1
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), is made as of
March 8, 2000, by and between Advanced Optics Electronics, Inc., a corporation
organized under the laws of the State of Nevada, U.S.A., with headquarters
located at 0000 Xxxxxxxxxx Xxxxxx XX, Xxxxx 0, Xxxxxxxxxxx, Xxx Xxxxxx 00000
(the "Company") and the purchaser named on the signature page to this Agreement
(the "Buyer").
RECITALS
A. The Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act") and Section 4(2) under the 1933 Act;
B. The Buyer desires to purchase from the Company, and the Company
desires to sell to the Buyer, for the amounts and upon the terms and conditions
stated in this Agreement, in a closing (the "Closing") as herein described,
certain of the Company's convertible preferred stock as listed and described in
Recital B(i) immediately below, and certain warrants as listed and described in
Recital B(ii) below.
(i) At the Closing (the "Closing"), 200 shares of the
Company's Series A Convertible Preferred Stock (the
"Preferred Stock") shall be purchased by the Buyer.
The designation, rights, preferences and other terms
and provisions of the Preferred Stock are set forth
in the Certificate of Designation of the Relative
Rights and Preferences of the Series A Convertible
Preferred Stock of Advanced Optics Electronics, Inc.,
attached hereto as Exhibit A (the "Certificate of
Designations"). The Preferred Stock may be converted
into Common stock of the Company, $.001 par value per
share ("Common Stock"), upon the terms and conditions
hereof and upon the terms and conditions of the
Certificate of Designations. The purchase price for
the Preferred Stock sold pursuant to this Agreement
shall be as stated in Section 1(a) below. The total
aggregate number of shares of Preferred Stock to be
issued and sold by the Company at this Closing is
five hundred fifty (550), and the purchase price for
each share of Preferred Stock is $1,000.00, all in
accordance with the terms of this Agreement and of
the Certificate of Designations.
(ii) At the Closing, as additional consideration for
Buyer's purchase of the Preferred Stock, a warrant
(the "Warrants") to purchase 20,000 shares of Common
Stock at a purchase price per share equal to one
hundred ten percent (110%) of the closing bid price
for the Common Stock on the Closing Date (defined
below), which Warrants must be exercised if at all
within five (5) years after the date of issuance. The
Warrants shall be substantially in the form attached
hereto as Exhibit B.
2
The Common Stock into which the Preferred Stock may (in accordance with
the terms of the Certificate of Designations) be convertible shall be
collectively referred to herein as the "Conversion Shares." Certain shares of
Common Stock may (at the Company's option as described in the Notes) be issued
to the Buyer in payment of dividends (the "Dividend Shares"). The Common Stock
received upon exercise of the Warrants shall be referred to as the "Warrant
Shares." The Notes, the Conversion Shares, the Dividend Shares (if any), the
Warrants and the Warrant Shares may be collectively referred to herein as the
"Securities."
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
(the "Registration Rights Agreement") substantially in the form of Exhibit C
attached hereto pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, the Company and the Buyer hereby
agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
a. Purchase. The Buyer hereby agrees to purchase from the Company, and
the Company agrees to sell to the Buyer, 200 shares of Preferred Stock at the
Closing. The purchase price (the "Purchase Price") for the Preferred Stock
purchased by the Buyer at this Closing shall be $1,000.00 per share of Preferred
Stock, for a total Purchase Price of $200,000.00.
b. The Closing. The date of this Closing (the "Closing Date") shall be
March 8, 2000. The Purchase Price for the Preferred Stock being purchased at the
Closing shall be delivered to the Escrow Agent (as defined in the Escrow
Agreement substantially in the form of Exhibit D attached hereto (the "Escrow
Agreement")) on behalf of the Company on or before the Closing Date. On or
before the Closing Date, the Company shall deliver the original certificate(s)
representing the Preferred Stock and the Warrants (or a facsimile of the
signature pages thereof, with the originals to follow via express courier within
one (1) business day) being purchased at the Closing, duly issued, authorized
and executed by the authorized officers on behalf of the Company, to the Escrow
Agent (as defined in the Escrow Agreement) on behalf of the Buyer.
c. Form of Payment. The Buyer shall pay the Purchase Price for the
Securities purchased at the Closing by wire transfer of immediately available
funds in United States Dollars, to be deposited into the Escrow Account as
defined in the Escrow Agreement, against delivery to the Escrow Agent of the
appropriate number of shares of duly authorized and issued Preferred Stock
-2-
3
and Warrants being purchased by the Buyer hereunder at such Closing. The Escrow
Agent shall be responsible for delivery of the Purchase Price to the Company and
the Preferred Stock and Warrants to the Buyer in accordance with the terms of
the Escrow Agreement and with the instructions of the said parties.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer understands, agrees with, and represents and warrants to the
Company with respect to its purchase hereunder, that:
a. Investment Purposes; Compliance With 1933 Act. The Buyer is
purchasing the Securities for its own account for investment only and not with a
view towards, or in connection with, the public sale or distribution thereof,
except pursuant to sales registered under or exempt from the 1933 Act and
applicable state securities laws. The Buyer is not purchasing the Securities for
the purpose of covering short sale positions in the Common Stock established on
or prior to the Closing Date. The Buyer agrees to offer, sell or otherwise
transfer the Securities only (i) in accordance with the terms of this Agreement,
the Certificate of Designations and the Warrants, as applicable, and (ii)
pursuant to registration under the 1933 Act or to an exemption from registration
under the 1933 Act and any other applicable securities laws. The Buyer does not
by its representations contained in this Section 2(a) agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time pursuant to a registration statement or in
accordance with an exemption from registration under the 1933 Act, in all cases
in accordance with applicable state and federal securities laws. The Buyer
understands that it shall be a condition to the issuance of the Conversion
Shares, the Warrant Shares and the Dividend Shares (if any) that the Conversion
Shares, the Warrant Shares and the Dividend Shares (if any) be and are subject
to the representations set forth in this Section 2(a).
b. Accredited Investor Status. The Buyer is an "accredited investor" as
that term is defined in Rule 501 (a) of Regulation D. The Buyer has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment made pursuant to this
Agreement. The Buyer is aware that it may be required to bear the economic risk
of an investment made pursuant to this Agreement for an indefinite period of
time, and is able to bear such risk for an indefinite period.
c. Reliance on Exemptions. The Buyer understands the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of the applicable United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties,
acknowledgments, understandings, agreements and covenants of the Buyer set forth
herein in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to
-3-
4
the offer and sale of the Securities that have been requested by the Buyer. The
Buyer and its advisors, if any, have been afforded the opportunity to ask all
such questions of the Company as they have in their discretion deemed advisable.
