568,217
shares of Common Stock issued and outstanding; and
(p) Use of Proceeds. The Company represents that the net proceeds from
the Private Placement are anticipated to be used for the purposes set forth in
the Memorandum.
2. Representations, Warranties and Covenants of the Undersigned. The undersigned
hereby represents, warrants and acknowledges to and covenants and agrees with
the Company as follows:
(a) Status. If the undersigned is a corporation or other entity, the
undersigned is a corporation or other entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with
full power and authority to execute, deliver and perform undersigned's
obligations under this Subscription Agreement; and, if the undersigned is an
individual or are individuals, the undersigned has legal capacity to execute,
deliver and perform his, her or their obligations under this Subscription
Agreement;
(b) Authority for Agreements. The undersigned has the power and
authority to execute and deliver this Subscription Agreement and to carry out
the undersigned's obligations hereunder; and the execution, delivery and
performance by the undersigned of this Subscription Agreement and the
consummation of the transactions contemplated by this Subscription Agreement
have been duly authorized by all necessary action on the part of the undersigned
and this Subscription Agreement constitutes the valid and legally binding
obligation of the undersigned, enforceable against the undersigned in accordance
with its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally now or hereafter in effect and subject to the application of equitable
principles and the availability of equitable remedies;
(c) Consents and Approvals, No Conflicts.
(i) The execution and delivery of this Subscription Agreement
by the undersigned do not, and the performance by the undersigned of
undersigned's obligations under this Subscription Agreement will not,
require any consent, approval, authorization or other action by, or
filing with or notification to, any governmental or regulatory
authority, except where failure to obtain such consent, approval,
authorization or action, or to make such filing or notification, would
not prevent the undersigned from performing any of undersigned's
material obligations under this Subscription Agreement; and
(ii) The execution, delivery and performance of this
Subscription Agreement by the undersigned and the other agreements and
agreements to be executed, delivered and performed by the undersigned
pursuant to this Subscription Agreement and the consummation of the
transactions contemplated by this Subscription Agreement and such other
agreements and documents by the undersigned do not and will not
conflict with, violate or result in a breach or termination of any
provision of, or constitute a default under (or event which with the
giving of notice or lapse of time, or both, would become a default
under) the Certificate of Incorporation or By-laws of the undersigned
(if the undersigned is a corporation), any other organizational
instrument (if the undersigned is a legal entity other than a
corporation), or, except as would not prevent the undersigned from
performing any of undersigned's material obligations under this
Subscription Agreement and would not have a material adverse effect on
the undersigned, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to the
undersigned or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any lien
or encumbrance on any of the assets or properties of the undersigned
pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument relating to such
assets or properties to which the undersigned is a party or by which
any of such assets or properties is bound;
(d) Investment Intent. The undersigned is acquiring the Shares for the
undersigned's own account, for investment only and not with a view to, or for
sale in connection with, a distribution thereof or any part thereof, within the
meaning of the Securities Act, and the rules and regulations promulgated
thereunder, or any applicable state securities or blue-sky laws;
(e) Investor Status. The undersigned is an accredited investor as such
term is defined under Regulation D promulgated pursuant to the Securities Act
("Regulation D") for the reason(s) as set forth in the Execution Section of this
Subscription Agreement and all of the representations and warranties of the
undersigned set forth in this Subscription Agreement, are correct and complete
as of the date of this Subscription Agreement, shall be true and correct as of
the Closing Date and shall survive the closing of the purchase of the Shares;
and, if there should by any material change in such information prior to the
sale to the undersigned of the Shares, the undersigned will immediately furnish
such revised or corrected information to the Company;
(f) Intent to Transfer. The undersigned is not a party or subject to or
bound by any contract, undertaking, agreement or arrangement with any person to
sell, transfer or pledge the Shares or any part or interest in the Shares to any
person, and has no present intention to enter into such a contract, undertaking,
agreement or arrangement;
(g) Receipt of Disclosures. The undersigned acknowledges receipt of the
Memorandum, which includes, as exhibits thereto, copies of the SEC Reports; and
the undersigned has read the Memorandum, including all exhibits thereto, and
understands the contents of the Memorandum and such exhibits;
(h) Private Placement Exempt from Registration; Company's Reliance.