The Buyer understands that its investment in the Securities involves a high
degree of risk. The Buyer has sought such accounting, legal and tax advice as it
has considered necessary to an informed investment decision with respect to the
investment made pursuant to this Agreement.
e. No Government Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
approved or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. The Buyer understands that: (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the 1933 Act or any state securities laws, and
may not be offered for sale, sold, assigned or transferred unless either (a)
subsequently registered thereunder or (b) the Buyer shall have delivered to the
Company an opinion by counsel reasonably satisfactory to the Company, in form,
scope and substance reasonably satisfactory to the Company, to the effect that
the securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, (ii) any sale of
such securities made in reliance on Rule 144 (as hereafter defined) may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which the
seller (or the person though whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder and applicable state securities laws, and (iii) neither the
Company nor any other person is under any obligation to register such securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to
this Agreement or the Registration Rights Agreement).
g. Legend. The Buyer understands that the Preferred Stock, the
Warrants, and until such time as the Conversion Shares, the Warrant Shares and
the Dividend Shares (if any) (collectively, the "Registrable Securities"), have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold by the Buyer pursuant to Rule 144 (as
amended, or any applicable rule which operates to replace said Rule) promulgated
under the 1933 Act ("Rule 144"), the stock certificates representing the
Registrable Securities will bear a restrictive legend (the "Legend") in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
EITHER (I) AN EFFECTIVE
-4-
5
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE LAWS, OR (II) AN OPINION OF
COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE AND SCOPE REASONABLY
ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER
THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE LAWS.
The Legend shall be removed and the Company will issue Common Stock
certificates without the Legend to the holder of the applicable Preferred Stock
or any Registrable Securities upon which the Legend is stamped, in accordance
with Section 5(b).
h. Authorization; Enforcement. This Agreement, the Registration Rights
Agreement and the Escrow Agreement have been duly and validly authorized,
executed and delivered by the Buyer and are each and collectively valid and
binding agreements of the Buyer enforceable in accordance with their terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company understands, agrees with, and represents and warrants to
the Buyer that:
a. Organization and Qualification. The Company is a corporation duly
organized and existing in good standing under the laws of the jurisdiction in
which it is incorporated, except as would not have a Material Adverse Effect (as
defined below), and has the requisite corporate power to own its properties and
to carry on its business as now being conducted. The Company is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
effect on the operations, properties or financial condition of the Company taken
as a whole. The Common Stock is eligible to trade and is listed for trading on
the OTC Bulletin Board Market. The Company has received no notice, either
written or oral, with respect to the continued eligibility of the Common Stock
for such listing, and the Company has maintained all requirements for the
continuation of such listing, and the Company does not reasonably anticipate
that the Common Stock will be delisted from the OTC Bulletin Board Market for
the foreseeable future. The Company has complied or will timely comply with all
requirements of the National Association of Securities Dealers and the OTC
Bulletin Board Market with respect to the issuance of the Securities.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement and the Escrow Agreement, to issue and sell the
Preferred Stock and the Registrable Securities in accordance with the terms
hereof, and to perform its obligations under the Certificate of Designations in
accordance with the requirements of the same, (ii) the execution, delivery and
performance of the Company's obligations under this Agreement, the Certificate
of Designations, the Warrants, the
-5-
6
Registration Rights Agreement and the Escrow Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its stockholders is
required, (iii) this Agreement, the Registration Rights Agreement, the Escrow
Agreement and, on the Closing Date, the Preferred Stock and Warrants sold at the
Closing, have been duly and validly authorized, executed and delivered by the
Company, and (iv) this Agreement, the Preferred Stock (when issued), the
Warrants (when issued), the Registration Rights Agreement and the Escrow
Agreement constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting, generally, the enforcement of creditors' rights and remedies or by
other equitable principles of general application. The Company (and its legal
counsel) has examined this Agreement and is satisfied in its sole discretion
that this Agreement and the accompanying Exhibits, Schedules and the Addenda, if
any, are in accordance with Regulation D and the 1933 Act and are effective to
accomplish the purposes set forth herein and therein.
c. Capitalization. As of February 1, 2000, the authorized common stock
of the Company consists of 75,000,000 shares of Common Stock of which 44,238,000
shares were issued and outstanding. There are no other authorized classes of
common stock, nor are there authorized any other classes of preferred stock or
other equity securities. All of such outstanding shares of Common Stock have
been validly issued and are fully paid and nonassessable. No shares of Common
Stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances. Except for the above-referenced preferred stock and as
disclosed in Schedule 3(c) (attached if applicable), as of the effective date of
this Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or arrangements by which the Company or any
of its subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its subsidiaries, (ii) there are no outstanding
debt securities, and (iii) there are no agreements or arrangements under which
the Company or any of its subsidiaries is obligated to register the sale of any
of its or their securities under the 1933 Act (except as provided herein, in
Schedule 3 and in the Registration Rights Agreement). If requested by the Buyer,
the Company has furnished to the Buyer, and the Buyer acknowledges receipt of
same by its signature hereafter, true and correct copies of the Company's
Articles of Incorporation, as amended, as in effect on the date hereof
("Articles of Incorporation"), and the Company's Bylaws, as in effect on the
date hereof (the "Bylaws").
d. Issuance of Securities. The Registrable Securities are all duly
authorized and reserved for issuance, and in all cases upon issuance shall be
validly issued, fully paid and non-assessable, free from all taxes, liens and
charges with respect to the issue thereof, and will not be subject to preemptive
rights or other similar rights of stockholders of the Company.
e. Acknowledgment Regarding Buyer's Purchase of the Securities. The
Company acknowledges and agrees that the Buyer is not acting as financial
advisor to or fiduciary of the
-6-
7
Company (or in any similar capacity with respect to this Agreement or the
transactions contemplated hereby), that this Agreement and the transactions
contemplated hereby, and the relationship between the Buyer and the Company, are
and will be considered "arms-length" notwithstanding any other or prior
agreements or nexus between the Buyer and the Company, whether or not disclosed,
and that any statement made by the Buyer, or any of its representatives or
agents, in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation, is merely incidental to the Buyer's
purchase of the Securities and has not been relied upon in any way by the
Company, its officers or directors. The Company further represents to the Buyer
that the Company's decision to enter into this Agreement and the transactions
contemplated hereby have been based solely upon an independent evaluation by the
Company, its officers and directors.
f. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances which would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the 1933 Act and specifically in accordance with the
provisions of Regulation D. The transactions contemplated hereby are exempt from
the registration requirements of the 1933 Act, assuming the accuracy of the
representations and warranties contained herein of the Buyer.
g. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Articles of
Incorporation or Bylaws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Except as set forth in Schedule 3(g)
(attached if applicable), neither the Company nor any of its subsidiaries is in
violation of its Articles of Incorporation or other organizational documents,
and neither the Company nor any of its/subsidiaries is in default (and no event
has occurred which, with notice or lapse of time or both, would put the Company
or any of its subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for possible defaults or rights as would not, in the aggregate or individually,
have a Material Adverse Effect. The business of the Company and its subsidiaries
is not being conducted, and shall not be conducted so long as the Buyer owns any
of the Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations which neither singly or in
the aggregate would have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws (any of which exceptions are set forth in
Schedule 3(g)), the
-7-
8
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Certificate of Designations, the Warrants, the Registration
Rights Agreement or the Escrow Agreement in accordance with the terms hereof and
thereof, or to perform its obligations with respect to the Preferred Stock
exactly as described in the Certificate of Designations (once the Preferred
Stock is issued), and with respect to the Warrants exactly as described in the
Warrants (once issued).
h. SEC Documents; Financial Statements. Except as disclosed on
Schedule 3(h) hereof (attached if applicable), since at least December 31, 1998,
the Company has timely filed all reports, schedules, forms, statements and other
documents to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Buyer as requested by the Buyer
true and complete copies of the SEC Documents, except for such exhibits,
schedules and incorporated documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer (including the information referred to in Section 2(d) of this
Agreement) contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.
Except as set forth in the financial statements of the Company included in the
SEC Documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent to
the date of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, in each case of clause (i) and (ii) next above which, individually
or in the aggregate, are not material to the financial condition, business,
operations, properties, operating results or prospects of the Company. The SEC
Documents contain a complete and accurate list of all written and oral
contracts,
-8-
9
agreements, leases or other instruments to which the Company or any subsidiary
is a party or by which the Company or any subsidiary is subject which are
required by the rules and regulations promulgated by the SEC to be so listed
(each a "Contract"). None of the Company, its subsidiaries or, to the best of
the Company's knowledge, any of the other parties thereto, is in breach or
violation of any Contract, which breach or violation would, or with the lapse of
time, the giving of notice, or both, have a Material Adverse Effect.
i. Absence of Certain Changes. Except as disclosed in the SEC
Documents, since at least January 1, 1999, there has been no material adverse
change and no material adverse development in the business, properties,
operation, financial condition, results of operations or prospects of the
Company. The Company has not taken any steps, and does not currently have any
reasonable expectation of taking any steps, to seek protection pursuant to any
bankruptcy law nor does the Company have any knowledge that its creditors intend
to initiate involuntary bankruptcy proceedings. The Company shall, at least
until Buyer no longer holds any of the Securities, maintain its corporate
existence in good standing and shall pay all taxes when due except for taxes it
reasonably disputes.
j. Absence of Litigation. Except as set forth in Schedule 3(j)
(attached if applicable), there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, wherein
an unfavorable decision, ruling or finding would have a Material Adverse Effect
or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of the documents contemplated herein.
k. Foreign Corrupt Practices. Neither the Company nor any of its
subsidiaries, nor any officer, director or other person acting on behalf of the
Company or any subsidiary has, in the course of his actions for or on behalf of
the Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity, made any
direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made
any bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to any foreign or domestic government official or employee.
l. Brokers; No General Solicitation. The Company has taken no action
that would give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments relating to this Agreement and the
transactions contemplated hereby, other than to Corporate Capital Management,
L.L.C. The Company and the Buyer both acknowledge that no other broker or finder
was involved with respect to the transactions contemplated hereby, other than
Corporate Capital Management, L.L.C. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
nor any person acting for the Company, or any such distributor, has conducted
any "general solicitation," as described in Rule 502(c) under Regulation D, with
respect to the Securities being offered hereby. The Company has agreed to
compensate Corporate Capital Management, L.L.C., with a cash payment and certain
warrants to be made at the
-9-
10
Closing in accordance with the Company's separate agreement with Corporate
Capital Management, L.L.C..
m. Acknowledgment of Dilution. The number of Conversion Shares issuable
upon conversion of the Preferred Stock may increase substantially in certain
circumstances, including the circumstance wherein the trading price of the
Common Stock declines. The Company's executive officers and directors have
studied and fully understand the nature of the securities being sold hereunder
and recognize they have a potential dilutive effect. The board of directors of
the Company has concluded in its good faith business judgment that such issuance
is in the best interests of the Company. The Company acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Stock is
binding upon it and enforceable regardless of the dilution that such issuance
may have on the ownership interests of other stockholders.
n. Eligibility to File Registration Statement. The Company is currently
eligible to file a registration statement with the SEC either on Form SB-1 or
Form SB-2 under the 0000 Xxx.
o. (Intentionally Omitted.)
p. Non-Disclosure of Non-Public Information. (a) The Company shall in
no event disclose non-public information to the Buyer, advisors to or
representatives of the Buyer unless prior to such disclosure of information the
Company marks such information as "non-public information - confidential" and
provides the Buyer, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. The Company
may, as a condition to disclosing any non-public information hereunder, require
the Buyer, its advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Buyer.
(b) Nothing herein shall require the Company to disclose
non-public information to the Buyer, its advisors or representatives, and the
Company represents that it does not disseminate non-public information to
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts; provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Buyer and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
registration statement to be filed pursuant to the Registration Rights
Agreement, would cause such prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Nothing herein shall be construed to mean that such persons or
entities other than the Buyer (without the written consent of the Buyer prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall
-10-
11
prevent any such persons or entities from notifying the Company of their opinion
that, based upon such due diligence by such persons or entities, that the
registration statement contains an untrue statement of a material fact or omits
a material fact required to be stated in such registration statement or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Securities Laws. The Company agrees to timely file a Form D (or
equivalent form required by applicable state law) with respect to the Securities
if and as required under Regulation D and applicable state securities laws and
to provide a copy thereof to the Buyer promptly after such filing. The Company
shall, on or before the Closing Date, take such action as is necessary to sell
the Securities being sold to the Buyer on each such date under applicable
securities laws of the United States and the relevant state(s), and shall if
specifically so requested provide evidence of any such action so taken to the
Buyer on or prior to the Closing Date.
c. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations hereunder would permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the sale of
the Securities for [PLEASE PROVIDE A REASONABLY DETAILED "USE OF PROCEEDS"].
e. Financial Information. Until such time as the Buyer no longer
beneficially owns Preferred Stock and Warrants, or the Common Stock into which
the Preferred Stock is convertible and/or the Warrants are exercisable, the
Company agrees to send the following reports to the Buyer: (i) after filing with
the SEC, a copy of each of its Annual Reports, its quarterly Reports, and any
reports filed on Form 8-K; and (ii) as soon as practicable after release
thereof, copies of all press releases issued by the Company or any of its
subsidiaries.
f. Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance, at least 2,250,000 shares,
but in any case a sufficient number of shares of Common Stock to provide for the
issuance of all of the Conversion Shares, the Warrant Shares and the Dividend
Shares (if any). Prior to complete conversion of the Preferred Stock and
exercise of the Warrants, the Company shall not reduce the number of shares of
Common Stock reserved for issuance hereunder without the written consent of the
Buyer except for a reduction proportionate to a reverse stock split effected for
a business purpose other than affecting the requirements of this Section, which
reverse stock split affects all shares of Common Stock equally.
-11-
12
g. Listing. Upon the Closing, the Company shall promptly secure the
listing of the Common Stock underlying the Preferred Stock and the Warrants upon
each national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of shares of Registrable Securities from time to time
issued under the terms of this Agreement and the Registration Rights Agreement.