(i) The Company has advised the undersigned that the Shares
have not been registered under the Securities Act or under the laws of
any state on the basis that the issuance thereof is exempt from such
registration;
(ii) The Company's reliance on the availability of such
exemption is, in part, based upon the accuracy and truthfulness of the
undersigned's representations contained in this Subscription Agreement;
(iii) As a result of such lack of registration, the Shares may
not be resold or otherwise transferred or disposed without registration
pursuant to or an exemption therefrom available under the Securities
Act and such state securities laws; and
(iv) In furtherance of the provisions of this Section 2(h),
each certificate representing any of the Shares shall bear a
restrictive legend substantially in the following form:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SHARES TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES
LAWS;"
(i) Sophistication of the Undersigned. The undersigned has evaluated
the merits and risks of purchasing the Shares and has such knowledge and
experience in financial and business matters that the undersigned is capable of
evaluating the merits and risks of such purchase, is aware of and has considered
the financial risks and financial hazards of purchasing the Shares, and is able
to bear the economic risk of purchasing the Shares, including the possibility of
a complete economic loss with respect to such purchase;
(j) Access to Information. The undersigned has had access to such
information regarding the business and finances of the Company, Private
Placement and Shares, the receipt and careful reading of which is hereby
acknowledged by the undersigned, and has been provided the opportunity to
discuss with the Company's management the business, affairs and financial
condition of the Company and such other matters with respect to the Company as
would concern a reasonable person considering the transactions contemplated by
this Subscription Agreement and/or concerned with the operation of the Company,
including, without limitation, pursuant to a meeting and/or discussions with
management of the Company;
(k) No Guarantees. That it never has been represented, guaranteed or
warranted to the undersigned by the Company, or any of its officers, directors,
agents, representatives or employees, or any other person, including the
Placement Agent, expressly or by implication, that:
(i) Any gain will be realized by the undersigned from the
undersigned's investment in the Shares;
(ii) That there will be any approximate or exact length of
time that the undersigned will be required to remain as a holder of the
Shares; or
(iii) That the past performance or experience on the part of
the Company, its predecessors or of any other person, will in any way
indicate any future results of the Company;
(l) No Other Representations, Warranties, Covenants or Agreements of
the Company. Except as set forth in this Subscription Agreement, the Memorandum
or the documents referred to in this Subscription Agreement or the Memorandum,
the Company has not made any representation, warranty, covenant or agreement
with respect to the matters contained herein;
(m) High Degree of Investment Risk. The undersigned acknowledges that
the purchase of the Shares involves a high degree of risk and may result in a
loss of the entire amount invested; that the Company has limited working capital
and limited sources of financing available; that there is no assurance that the
Company's operations will be profitable in the future; and that there is no
assurance that a public market for shares of Common Stock will continue to
exist;
(n) State of Residence or Principal Place of Business. The state of
residence or state of incorporation and principal place of business as set forth
in the Execution Section of this Subscription Agreement is the undersigned's
true and correct state of residence (if an individual) or state of incorporation
or organization and state of principal place of business (if a corporation or
other non-individual entity), and the undersigned has no present intention of
becoming a resident, or reincorporating or relocating its principal place of
business to, of any other country, state or jurisdiction;
(o) No Purchaser Representative. The undersigned has not authorized any
person or institution to act as the undersigned's "purchaser representative" (as
such term is defined in Rule 501 of Regulation D) in connection with the
tendering of the Subscription;
(p) No General Solicitation. The undersigned has not received any
general solicitation or general advertising regarding the purchase of any of the
Shares;
(q) No Finder. There is no finder in connection with this transaction;
and
(r) No Insider Trading. The undersigned will not engage in any
transaction with respect to securities of the Company at any time if, at the
time of such transaction, the undersigned is aware of any material non-public
information relating to the Company or its securities.
3. Acceptance or Rejection of Subscription; Company Withdrawal of Offer. It is
understood and agreed that this Subscription Agreement is made subject to the
following terms and conditions:
(a) The Company shall have the right to accept or reject the
Subscription and this Subscription Agreement, in whole or in part, for any
reason, including, but not limited to, ineligibility of the undersigned under
the applicable Federal, state or foreign securities laws, for any other reason,
or for no reason;
(b) If the Subscription is rejected, in whole or part, (i) any funds
representing the aggregate Subscription Price subject to the Subscription
previously tendered will be returned to the undersigned without interest or
penalty, (ii) the undersigned will have no further liability to the Company in
connection with the Private Placement and (iii) the Company will have no further
liability to the undersigned;
(c) If the Subscription is accepted in part and rejected in part, the
undersigned will be so notified, at which time the excess aggregate Subscription
Price subject to the Subscription previously tendered shall promptly be returned
to the undersigned without interest or penalty;
(d) If the Private Placement is withdrawn for any reason whatsoever,
(i) the undersigned will promptly receive a full refund of the aggregate
Subscription Price subject to the Subscription without interest or penalty, (ii)
the undersigned will have no further liability to the Company in connection with
the Private Placement and (iii) the Company will have no further liability to
the undersigned.
4. Registration Rights.
(a) Defined Terms. As used in this Article 4, terms defined elsewhere
in this Subscription Agreement shall have their assigned meanings and each of
the following terms shall have the following meanings (such definitions to be
applicable to both the plural and singular of the terms defined):
(i) Registerable Securities. The term "Registerable
Securities" shall mean any of the Shares and any shares of Common Stock
or other securities received in connection with any stock split, stock
divided, merger, reorganization, recapitalization, reclassification or
other distribution payable or issuable upon the Shares; provided,
however, that, for the purposes of this Subscription Agreement, the
Shares and/or such other securities will cease to be Registerable
Securities when (A) a registration statement under the Securities Act
covering such Registerable Securities has been declared effective and
such Registerable Securities have been disposed of pursuant to such
effective registration statement, (B) such Registerable Securities are
distributed to the public pursuant to the Securities Act or pursuant to
an exemption from the registration requirements of the Securities Act,
including, but not limited to, Rules 144 and 144A promulgated under the
Securities Act, or (C) such Registerable Securities have been otherwise
transferred and the Company, in accordance with applicable law and
regulations, has delivered new certificates or other evidences of
ownership for such securities which are not subject to any stop
transfer order or other restriction on transfer;
(ii) Rightsholders. The term "Rightsholder" shall include the
undersigned, all successors and assigns of the undersigned, and all
transferees of Registerable Securities where such transfer
affirmatively includes the transfer and assignment of the rights of the
transferor-Rightsholder under this Subscription Agreement with respect
to the transferred Registerable Securities; provided, however, the term
"Rightsholders" shall not include any person or entity after the person
or entity has sold, transferred or assigned all of the person's or
entity's Registerable Securities; and
(iii) The words "hereof," "herein" and "hereunder" and words
of similar import when used in this Article 4 shall refer to this
Article 4 as a whole and not to any particular provision of this
Article 4, and article, section, subsection, paragraph, clause,
schedule and exhibit references are to this Article 4 unless otherwise
specified.
(b) Required Registration.