The Company shall at all times comply in all respects with the Company's
reporting, filing and other obligations under the by-laws or rules of the
National Association of Securities Dealers and the OTC Bulletin Board Market (or
such other national securities exchange or market on which the Common Stock may
then be listed, as applicable).
h. Prospectus Delivery Requirement. The Buyer understands that the 1933
Act requires delivery of a prospectus relating to the Common Stock in connection
with any sale thereof pursuant to a registration statement under the 1933 Act
covering any resale by the Buyer of the Common Stock being sold, and the Buyer
shall comply with any applicable prospectus delivery requirements of the 1933
Act in connection with any such sale. The Company shall have the unequivocal
right to rely upon the Buyer's representation contained in this Section 4(h),
and thus, with respect to any resales by the Buyer pursuant to a registration
statement of Common Stock issued to the Buyer upon conversion of the Preferred
Stock (or in payment of dividends on the Preferred Stock) or upon exercise of
the Warrants, such Common Stock shall not contain a restrictive legend of any
kind. The Buyer will indemnify and hold harmless the Company and its transfer
agent for any loss, cost or expense (including reasonable attorney's fees)
incurred by such parties as a result of improper actions taken by the Buyer in
response to the Company's and the transfer agent's compliance with the
provisions of this Section 4(h), including without limitation the sales of such
Common Stock without delivery of a prospectus as required by applicable law or
regulation.
i. Intentional Acts or Omissions. Neither party shall intentionally
perform any act that if performed, or omit to perform any act which if omitted
to be performed, would prevent or excuse the performance of this Agreement or
any of the transactions contemplated hereby.
j. No Shorting. As a material inducement for the Company to enter into
this Agreement, the Buyer represents that it has not as of the date hereof, and
covenants on behalf of itself and its affiliates that neither Buyer nor any
affiliate of Buyer will at any time in which the Buyer or any affiliate of the
Buyer beneficially owns any of the Securities, engage in any short sales of, or
hedging or arbitrage transactions with respect to, the Common Stock, or sell
"put" options or similar instruments with respect to the Common Stock. The
Company acknowledges that a sale of Conversion Shares (or Warrant Shares) on the
date a conversion of the Preferred Stock (or exercise notice for the Warrants)
is made, even if such sale is made prior to delivery of the notice of conversion
with respect to such Conversion Shares (or exercise notice with respect to such
Warrant Shares), is not a "short sale" for purposes of this Section 4(j).
-12-
13
k. Expenses. The Company agrees to pay to or at the direction of the
Buyer the sum of $10,000.00 at the Closing as reimbursement for the attorney's
fees and expenses of the Buyer incurred by it in connection with the
transactions contemplated by this Agreement.
1. Conversion Restrictions. Notwithstanding anything to the contrary
set forth herein or in the Certificate of Designations, in no event shall any
holder of the Preferred Stock be entitled to convert Preferred Stock in excess
of such portion of the principal of the Preferred Stock that, upon giving effect
to such conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by such converting holder and its affiliates to exceed 4.99%
of the outstanding shares of the Common Stock following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of the Preferred Stock
with respect to which the determination of such proviso is being made. Except as
set forth in the preceding sentence, for purposes of this Section 2(a),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. The limitations imposed by this
Section 4(l) on conversion of Preferred Stock shall no longer apply, and the
holder of the Preferred Stock may convert all or any portion of the Preferred
Stock, irrespective of the resulting beneficial ownership of the Company's
Common Stock, should any of the following events occur: (I) The Company shall
either: (i) become insolvent; (ii) admit in writing its inability to pay its
debts generally or as they become due; (iii) make an assignment for the benefit
of creditors or commence proceedings for its dissolution; or (iv) apply for, or
consent to the appointment of, a trustee, liquidator, or receiver for its or for
a substantial part of its property or business; or (II) A trustee, liquidator or
receiver shall be appointed for the Company or for a substantial part of its
property or business without the Company's consent and such appointment is not
discharged within sixty (60) days after such appointment; or (III) Any
governmental agency or any court of competent jurisdiction at the instance of
any governmental agency shall assume custody or control of the whole or any
substantial portion of the properties or assets of the Company and shall not be
dismissed within sixty (60) days thereafter; or (IV) Any money judgment, writ or
Note of attachment, or similar process in excess of Two Hundred Thousand United
States Dollars (US$200,000.00) in the aggregate shall be entered or filed
against the Company or any of its properties or assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of fifteen (15) days or in any
event later than five (5) days prior to the date of any proposed sale
thereunder; or (V) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty days after
such institution or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in, any such
proceeding.
m. Restriction on Below Market Issuance of Securities. Until the date
which is the earlier of nine (9) months from the Closing Date or the date the
Preferred Stock has been redeemed or converted in full, the Company shall not
issue or agree to issue {other than (i) to the Buyer pursuant to the
transactions contemplated herein, (ii) pursuant to any employee stock option
plan or employee stock purchase plan of the Company established during the term
of this restriction for a legitimate
-13-
14
business purpose and not to avoid the restrictions imposed in this Section 4(m),
(iii) pursuant to any existing security, option, warrant, scrip, call or
commitment or right in each case as disclosed on Schedule 3(c) hereof, or (iv)
with the consent of the Buyer, not to be unreasonably withheld} any equity
securities of the Company (or any security convertible into or exercisable or
exchangeable, directly or indirectly, for equity securities of the Company) or
debt securities of the Company if such securities are issued at a price (or
provide for a conversion, exercise or exchange price) which may be less than the
current market price for the Common Stock on the date of issuance (in the case
of Common Stock) or the date of conversion, exercise or exchange (in the case of
securities convertible into or exercisable or exchangeable, directly or
indirectly, for Common Stock). Except as provided with respect to the
transactions contemplated herein (including also the issuance of certain
warrants to Corporate Capital Management, L.L.C.) and in subsections (i), (ii),
(iii), or (iv) above of this Section 4(m), until such time as the Preferred
Stock has been paid or converted in full, the Company shall not grant any
additional so-called "registration rights."
5. LEGEND AND TRANSFER INSTRUCTIONS.
a. Transfer Agent Instructions. The Company shall instruct its transfer
agent to issue certificates, registered in the name of the Buyer or its
permitted nominee, for the Conversion Shares, the Warrant Shares and the
Dividend Shares (if any) in accordance with the terms of the applicable
Preferred Stock and Warrants and in such amounts as specified from time to time
by the Buyer to the Company, upon conversion of the Preferred Stock or exercise
of the Warrants (as applicable). All such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement only to the
extent required by applicable law and as specified in this Agreement and the
Exhibits and Addenda hereto, and with consideration to Section 4(h) hereof. The
Company warrants that no instruction other than such instructions referred to in
this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof in the case of the Conversion Shares, the Warrant Shares and the Dividend
Shares (if any) prior to the registration of same under the 1933 Act, will be
given by the Company to its transfer agent and that the Conversion Shares, the
Warrant Shares and the Dividend Shares (if any) shall otherwise be freely
transferable on the books and records of the Company as and to the extent
permitted by applicable law and provided by this Agreement, the Warrants and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of the Conversion Shares, the Warrant Shares and/or the
Dividend Shares (if any). If the Buyer (x) provides the Company with an opinion
of counsel reasonably satisfactory to Company that registration by the Buyer of
the Preferred Stock, the Warrants, the Warrant Shares, the Conversion Shares
and/or the Dividend Shares (if any) is not required under the 1933 Act, or (y)
transfers Securities to an affiliate which is an accredited investor (in
accordance with the provisions of this Agreement) or in compliance with Rule
144, then in either instance the Company shall permit the said transfer, and if
applicable promptly (and in all events within two (2) trading days) instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Buyer.