(i) Requirement to Register. No later than the date (the
"Required Filing Date") which is 60 days following the completion of
the Private Placement in which any Private Placement Shares are issued
and sold pursuant to the Memorandum, the Company shall file a
registration statement on an applicable form chosen by the company, in
its sole discretion, to register (the "Required Registration") for
resale under the Securities Act all of the Registerable Securities. The
Company shall have the right to require each Rightsholder to specify
the intended method(s) of disposition of the Registerable Securities of
such Rightsholder, including, but not limited to, whether or not such
distribution or portion thereof is to relate to an underwritten
offering, the name of the managing underwriter(s), if any, the terms of
any such underwriting and such other information as the Company may
reasonably request.
(ii) Number of Required Registrations; Expenses. The
Rightsholders shall be entitled, in the aggregate, to one Required
Registration, the Registration Expenses (as defined in Section 4(d)) of
which, subject to the provisions of Section 4(d), shall be borne by the
Company, but the Company shall not be responsible for the payment of
any underwriter's discount, commission or selling concession in
connection with any of the Registerable Securities. The Company shall
not be deemed to have effected a Required Registration unless and until
such Required Registration is declared effective.
(iii) Delay in Effecting Required Registration.
Notwithstanding anything to the contrary contained in Paragraphs
4(b)(i) and 4(b)(ii), the Company shall not be obligated to effect a
Required Registration at any time when the Company, in the good faith
judgment of its Board of Directors made no later than 30 days prior to
the Required Filing Date, reasonably believes that the filing of the
registration statement with respect to the Required Registration, or
the offering of securities pursuant to the Required Registration, would
be detrimental to the interests of Company or its shareholders. The
effectuation of the Required Registration cannot be suspended, pursuant
to the provisions of the preceding sentence, for more than 90 days from
the Required Filing Date. Notwithstanding anything to the contrary
contained in this Paragraph 4(b)(iii), in the event that (A) the
Required Registration is not declared effective by the Commission
within three months of the Required Filing Date or the Required
Registration is suspended following its initial declaration of
effectiveness by the Commission for a period in excess of 90 days and
(B) such failure to be declared effective or suspension is a result of
the Company failing to use the Company's commercially best efforts to
cause such declaration of effectiveness or to cause the Required
Registration not to be suspended, the Company shall pay to the
Rightsholder a fee equal to 1% of the Subscription Price, payable for
each month (or portion thereof) in which such failure to be declared
effective or suspension shall occur. Each such monthly fee shall be due
and payable no later than the fifteenth day following the end of the
calendar month upon which such fee is calculated.
(v) Approval of Underwriter by the Company. If the Required
Registration is to involve an underwritten offering, the managing
underwriter(s) and each selling agent selected by those Rightsholders
participating in each such underwritten offering shall be subject to
the written approval of the Company, which approval may not be
unreasonably withheld.
(c) Registration Procedures.
(i) Obligations of the Company. The Company will, in
connection with any registration pursuant to Section 4(b) hereof, as
expeditiously as possible:
(A) prepare and file with the Commission a
registration statement under the Securities Act on any
appropriate form chosen by the Company, in its sole
discretion, which shall be available for the sale of all
Registerable Securities in accordance with the intended
method(s) of distribution of such Registerable Securities set
forth in all applicable Holder Notices, and use its
commercially reasonable best efforts to cause such
registration statement to become effective as soon thereafter
as reasonably practicable; provided, that, at least five
business days before filing with the Commission of such
registration statement, the Company shall furnish to each
Rightsholder whose Registerable Securities are included in
such registration statement draft copies of the registration
statement, including all exhibits thereto and documents
incorporated by reference therein, and, upon the reasonable
request of any such Rightsholder, shall continue to provide
drafts of such registration statement until filed, and, after
such filing, the Company shall, as diligently as practicable,
provide to each such Rightsholders such number of copies of
such registration statement, each amendment and supplement
thereto, the prospectus included in such registration
statement (including each preliminary prospectus), all
exhibits thereto and documents incorporated by reference
therein and such other documents as the Rightsholder may
reasonably request in order to facilitate the disposition of
the Registerable Securities owned by the Rightsholder and
included in such registration statement; provided, further,
the Company shall modify or amend the registration statement
as it relates to such Rightsholder as reasonably requested by
such Rightsholder on a timely basis, and shall reasonably
consider other changes to the registration statement (but not
including any exhibit or document incorporated therein by
reference) reasonably requested by such Rightsholder on a
timely basis, in light of the requirements of the Securities
Act and any other applicable laws and regulations; and
provided, further, subject to the provisions of Paragraph
4(b)(iii), that the obligation of the Company to effect such
registration and/or cause such registration statement to
become effective, may be postponed for (1) such period of time
when the financial statements of the Company required to be
included in such registration statement are not available (due
solely to the fact that such financial statements have not
been prepared in the regular course of business of the
Company) or (2) any other bona fide corporate purpose, but
then only for a period not to exceed 90 days;
(B) prepare and file with the Commission
such amendments and post-effective amendments to a
registration statement as may be necessary to keep such
registration statement effective for up to 24 months from the
Closing Date; and cause the related prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed to the extent required pursuant to
Rule 424 promulgated under the Securities Act, during such
24-month period; and otherwise comply with the provisions of
the Securities Act with respect to the disposition of all
Registerable Securities covered by such registration statement
during the applicable period in accordance with the intended
method(s) of disposition of such Registerable Securities set
forth in such registration statement, prospectus or supplement
to such prospectus;
(C) notify the Rightsholders whose
Registerable Securities are included in such registration
statement and the managing underwriter(s), if any, of an
underwritten offering of any of the Registerable Securities
included in such registration statement, and confirm such
advice in writing, (1) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and,
with respect to a registration statement or any post-effective
amendment, when the same has become effective, (2) of any