b. Removal of Legends. The Legend shall be removed and the Company
shall issue a certificate without such Legend to the holder of any Security upon
which it is stamped, and a
-14-
15
certificate for a security shall be originally issued without the Legend, if,
unless otherwise required by state securities laws, (x) the sale of such
Security is registered under the 1933 Act, or (y) such holder provides the
Company with an opinion by counsel reasonably satisfactory to the Company, that
is in form, substance and scope reasonably satisfactory to the Company, to the
effect that a public sale or transfer of such Security may be made without
registration under the 1933 Act or (z) such holder provides the Company with
assurances reasonably satisfactory to the Company and its counsel, that such
Security can be sold pursuant to Rule 144. The Buyer agrees that its sale of all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
shall be made only pursuant to an effective registration statement (and to
deliver a prospectus in connection with such sale) or in compliance with an
exemption from the registration requirements of the 1933 Act. In the event the
Legend is removed from any Security or any Security is issued without the Legend
and thereafter the effectiveness of a registration statement covering the sales
of such Security is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to the holder of such Security, the Company shall be
entitled to require that the Legend be placed upon any such Security which
cannot then be sold pursuant to an effective registration statement or Rule 144
or with respect to which the opinion referred to in clause (y) next above has
not been rendered, which Legend shall be removed when such Security may be sold
pursuant to an effective registration statement or Rule 144 (or such holder
provides the opinion with respect thereto described in clause (y) next above.
c. Conversion of Preferred Stock. The Buyer shall have the right to
convert the Preferred Stock sold hereunder by delivering via facsimile an
executed and completed Notice of Conversion (as defined in the Certificate of
Designations) to the Company and delivering within two (2) business days
thereafter the original Notice of Conversion and the original Preferred Stock
certificate being converted (but only at such time as such original Preferred
Stock certificate being converted is converted in full into Common Stock, unless
otherwise specifically requested by the Company) by express courier to the
Company. Each date on which a Notice of Conversion is faxed to the Company in
accordance with the provisions hereof shall be deemed a "Conversion Date." The
Company will transmit the certificates (each a "Certificate" and collectively
the "Certificates") representing the shares of Common Stock issuable upon
conversion of any Preferred Stock (along with a replacement certificate
representing the number of preferred shares not so converted, if applicable) to
the Buyer via express courier, within three (3) business days after the relevant
Conversion Date (with respect to each conversion, the "Deadline"). Time is of
the essence with respect to the requirements of the immediately preceding
sentence.
d. Injunctive Relief for Breach. The Company acknowledges that a breach
of its obligations under Sections 5(a), 5(b) and 5(c) above will cause
irreparable harm to the Buyer by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly the Company agrees that the remedy
at law for a breach of its obligations under such Sections would be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of such Sections, the Buyer shall be entitled, in addition to all
other remedies at law or in equity, to an
-15-
16
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
e. Liquidated Damages for Non-Delivery of Certificates. In addition to
the provisions of Section 5(d) above, the Company understands and agrees that a
delay in the issuance of any of the Certificates beyond the Deadline will result
in substantial economic loss and other damages to the Buyer. As partial
compensation to the Buyer for such loss, the Company agrees to pay liquidated
damages (and which the Company acknowledges is not a penalty) to the Buyer for
issuance and delivery of any Certificate after the Deadline, in accordance with
the following schedule (where "No. Business Days Late" is defined as the number
of business days beyond three (3) business days from the date of delivery by the
Buyer to the Company of a facsimile Notice of Conversion (or, if later, from the
date on which all other necessary documentation duly executed and in proper form
required for conversion of Preferred Stock as described in this Agreement,
including the original Notice of Conversion, all in accordance with this
Agreement only if such necessary documentation has not been delivered to the
Company within the two (2) business day period after the facsimile delivery to
the Company of the Notice of Conversion as required in this Agreement)):
No. Business Days Late Liquidated Damages
---------------------- ------------------
(in US$)
1 $300
2 $400
3 $500
4 $600
5 $700
6 $800
7 $900
8 $1,000
9 $1,000
10 $1,500
11+ $1,500 + $500 for
each Business Day Late
beyond 11 days
The Company shall pay the Buyer any liquidated damages incurred as
called for under this Section 5(e) by certified or cashier's check upon the
earlier of (i) issuance of the relevant Certificate(s) to the Buyer or (ii) each
monthly anniversary of the receipt by the Company of the Buyer's Notice of
Conversion. Nothing herein shall limit the Buyer's right to pursue actual
damages for the Company's failure to issue and deliver all Certificates to the
Buyer in accordance with the terms of this Agreement or for breach by the
Company of this Agreement.
-16-
17
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to sell Preferred Stock and
Warrants at the Closing is subject to the satisfaction, on or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion:
a. The parties shall have executed this Agreement, the Registration
Rights Agreement and the Escrow Agreement, and the parties shall have delivered
the respective documents or signature pages thereof (via facsimile or otherwise
as permitted in the Escrow Agreement) to the Escrow Agent.
b. The Buyer shall have delivered to the Escrow Agent on behalf of the
Company the Purchase Price for the Preferred Stock and Warrants purchased at the
Closing, by wire transfer of immediately available funds pursuant to the wiring
instructions provided by the Escrow Agent.
c. The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date made and as of the Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date), and the Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Buyer at or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
e. If required by applicable law, the Company's Board of Directors
shall have approved this Agreement and the related documentation referred to
herein.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer to purchase Preferred Stock and Warrants is
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions, provided that these conditions are for the sole benefit of
the Buyer and may be waived by the Buyer at any time in its sole discretion:
a. The parties shall have executed this Agreement, the Registration
Rights Agreement and the Escrow Agreement, the parties shall have delivered the
respective documents or signature pages thereof (via facsimile or otherwise as
permitted in the Escrow Agreement) to the Escrow Agent on behalf of each other.
The Company shall have filed the Certificate of Designations with the State of
Nevada and shall have delivered to the Escrow Agent on behalf of the Buyer a
copy thereof stamped "filed" by the Nevada Secretary of State.
-17-
18
b. The representations and warranties of the Company shall be true and
correct in all material respects as of the date made and as of Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer may require a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by the Buyer.
c. With respect to the Closing, the Company shall have issued and have
duly executed by the authorized officers of the Company, and delivered to the
Escrow Agent on behalf of the Buyer, the certificate(s) representing the
Preferred Stock and the Warrants being sold at the Closing (via facsimile or
otherwise as required by the Escrow Agreement, provided that any permitted
facsimile of such documents shall be followed with physical delivery to the
Escrow Agent of the original instrument or security within one (1) business day
after facsimile of same to the Escrow Agent).
d. The Common Stock shall be authorized for quotation on the OTC
Bulletin Board Market (or another national securities exchange or market) and
trading in the Common Stock on such market shall not have been suspended by the
SEC, the NASD or any other relevant regulatory agency.
e. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
f. The Escrow Agent shall have received on behalf of the Buyer the
opinion of Company counsel, dated as of the Closing Date, substantially in the
form attached hereto as Exhibit E.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. In the event of any litigation regarding the
interpretation or application of this Agreement, the parties irrevocably consent
to jurisdiction in any of the state or federal courts located in the City of
Wilmington, State of Delaware and waive their rights to object to venue in any
such court, regardless of the convenience or inconvenience thereof to any party.