request by the Commission for amendments or supplements to a
registration statement or related prospectus or for additional
information, (3) of the issuance by the Commission of any stop
order suspending the effectiveness of a registration statement
or the initiation of any proceedings for that purpose, (4) if
at any time the representations and warranties of the Company
contemplated by clause (1) of Subparagraph 4(c)(i)(J) hereof
cease to be true and correct, (5) of the receipt by the
Company of any notification with respect to the suspension of
the qualification of any of the Registerable Securities for
sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose and (6) of the happening of
any event which makes any statement made in the registration
statement, the prospectus or any document incorporated therein
by reference untrue or which requires the making of any
changes in the registration statement or prospectus so that
such registration statement, prospectus or document
incorporated by reference will not contain any untrue
statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading;
(D) make commercially reasonable efforts to
obtain the withdrawal of any order suspending the
effectiveness of such registration statement at the earliest
possible moment and to prevent the entry of such an order;
(E) use commercially reasonable efforts to
register or qualify the Registerable Securities included in
such registration statement under such other securities or
blue sky laws of such jurisdictions as any Rightsholder whose
Registerable Securities are included in such registration
statement reasonably requests in writing and do any and all
other acts and things which may be necessary or advisable to
enable such Rightsholder to consummate the disposition in such
jurisdictions of such Registerable Securities; provided, that
the Company will not be required to (1) qualify generally to
do business in any jurisdiction where it would not otherwise
be required to qualify but for this Subparagraph 4(c)(i)(E),
(2) subject itself to taxation in any such jurisdiction or (3)
take any action which would subject it to general service of
process in any such jurisdiction;
(F) make available for inspection by each
Rightsholder whose Registerable Securities are included in
such registration, any underwriter(s) participating in any
disposition pursuant to such registration statement, and any
representative, agent or employee of or attorney or accountant
retained by any such Rightsholder or underwriter(s)
(collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the
Company (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise their due diligence
responsibility (or establish a due diligence defense), and
cause the officers, directors and employees of the Company to
supply all information reasonably requested by any Inspector
in connection with such registration statement; provided, that
the Rightsholder and Inspector enter into an appropriate
non-disclosure agreement with the Company; provided, further,
that the Records which the Company determines, in good faith,
to be confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors, unless
(1) the release of the Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction
or (2) the disclosure of the Records is required by any
applicable law or regulation or any governmental regulatory
body with jurisdiction over such Rightsholder or underwriter;
provided, further, that such Rightsholder or underwriter(s)
agree that such Rightsholder or underwriter(s) will, upon
learning the disclosure of such Records is sought in a court
of competent jurisdiction, give notice to the Company and
allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(G) cooperate with the Rightsholder whose
Registerable Securities are included in such registration
statement and the managing underwriter(s), if any, to
facilitate the timely preparation and delivery of certificates
representing Registerable Securities to be sold thereunder,
not bearing any restrictive legends, and enable such
Registerable Securities to be in such denominations and
registered in such names as such Rightsholder or any managing
underwriter(s) may reasonably request at least two business
days prior to any sale of Registerable Securities;
(H) comply with all applicable rules and
regulations of the Commission and promptly make generally
available to its security holders an earnings statement
covering a period of twelve months commencing, (1) in an
underwritten offering, at the end of any fiscal quarter in
which Registerable Securities are sold to underwriter(s), or
(2) in a non-underwritten offering, with the first month of
the Company's first fiscal quarter beginning after the
effective date of such registration statement, which earnings
statement, in each such case, shall satisfy the provisions of
Section 11(a) of the Securities Act;
(I) provide a CUSIP number for all
Registerable Securities not later than the effective date of
the registration statement relating to the first public
offering of Registerable Securities of the Company pursuant
hereto;
(J) enter into such customary agreements
(including an underwriting agreement in customary form) and
take all such other actions reasonably requested by the
Rightsholders holding a majority of the Registerable
Securities included in such registration statement or the
managing underwriter(s) in order to expedite and facilitate
the disposition of such Registerable Securities and, in such
connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an
underwritten registration, (1) make such representations and
warranties, if any, to the holders of such Registerable
Securities and any underwriter(s) with respect to the
registration statement, prospectus and documents incorporated
by reference, if any, in form, substance and scope as are
customarily made by issuers to underwriter(s) in underwritten
offerings and confirm the same if and when requested, (2)
obtain opinions of counsel to the Company and updates thereof
addressed to each such Rightsholder and the underwriter(s), if
any, with respect to the registration statement, prospectus
and documents incorporated by reference, if any, covering the
matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be
reasonably requested by such Rightsholders and underwriter(s),
(3) obtain a "cold comfort" letter and updates of such letter
from the Company's independent certified public accountants
addressed to such Rightsholders and to the underwriter(s), if
any, which letter shall be in customary form and cover matters
of the type customarily covered in "cold comfort" letters by
accountants in connection with underwritten offerings, and (4)
deliver such documents and certificates as may be reasonably
requested by the Rightsholders holding a majority of such
Registerable Securities and managing underwriter(s), if any,
to evidence compliance with any customary conditions contained
in the underwriting agreement or other agreement entered into
by the Company; each such action required by this Subparagraph
4(c)(i)(J) shall be done at each closing under such
underwriting or similar agreement or as and to the extent
required thereunder; and
(K) if requested by the holders of a
majority of the Registerable Securities included in such
registration statement, use its best efforts to cause all
Registerable Securities which are included in such
registration statement to be listed, subject to notice of
issuance, by the date of the first sale of such Registerable
Securities pursuant to such registration statement, on each
securities exchange, if any, on which securities similar to
the Registered Securities are listed.
(ii) Obligations of Rightsholders. In connection with any
registration of Registerable Securities of a Rightsholder pursuant to
Section 4(b) or 4(c):
(A) The Company may require that each
Rightsholder whose Registerable Securities are included in
such registration statement furnish to the Company such
information regarding the distribution of such Registerable
Securities and such Rightsholder as the Company may from time
to time reasonably request in writing; and
(B) Each Rightsholder, upon receipt of any
notice from the Company of the happening of any event of the
kind described in clauses (2), (3), (5) and (6) of
Subparagraph 4(c)(i)(C) hereof, shall forthwith discontinue
disposition of Registerable Securities pursuant to the
registration statement covering such Registerable Securities
until such Rightsholder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (1)
of Subparagraph 4(c)(i)(C) hereof, or until such Rightsholder
is advised in writing (the "Advice") by the Company that the
use of the applicable prospectus may be resumed, and until
such Rightsholder has received copies of any additional or
supplemental filings which are incorporated by reference in or
to be attached to or included with such prospectus, and, if so
directed by the Company, such Rightsholder will deliver to the
Company (at the expense of the Company) all copies, other than
permanent file copies then in the possession of such
Rightsholder, of the current prospectus covering such
Registerable Securities at the time of receipt of such notice;
and the Company shall have the right to demand that such
Rightsholder or other holder verify its agreement to the
provisions of this Subparagraph 4(c)(ii)(B) in any Holder
Notice of the Rightsholder or in a separate document executed
by the Rightsholder.
(d) Registration Expenses. All expenses incident to the performance of
or compliance with this Subscription Agreement by the Company, including,
without imitation, all registration and filing fees of the Commission, National
Association of Securities Dealers, Inc. and other agencies, fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registerable Securities), rating agency fees, printing expenses, messenger and
delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing, if any, of the Registerable Securities on any securities exchange and
fees and disbursements of counsel for the Company and the Company's independent
certified public accountants (including the expenses of any special audit or
"cold comfort" letters required by or incidental to such performance),
Securities Act or other liability insurance (if the Company elects to obtain
such insurance), the fees and expenses of any special experts retained by the
Company in connection with such registration and the fees and expenses of any
other person retained by the Company (but not including any underwriting
discounts or commissions attributable to the sale of Registerable Securities or
other out-of-pocket expenses of the Rightsholders, or the agents who act on
their behalf, unless reimbursement is specifically approved by the Company) will
be borne by the Company. All such expenses are referred to in this Article 4 as
"Registration Expenses."
(e) Indemnification; Contribution.
(i) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Rightsholder, its officers and directors and each person who controls
such Rightsholder (within the meaning of the Securities Act), if any,
and any agent thereof against all losses, claims, damages, liabilities
and expenses incurred by such party pursuant to any actual or
threatened suit, action, proceeding or investigation (including
reasonable attorney's fees and expenses of investigation) arising out
of or based upon any untrue or alleged untrue statement of a material
fact contained in any registration statement, prospectus or preliminary
prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, except
insofar as the same arise out of or are based upon, any such untrue
statement or omission based upon information with respect to such
Rightsholder furnished in writing to the Company by such Rightsholder
expressly for use therein.
(ii) Indemnification by Rightsholder. In connection with any
registration statement in which a Rightsholder is participating, each
such Rightsholder will be required to furnish to the Company in writing
such information with respect to such Rightsholder as the Company
reasonably requests for use in connection with any such registration
statement or prospectus, and each Rightsholder agrees to the extent it
is such a holder of Registerable Securities included in such
registration statement, and each other such holder of Registerable
Securities included in such Registration Statement will be required to
agree, to indemnify, to the full extent permitted by law, the Company,
the directors and officers of the Company and each person who controls
the Company (within the meaning of the Securities Act) and any agent
thereof, against any losses, claims, damages, liabilities and expenses
(including reasonable attorney's fees and expenses of investigation)
incurred by such party pursuant to any actual or threatened suit,
action, proceeding or investigation arising out of or based upon any
untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact necessary, to make the
statements therein (in the case of a prospectus, in the light of the
circumstances under which they are made) not misleading, to the extent,
but only to the extent, that such untrue statement or omission is based
upon information relating to such Rightsholder or other holder
furnished in writing to the Company expressly for use therein.
(iii) Conduct of Indemnification Proceedings. Promptly after
receipt by an indemnified party under this Section 4(e) of written
notice of the commencement of any action, proceeding, suit or
investigation or threat thereof made in writing for which such
indemnified party may claim indemnification or contribution pursuant to
this Agreement, such indemnified party shall notify in writing the
indemnifying party of such commencement or threat; but the omission so
to notify the indemnifying party shall not relieve the indemnifying
party from any liability which the indemnifying party may have to any
indemnified party (A) hereunder, unless the indemnifying party is
actually prejudiced thereby, or (B) otherwise than under this Section
4(e). In case any such action, suit or proceeding shall be brought
against any indemnified party, and the indemnified party shall notify
the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and the indemnifying
party shall assume the defense thereof, with counsel reasonably
satisfactory to the indemnified party, and the obligation to pay all
expenses relating thereto. The indemnified party shall have the right
to employ separate counsel in any such action, suit or proceeding and
to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless
(A) the indemnifying party has agreed to pay such fees and expenses,
(B) the indemnifying party shall have failed to assume the defense of
such action, suit or proceeding or to employ counsel reasonably
satisfactory to the indemnified party therein or to pay all expenses
relating thereto or (C) the named parties to any such action or
proceeding (including any impleaded parties) include both the
indemnified party and the indemnifying party and the indemnified party
shall have been advised by counsel that there may be one or more legal
defenses available to the indemnified party which are different from or
additional to those available to the indemnifying party and which may
result in a conflict between the indemnifying party and such
indemnified party (in which case, if the indemnified party notifies the
indemnifying party in writing that the indemnified party elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of
such action or proceeding on behalf of the indemnified party; it being
understood, however, that the indemnifying party shall not, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the
same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one
separate firm of attorneys at any time for the indemnified party, which
firm shall be designated in writing by the indemnified party).