Service of process in any civil action relating to or arising out of this
Agreement (including also all Exhibits or Addenda hereto) or the transaction(s)
contemplated herein may be accomplished in any manner provided by law. The
parties hereto agree that a final, non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
-18-
19
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and signature pages from such counterparts have been delivered to the
Escrow Agent on behalf of the other party. In the event any signature page is
delivered by facsimile transmission (which the parties agree is an acceptable
form of delivery), the party using such means of delivery shall cause three (3)
additional originally executed signature pages to be physically delivered to the
Escrow Agent on behalf of the other party within one (1) business day of the
execution and delivery hereof.
c. Headings; Gender, Etc. The headings of this Agreement are for
convenience of reference and shall not form a part of, or affect the
interpretation of this Agreement. As used herein, the masculine shall refer to
the feminine and neuter, the feminine to the masculine and neuter, and the
neuter to the masculine and feminine, as the context may require. As used
herein, unless the context clearly requires otherwise, the words "herein,"
"hereunder" and "hereby," shall refer to this entire Agreement and not only to
the Section or paragraph in which such word appears. If any date specified
herein falls upon a Saturday, Sunday or public or legal holidays, the date shall
be construed to mean the next business day following such Saturday, Sunday or
public or legal holiday. For purposes of this Agreement, a "business day" is any
day other than a Saturday, Sunday or public or legal holiday.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by U.S. Mail or delivered personally or
by courier or via facsimile (if via facsimile, to be followed within three (3)
business days by an original of the notice document via U.S. Mail or courier)
and shall be effective five (5) days after being placed in the mail, if mailed,
certified or registered, return receipt requested, or upon receipt, if delivered
personally or by courier or by facsimile, in each case properly addressed to the
party to receive the same. The addresses for such communications shall be:
-19-
20
If to the Company: Advanced Optics Electronics, Inc.
0000 Xxxxxxxxxx Xxx. XX
Xxxxx 0
Xxxxxxxxxxx, Xxx Xxxxxx 00000
Telephone: 000.000.0000
Facsimile: 505.858.1871
Attention: Xx. Xxxxxx Xxxxxx, Executive Vice President
If to the Buyer, at the address on the signature page of this Agreement. Each
party shall provide written notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other (which
consent shall not be unreasonably withheld), and in any event any assignee of
the Buyer shall be an accredited investor (as defined in Regulation D), in the
written opinion of counsel who is reasonably satisfactory to the Company and in
form, substance and scope reasonably satisfactory to the Company.
Notwithstanding the foregoing, if applicable, any of the entities constituting
the Buyer (if greater than one (1) entity) may assign its rights hereunder to
any of its "affiliates," as that term is defined under the 1934 Act, without the
consent of the Company; provided, however, that any such assignment shall not
release such assigning entity from its obligations hereunder unless such
obligations are assumed by such affiliate and the Company has prior to such
assignment and assumption consented in writing to the same; and no such
assignment shall be made unless it is made in accordance with any applicable
securities laws of any applicable jurisdiction. Any request for an assignment
made hereunder by the Buyer shall be accompanied by a legal opinion in form,
substance and scope reasonably satisfactory to the Company, that such assignment
is proper under applicable law. Notwithstanding anything herein to the contrary,
Buyer may pledge the Securities as collateral for a bona fide loan pursuant to a
security agreement with a third party lender, and such pledge shall not be
considered an assignment in violation of this Agreement so long as it is made in
compliance with all applicable law.
h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto, any other buyer who execute an Agreement of like
tenor with this Agreement, and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section 8(1),
the representations and warranties of the Company and the Buyer contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
8 shall survive the Closing of the purchase and sale of Securities purchased and
sold hereby.
j. Publicity. The Company and the Buyer shall have the right to review
before issuance by the other, any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without prior
-20-
21
consultation with or approval of the Buyer, to make any press release or other
public disclosure with respect to such transactions as is required by applicable
law and regulations.
k. Further Assurance. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such 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 Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have occurred
on or before ten (10) business days from the date hereof, this Agreement shall
terminate at the close of business on such date. Neither party may unilaterally
terminate this Agreement after the Closing for any reason other than a material
breach of this Agreement by the non-breaching party. Such termination shall not
be the sole remedy for a breach of this Agreement by the non-breaching party,
and each party shall retain all of its rights hereunder at law or in equity.
Notwithstanding anything herein to the contrary, a party whose breach of a
covenant or representation and warranty or failure to satisfy a condition
prevented the Closing shall not be entitled to terminate this Agreement.
m. Remedies. No provision of this Agreement providing for any specific
remedy to a party shall be construed to limit such party to the specific remedy
described, and any other remedy that would otherwise be available to such party
at law or in equity shall be so available. Nothing in this Agreement shall limit
any rights a party may have with any applicable federal or state securities laws
with respect to the transactions contemplated hereby.
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
[SIGNATURE PAGE FOLLOWS]
List of Exhibits
Exhibit A Certificate of Designations
Exhibit B Warrant to Purchase Common Stock
Exhibit C Registration Rights Agreement
Exhibit D Escrow Agreement
Exhibit E Opinion of Counsel for Advanced Optics Electronics, Inc.
-21-
22
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT DATED
AS OF MARCH 8, 2000]
COMPANY:
ADVANCED OPTICS ELECTRONICS, INC.
By: /s/ XXXXXX XXXXXX
-----------------------------------------------
Xx. Xxxxxx Xxxxxx, Executive Vice President
BUYER:
RFL ASSET MANAGEMENT, L.L.C.
By: /s/ XXX XXXXXXXX
-----------------------------------------------
(Duly Authorized Managing Member)
BUYER'S ADDRESS:
Two World Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
-22-
23
EXHIBIT A
CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS
AND PREFERENCES OF THE SERIES A
CONVERTIBLE PREFERRED STOCK
OF
ADVANCED OPTICS ELECTRONICS, INC.
It is certified that:
A. The name of the corporation is Advanced Optics Electronics, Inc., a Nevada
corporation (hereinafter the "Company").
B. The certificate of incorporation of the Company, as amended, authorizes the
issuance of Ten Million (10,000,000) shares of Preferred Stock, $.001 par value
per share, and expressly vests in the Board of Directors of the Company the
authority provided therein to issue all of said shares in one or more series and
by resolution or resolutions to establish the designation and number and to fix
the relative rights and preferences of each series to be issued.
C. The Board of Directors of the Company, pursuant to the authority expressly
vested in it, has adopted the following resolutions creating a class of Series A
Preferred Stock:
RESOLVED, that a portion of the Ten Million (10,000,000) authorized
shares of Preferred Stock of the Company shall be designated as a separate
series possessing the rights and preferences set forth below:
1. Designation and Amount. The shares of such series shall have a par
value of $.001 per share and shall be designated as "Series A Preferred Stock"
(the "Series A Preferred Stock") and the number of shares constituting the
Series A Preferred Stock shall be 3,500. The Series A Preferred Stock shall be
offered for sale at a purchase price of $1,000 per share (the "Purchase Price").