(iv) Contribution. If the indemnification provided for in this
Section 4(e) from the indemnifying party is unavailable to an
indemnified party under this Section 4(e) in respect of any losses,
claims, damages, liabilities or expenses referred to in this Section
4(e), then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (A) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party on the
one hand and the indemnified party on the other or (B) if the
allocation provided by clause (A) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the relative fault of
the indemnifying party and indemnified party, as well as any other
relevant equitable considerations. The relative fault of such
indemnifying party and the indemnified parties shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been made
by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to in this
Paragraph 4(e)(iv) shall be deemed to include, subject to the
limitation set forth in Paragraph 4(e)(v), any legal or other fees or
expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Paragraph 4(e)(iv) were
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to in clauses (A) and (B) of the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation.
(v) Limitation. Anything to the contrary contained in this
Section 4(e) or in Section 4(f) notwithstanding, no holder of
Registerable Securities shall be liable for indemnification and
contribution payments aggregating an amount in excess of the maximum
amount received by such holder in connection with any sale of
Registerable Securities as contemplated herein.
(f) Participation in Underwritten Registration. No Rightsholder may
participate in any underwritten registration hereunder unless such Rightsholder
(i) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange
Act and (ii) completes and executes all questionnaires, appropriate and limited
powers of attorney, escrow agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangement; provided, that all such documents shall be consistent with the
provisions of this Article 4.
5. Further Assurances. At any time and from time to time after the date hereof,
the undersigned shall, without further consideration, execute and deliver to the
Company, or such other party as the Company may direct, such other instruments
or documents and shall take such other actions as the Company may reasonably
request to carry out the transactions contemplated by this Subscription
Agreement.
6. Indemnification. The undersigned acknowledges that the undersigned
understands the meaning and legal consequences of the representations,
warranties and covenants contained in Paragraphs 2(d) through 2(f) and 2(i)
through 2(p), and the undersigned hereby agrees to indemnify and hold harmless
the Company, and the Company's directors, officers, employees, agents and
controlling persons, from and against any and all loss, damage or liability due
to or arising out of a breach by the undersigned of any of such referenced
representations, warranties and covenants. Nothing contained in this Article 6
shall be deemed a waiver of the rights of the Company with respect to a breach
of any other representation, warranty, covenant or agreement of the undersigned
contained in this Agreement.
7. Miscellaneous.
(a) Survival of Warranties. The warranties and representations
contained or made pursuant to this Subscription Agreement will survive the
execution and delivery of this Subscription Agreement and the closing of the
transactions contemplated by this Subscription Agreement, including, but not
limited to, the making of the Subscription and issuance of the Shares.
(b) Successors and Assigns. The rights, benefits, duties and
obligations of the parties to this Agreement may not be assigned by such
assigning party without the prior written consent of the other party. The terms
and conditions of this Subscription Agreement will inure to the benefit of and
be binding upon the respective successors and assigns of the parties. Nothing in
this Subscription 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
Subscription Agreement, except as expressly provided in this Subscription
Agreement.
(c) Governing Law. This Subscription Agreement will be governed by, and
construed and enforced in accordance with the laws of the State of New York
without regard to the conflict of laws provisions thereof. The parties hereto do
hereby consent and submit to the venue and jurisdiction of the state and federal
courts sitting in the State of New York, County of Westchester, as the sole and
exclusive forum for such matters of dispute, and further agree that, in the
event of any action or suit as to any matters of dispute between the parties,
service of any process may be made upon the other party in the same manner as
the giving of notices under Section 7(f) of this Subscription Agreement.
(d) Counterparts. This Subscription Agreement may be signed in
counterparts, any one of which will be deemed to be an original and all of
which, when taken together, will constitute one and the same agreement.
(e) Titles and Subtitles. The titles and subtitles used in this
Subscription Agreement are for convenience only and are not to be considered in
construing or interpreting this Subscription Agreement.
(f) Notices. All requests, demands, notices and other communications
required or otherwise given under this Subscription Agreement shall be
sufficiently given if (a) delivered by hand against written receipt therefor,
(b) forwarded by overnight courier requiring acknowledgment of receipt or (c)
mailed by postage prepaid, registered or certified mail, return receipt
requested, addressed as follows:
If to the Company, to: Donald Rabinovitch, President
David Vozick, Chairman of the Board
AFP Imaging Corporation
250 Clearbrook Road
Elmsford, New York 10523
with a copy to: Keith S. Braun, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
If to the undersigned, to: The undersigned at the mailing address set
forth in the Execution Section of this
Subscription Agreement.
or, in the case of any of the parties hereto, at such other address as such
party shall have furnished in writing, in accordance with this Section 7(f), to
the other parties hereto. Each such request, demand, notice or other
communication shall be deemed given (i) on the date of delivery by hand, (ii) on
the first business day following the date of delivery to an overnight courier or
(iii) three business days following mailing by registered or certified mail.
(g) Amendment and Waivers. Any amendment to this Subscription Agreement
will not be effective unless the same is in writing and signed by all of the
parties to this Subscription Agreement. The waiver by a party of a breach of any
provision of this Subscription Agreement by another party must be in writing and
shall not operate or be construed as a waiver of any subsequent breach by such
other party.