2. Dividends. The holders of the outstanding shares of Series A
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available therefor, dividends at an
annual rate of seven and one half percent of the Purchase Price. Such dividends
shall be deemed to accrue on the Series A Preferred Stock and be cumulative,
whether or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends. All dividends declared upon the Series A
Preferred Stock shall be declared pro rata per share. If there shall not have
been a sum sufficient for the payment therefor set apart, the deficiency shall
first be paid before any dividend or other distribution shall be paid or
declared and set apart with respect to any other class of the Company's capital
stock, now or hereafter outstanding. All accrued dividends shall be immediately
due and payable on the date such shares of Series A Preferred Stock are
converted into shares of Common Stock, par value $.001 per share ("Common
Stock") in accordance with Section 5 hereof, or are redeemed in accordance with
Section 6 hereof. Dividends may be paid in cash or additional registered shares
of Common Stock of the
24
Company, as may be determined, from time to time, in the sole discretion of the
Board of Directors. The Company shall not be required to pay any dividends on
the outstanding shares of the Series A Preferred Stock prior to the Conversion
Date and/or Redemption Date (as defined below) for such shares.
For purposes of this Certificate, unless the context otherwise
requires, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
shares of Common Stock or other equity securities of the Company, or the
purchase or redemption of shares of Common Stock or other equity securities of
the Company (other than redemptions set forth in Section 6 below or repurchases
of Common Stock or other equity securities held by employees or consultants of
the Company upon termination of their employment or services pursuant to
agreements providing for such repurchase) for cash or property payable other
than in shares of Common Stock or other equity securities of the Company.
3. Liquidation, Dissolution or Winding Up
(a) Treatment at Liquidation, Dissolution or Winding Up. In
the event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, before any distribution may be made with respect to
Common Stock or any other series of capital stock, holders of each share of
Series A Preferred Stock shall be entitled to be paid out of the assets of the
Company available for distribution to holders of the Company's capital stock of
all classes, whether such assets are capital, surplus, or capital earnings, such
amount per share of Series A Preferred Stock as would have been payable had each
such share been converted into Common Stock immediately prior to such event of
liquidation, dissolution or winding up pursuant to the provisions of Section 5
plus all accrued dividends and liquidated damages, if any (collectively, the
"Liquidation Amount").
(b) If the assets of the Company available for distribution to
its shareholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock the full amount of the Liquidation Amount to which they shall be
entitled, the holders of shares of Series A Preferred Stock shall share ratably
in any distribution of assets according to the amounts which would be payable
with respect to the shares of Series A Preferred Stock held by them upon such
distribution if all amounts payable on or which respect to said shares were paid
in full.
(c) After the payment of the Liquidation Amount shall have
been made in full to the holders of the Series A Preferred Stock or in the event
the holders cannot be located by the Company funds necessary for such payment
shall have been set aside by the Company in trust for the account of holders of
the Series A Preferred Stock so as to be available for such payments, the
holders of the Series A Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Company, and the
remaining assets of the Company legally available for distribution to its
shareholders shall be distributed among the holders of other classes of
securities of the Company in accordance with their respective terms.
25
(d) The holders of Series A Preferred Stock shall have no
priority or preference with respect to distributions made by the Company in
connection with the repurchase of shares of Common Stock issued to or held by
employees, directors or consultants upon termination of their employment or
services pursuant to agreements providing for the right of said repurchase
between the Company and such persons.
4. Voting Rights. Except as otherwise required by law, and except as
set forth in Section 8 of this Certificate, the holders of Series A Preferred
Stock shall not be entitled to vote upon any matter relating to the business or
affairs of the Company or for any other purpose.
5. Conversion Rights for the Series A Preferred Stock. The holders of
Series A Preferred Stock shall have conversion rights as follows ("Conversion
Rights"):
(a) Right to Convert. No shares of Series A Preferred Stock
may be converted prior to the date (the "First Conversion Date") which is the
earlier of (i) the effective date of the registration statement covering the
resale of the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, and (ii) the ninetieth day after the closing date (the "Closing
Date") of the issuance of the Series A Preferred Stock.
(b) Conversion Rate. Each share of Series A Preferred Stock
may be converted into the number of fully-paid and non-assessable shares of
Common Stock of the Company calculated in accordance with the following formula
("Conversion Rate"):
The number of shares issuable upon conversion of one share of Series A
Preferred Stock shall be determined by dividing the Purchase Price by the
Conversion Price, where:
(i) The Purchase Price is defined in Section 1
hereof;
(ii) the Conversion Price equals the lesser of (x)
one hundred ten percent (110%) of the Closing Bid Price (defined below) for the
Common Stock on the trading day prior to the date of issuance of the Series A
Preferred Stock being converted (the "Fixed Price"), or (y) seventy seven and
one half percent (77.5%) of the average of the five (5) lowest closing bid
prices for the Common Stock for the twenty (20) trading days immediately
preceding the Conversion Date (the "Market Price"), as reported on the National
Association of Securities Dealers OTC Bulletin Board Market (or on such other
national securities exchange or market as the Common Stock may trade at such
time); provided, that if the shares issuable upon conversion are to be sold
pursuant to Rule 144 under the Securities Act of 1933, as amended, the
Conversion Price shall equal the lesser of (A) the Fixed Price, or (B) 50% of
the Market Price.
(iii) for purposes hereof, the term "Closing Bid
Price" shall mean for any security as of any date, the last closing bid price
for such security on the OTC: Bulletin Board Market as reported by Bloomberg,
L.P., or, if the OTC: Bulletin Board Market is not the principal trading market
for such security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, L.P.,
26
or, if no last closing bid or trade price is reported for such security by
Bloomberg, L.P., the closing bid price shall be determined by reference to the
closing bid price as reported on the principal trading market, and if not so
reported shall be determined from the average of the bid prices of any market
makers for such security as reported in the "pink sheets" published by the
National Quotation Bureau, Inc. If the closing bid price cannot be calculated
for such security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value as mutually
agreed by the Company and the holders of two-thirds of the outstanding shares of
Series A Preferred Stock.
(c) Forced Conversion. In the event the holders of the Series
A Preferred Stock have not exercised the Conversion Rights set forth herein
within two years after the date of issuance of the Series A Preferred Stock (the
"Final Date"), the Series A Preferred Stock shall automatically be converted as
if the holder had exercised their Conversion Rights on the Final Date. In
addition, in the event the Company closes on a public offering of its shares of
Common Stock at a price per share equal to or greater than two times the
Conversion Price, then at the election of the Company given by written notice,
each share of Series A Preferred Stock shall automatically be converted into
shares of Common Stock on the date ("Offering Conversion Date") which is seven
business days prior to the scheduled closing date of such public offering at the
applicable Conversion Rate above and the Offering Conversion Date shall be
deemed the Conversion Date with respect to such shares.
(d) Capital Reorganization or Reclassification. If the Common
Stock issuable upon the conversion of the Series A Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, stock split, stock
dividend, or similar event, then and in each such event, the holder of each
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such capital reorganization, reclassification or other
change which such holder would have received had its shares of Series A
Preferred Stock been converted immediately prior to such capital reorganization,
reclassification or other change.