(h) Severability. If one or more provisions of this Subscription
Agreement are held to be unenforceable under applicable law, such provision will
be excluded from this Subscription Agreement and the balance of this
Subscription Agreement will be interpreted as if such provision were excluded
and will be enforceable in accordance with its terms.
(i) Entire Agreement. This Subscription Agreement amends, supplements
and restates all agreements or understandings, of whatever nature, whether oral
or written, between and among the parties hereto, including affiliates thereof,
related in any way to, or arising under, the Private Placement and Subscription
and constitutes the full and entire understanding and agreement between the
parties with respect to the subject matter hereof.
(j) Proper Construction. The language of all parts of this Subscription
Agreement shall in all cases be construed as a whole according to its fair
meaning, and not strictly for or against any of the parties. The parties hereto
agree that they have been represented by counsel during the negotiation and
execution of this Subscription Agreement and, therefore, waive the application
of any law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document. As used in this Agreement, the term
"or" shall be deemed to include the term "and/or" and the singular or plural
number shall be deemed to include the other whenever the context so indicates or
requires.
(k) Further Assurances. Each party agrees to do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Subscription Agreement and the transactions
contemplated by this Subscription Agreement.
(l) Legal Representation of the Undersigned. The undersigned
acknowledges that (i) the undersigned has read this Subscription Agreement in
its entirety, as well as the Memorandum (including all exhibits to the
Memorandum), (ii) the undersigned has either (A) consulted with legal counsel
and other professionals of the undersigned's own choosing or (B) has chosen to
forego such consultation after being advised to seek such consultations and
(iii) the undersigned understands the terms and consequences of entering into
this Subscription Agreement and is fully aware of the legal and binding effect
of entering into this Subscription Agreement.
THE PRIVATE PLACEMENT SHARES HAVE NOT BEEN REGISTERED OR APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITY
OF ANY STATE, NOR HAS THE COMMISSION OR ANY SUCH AUTHORITY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS SUBSCRIPTION AGREEMENT OR THE AGREEMENTS AND
DOCUMENTS REFERRED TO OR INCORPORATED BY REFERENCE HEREIN (COLLECTIVELY, THE
"PRIVATE PLACEMENT DOCUMENTS"). ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE PRIVATE PLACEMENT SHARES ARE BEING OFFERED BY THE COMPANY IN RELIANCE UPON
AN EXCEPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
WHICH EXEMPTION DEPENDS UPON THE EXISTENCE OF CERTAIN FACTS, INCLUDING, BUT NOT
LIMITED TO, THE REQUIREMENTS THAT THE PRIVATE PLACEMENT SHARES ARE NOT BEING
OFFERED THROUGH GENERAL ADVERTISING OR GENERAL SOLICITATION, ADVERTISEMENTS OR
COMMUNICATIONS IN NEWSPAPERS, MAGAZINES OR OTHER MEDIA, OR BROADCASTS ON RADIO
OR TELEVISION, AND THAT THE PRIVATE PLACEMENT DOCUMENTS SHALL BE TREATED AS
CONFIDENTIAL BY THE PERSONS TO WHOM IT IS DELIVERED. ANY DISTRIBUTION OF THE
PRIVATE PLACEMENT DOCUMENTS OR ANY PART OF THE PRIVATE PLACEMENT DOCUMENTS OR
DIVULGENCE OF ANY OF ITS CONTENTS SHALL BE UNAUTHORIZED.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE COMPANY AND THE TERMS OF THE PRIVATE PLACEMENT, INCLUDING THE MERITS AND
RISKS INVOLVED. THE PRIVATE PLACEMENT SHARES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THE PRIVATE PLACEMENT DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE PRIVATE PLACEMENT SHARES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. IN ADDITION,
THE CERTIFICATES REPRESENTING THE PRIVATE PLACEMENT SHARES WILL BEAR A LEGEND TO
SUCH EFFECT AS SET FORTH IN THIS SUBSCRIPTION AGREEMENT. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
FOR CALIFORNIA RESIDENTS:
THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATION OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105
OF THE CALIFORNIA CORPORATION CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE
IS SO EXEMPT.
IN WITNESS WHEREOF, the undersigned has duly executed this
Subscription Agreement as of the date set forth below the undersigned's
signature in the Execution Section to this Subscription Agreement.
EXECUTION SECTION FOR SUBSCRIPTION BY INDIVIDUALS
I. SUBSCRIPTION AMOUNT:
The undersigned subscribes to purchase _________ Shares at the
Subscription Price of $1.80 per Share.
II. SUBSCRIBER STATUS:
The undersigned is (check appropriate box and, if applicable, fill in
state with jurisdiction over custodial account):
o INDIVIDUAL OWNER (One signature required below). Note: In community
property states, both spouses are required to sign below, whether or
not being listed as co-subscribers.
o HUSBAND AND WIFE AS TENANTS BY THE ENTIRETY (Husband and wife are both
required to sign below).
o TWO OR MORE INDIVIDUALS AS TENANTS IN COMMON (All tenants are required
to sign below).
o TWO OR MORE INDIVIDUALS AS JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
(All tenants are required to sign below).
o CUSTODIAL ACCOUNT UNDER UNIFORM GIFTS TO MINORS ACT OF THE STATE OF
___________________________________________________ (Fill in state).
III. INFORMATION AS IT IS TO APPEAR ON THE COMPANY RECORDS:
Name of
Subscriber(s): (1) ___________________________________________________________
(2) ___________________________________________________________
Social Security Number (for use in all notifications
and reports to governmental taxing authorities): ___________________________
State(s) of Permanent Residence: (1) ______________________________________
(2) _____________________________________
Mailing Address: ____________________________________________________________
____________________________________________________________
____________________________________________________________
Telephone Number: ____________________________________________________________
Facsimile Number: ____________________________________________________________
IV. INVESTOR STATUS (check all appropriate boxes):
The undersigned is an accredited investor, as such term is defined
under Regulation D, by reason of the fact that the undersigned is:
o An individual whose net worth(1) (or joint net worth with my
spouse, if greater) exceeds $1,000,000.
o An individual with income(2) in excess of $200,000, or joint
income together with my spouse in excess of $300,000, in each of
the two most recent years and reasonably expects to reach the
same income level in the current year.
o A director or executive officer of the Company.
o An entity in which all of the equity owners are accredited
investors, as defined in Regulation D. (The Company has the right
to request the names of each such accredited investor equity
owners and to require such person(s) to complete a Qualified
Purchaser Questionnaire prior to the Company's acceptance of the
undersigned's subscription.)
- ----------------------
(1) For purposes of this Subscription Agreement, net worth shall be
deemed to include all of the investor's assets, liquid or illiquid (including
such items as home, furnishings, automobile and restricted securities), minus
any liabilities (including such items as home mortgages and other debts and
liabilities).
(2) For purposes hereof, the term "income" is not limited to "adjusted
gross income" as that term is defined for federal income tax purposes, but
rather includes certain items of income which are deducted in computing
"adjusted gross income." For investors who are salaried employees, the gross
salary of such investor, minus any significant expenses personally incurred by
such investor in connection with earning the salary, plus any income from any
other source, including unearned income, is a fair measure of "income" for
purposes hereof. For investors who are self-employed, "income" is generally
construed to mean total revenues received during the calendar year minus
significant expenses incurred in connection with earning such revenues.
V. SIGNATURE(S):
Signature(s) of Subscriber(s): (1) _______________________________________
(2) ______________________________
Signature of Non-Subscribing Spouse (Community Property States Only):
(1) ______________________________
(2) ______________________________
Date: _______________________________________, 2006
EXECUTION SECTION FOR SUBSCRIPTION BY NON-INDIVIDUALS
I. SUBSCRIPTION AMOUNT:
The undersigned subscribes to purchase _________ Shares at the
Subscription Price of $1.80 per Share.
II. SUBSCRIBER STATUS:
The undersigned is (check appropriate box and, if applicable, fill
in state with jurisdiction over custodial account):
o CORPORATION (Please include certified corporate resolution authorizing
signature).
o PARTNERSHIP.
o TRUST.
o LIMITED LIABILITY COMPANY.
o LIMITED LIABILITY PARTNERSHIP.
o OTHER (Including Employment Benefit Plans and Trusts, Individual
Retirement Accounts, and KEOUGH Plans).
III. INFORMATION AS IT IS TO APPEAR ON THE COMPANY RECORDS:
Name of
Subscriber: _________________________________________________________________
Federal Taxpayer Identifying Number: ______________________________________
State of Incorporation or Organization: ______________________________________
State of Principal Place of Business: ______________________________________
Mailing Address: ______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
Telephone Number: ______________________________________________________________
Facsimile Number: ______________________________________________________________
IV. INVESTOR STATUS (check all appropriate boxes and, if applicable,
provide all information requested):
The undersigned is an accredited investor, as such term is defined
under Regulation D, by reason of the fact that the undersigned is:
o A bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; a broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934 (the
"Exchange Act"); an insurance company as defined in Section 2(13) of
the Securities Act; an investment company registered under the
Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that Act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; a
plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, and having
total assets in excess of $5,000,000; an employee benefit plan within
the meaning of the Employee Retirement Income Security Act of 1974
("ERISA") with investment decisions made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings
and loan association, insurance company or registered investment
adviser; an employee benefit plan within the meaning of ERISA and
having total assets in excess of $5,000,000.
o An employee benefit plan within the meaning of ERISA which is a
self-directed plan, with investment decisions made solely by the
following persons who are accredited investors, as defined in
Regulation D:
______________________________________________________________________
______________________________________________________________________
o A private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940.
o An organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust or
partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000.
o A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring any shares of Common Stock, whose
purchase is directed by the following sophisticated person meeting the
description set forth in Rule 506(b)(2)(ii) of Regulation D:
______________________________________________________________________
o An entity in which all of the equity owners are accredited investors,
as defined in Regulation D. (The Company has the right to request the
names of each such accredited investor equity owners and to require
such person(s) to complete a Qualified Purchaser Questionnaire prior
to the Company's acceptance of the undersigned's subscription.)
V. SIGNATURE(S)
The undersigned corporate officer, partner, trustee or fiduciary
certifies that the undersigned has full power and authority from all requisite
stockholders, partners, co-trustees, co-fiduciaries of the subscribing entity
named above to execute this Subscription Agreement on behalf of the subscribing
entity and to make the representations, warranties and agreements made herein on
its and their behalf and that investment in the Shares has been affirmatively
authorized by the governing board or body of such entity and is not prohibited
by law or the governing documents of the subscribing entity.
By: _______________________________________ By: _______________________________________
(Signature of Authorized Signatory) (Signature of Authorized Co-Signatory)
_______________________________________ _______________________________________
(Name of Authorized Signatory) (Name of Authorized Co-Signatory)
_______________________________________ _______________________________________
(Title of Authorized Signatory) (Title of Authorized Co-Signatory)
Date: _______________________________________, 2006
ACCEPTANCE PAGE
(To be completed by the Company)
SUBSCRIPTION AND SUBSCRIPTION AGREEMENT ACCEPTED AND AGREED TO:
Aggregate number of Shares for
which the Subscription is accepted: $________________
AFP Imaging Corporation
By: ___________________________________________________
Donald Rabinovitch, President
Dated: ______________________________, 2006