(e) Capital Reorganization, Merger or Sale of Assets. If at
any time or from time to time there shall be a capital reorganization of the
Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for in Section 5(d) above), or a merger or
consolidation of the Company with or into another corporation, or the sale of
all or substantially all of the Company's properties and/or assets to any other
person or entity (any of which events is herein referred to as a
"Reorganization"), then as a part of such Reorganization, provision shall be
made so that the holders of the Series A Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series A Preferred Stock, the number
of shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such Reorganization, to which such holder
would have been entitled if such holder had converted its shares of Series A
Preferred Stock immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of the Series A
Preferred Stock after the Reorganization, to the end that the provisions of this
Section 5 (including adjustment of the number of shares issuable upon conversion
of the Series A
27
Preferred Stock) shall be applicable after that event in as nearly equivalent
a manner as may be practicable.
(f) Certificate as to Adjustments; Notice by Company. Upon the
occurrence of each adjustment or readjustment of the Conversion Price of the
Series A Preferred Stock, the Company, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of such Series A Preferred Stock a certificate
executed by the president and chief financial officer (or in the absence of a
person designated as the chief financial officer, by the treasurer) setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment are based. The Company shall, upon written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a certificate setting forth (A) the Conversion
Price at the time in effect, and (B) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of a share of Series A Preferred Stock.
(g) Exercise of Conversion Rights. Holders of Series A
Preferred Stock may exercise their right to convert the Series A Preferred Stock
by telecopying an executed and completed Notice of Conversion to the Company and
delivering the original Notice of Conversion in the form annexed hereto as
Exhibit A ("Notice of Conversion") and the certificate representing the Series A
Preferred Stock (once fully converted, unless specifically requested otherwise
by the Company) by express courier. Each business date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a "Conversion Date." Such holders of Series A
Preferred Stock which have sent a Notice of Conversion to the Company shall, if
requested by the Company, deliver the originally executed Series A Preferred
Stock certificates to the Company within three business days from the Conversion
Date. The Company will transmit, or instruct its transfer agent to transmit, the
certificates representing shares of Common Stock issuable upon conversion of any
share of Series A Preferred Stock (together with the certificates representing
the Series A Preferred Stock not so converted, if the prior certificate was
delivered to the Company) to the holder thereof via express courier, by
electronic transfer or otherwise, within three business days after the Company
has received the facsimile Notice of Conversion. In addition to any other
remedies which may be available to the holders of shares of Series A Preferred
Stock, in the event that the Company fails to deliver, or has failed to contact
its transfer agent within two business days to deliver, such shares of Common
Stock within such three business day period, the holder will be entitled to
revoke the relevant Notice of Conversion by delivering a notice to such effect
to the Company whereupon the Company and the holder shall each be restored to
their respective positions immediately prior to delivery of such Notice of
Conversion. The Notice of Conversion and Series A Preferred Stock certificates
representing the portion of the Series A Preferred Stock converted shall be
delivered as follows:
To the Company: Advanced Optics Electronics, Inc.
0000 Xxxxxxxxxx Xxx. XX
Xxxxx 0
Xxxxxxxxxxx, Xxx Xxxxxx 00000
Telephone: 000.000.0000
Facsimile: 505.858.1871
Attention: Xx. Xxxxxx Xxxxxx, Executive Vice President
28
In the event that shares representing the Common Stock issuable upon
conversion of the Series A Preferred Stock (the "Conversion Shares") are not
delivered by the Company within three business days of receipt by the Company of
the facsimile Notice of Conversion, the Company shall pay to the holders
thereof, in immediately available funds, upon demand, as liquidated damages for
such failure and not as a penalty, for each $100,000 worth of Series A Preferred
Stock sought to be converted, $500 for each of the first ten days and $1,000 per
day thereafter that the Conversion Shares are not delivered, which liquidated
damages shall run from the fourth business day after the Conversion Date
provided that the Company shall not be responsible for or required to pay such
liquidated damages if such failure to deliver or convert was not caused by any
actions or omissions of the Company or counsel to the Company. Any and all
payments required pursuant to this paragraph shall be payable in cash.
(h) Lost or Stolen Certificates. Upon receipt by the Company
of evidence of the loss, theft, destruction or mutilation of any Series A
Preferred Stock certificate(s), and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Company, and upon the
cancellation of the Series A Preferred Stock certificate(s), if mutilated, the
Company shall execute and deliver new certificates for Series A Preferred Stock
of like tenure and date. However, the Company shall not be obligated to reissue
such lost or stolen certificates for shares of Series A Preferred Stock if the
holder contemporaneously requests the Company to convert such Series A Preferred
Stock into Common Stock.
(i) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of shares of Series A Preferred Stock. In lieu
of any fractional share to which the holder would be entitled for this
paragraph, the number of shares of Common Stock to be received shall be rounded
to the nearest whole share.
(j) Partial Conversion. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate or certificates
are converted, the Company may require the holder to surrender the said
certificate(s) to the Company within three (3) business days after such a
conversion; if so, the Company shall execute and deliver to or to the order of
the holder, at the expense of the Company, a new certificate representing the
number of shares of Series A Preferred Stock which were not converted.
(k) Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series A Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient or as may be available to effect the
conversion of all outstanding shares of the Series A Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion
29
of all the then outstanding shares of the Series A Preferred Stock, the Company
shall use its best efforts to take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
6. Redemption.
(a) The Company may redeem any or all of the outstanding
shares of the Series A Preferred Stock on any date (the "Redemption Date") set
by the Board of Directors of the Company for such redemption at any time at the
Redemption Price, as that term is defined below, for each share of Series A
Preferred Stock, to be paid in cash on the Redemption Date, provided, that
(except as hereinafter provided) the Company shall not send a Redemption Notice,
as that term is defined below, to any of the holders of Series A Preferred
Stock, unless the closing bid price for a share of Common Stock as reported on
the National Association of Securities Dealers OTC Bulletin Board Market (or on
such other national securities exchange or market as the Common Stock may trade
at such time) on the Redemption Date is less than the Conversion Price on such
date and unless it has good and clear funds, for payment of the Redemption Price
for the shares of Series A Preferred Stock it intends to redeem, in a bank
account controlled by the Company, and provided further, however, that in the
event the redemption is to be made simultaneously with the closing of a public
offering of the Company, then the Company may send a Redemption Notice even if
it does not have such good and clear funds, but not earlier than on the day
prior to the date the public offering is priced.
(b) The Redemption Price shall be an amount equal to 122.5% of
the Purchase Price, plus an amount equal to all accrued but unpaid dividends,
whether or not declared, to but excluding the Redemption Date;
(c) The Redemption Price shall be payable in cash. If fewer
than all of the outstanding shares of Series A Preferred Stock are to be
redeemed, the redemption shall be pro rata among the holders of the Series A
Preferred Stock based upon the number of shares held by such holders and subject
to such other provisions as may be determined by the Board of Directors of the
Company.
(d) Five days prior to the Redemption Date, the Company shall
send, by facsimile transmission and by first class mail, postage prepaid, a
notice (the "Redemption Notice") to each holder of Series A Preferred Stock,
which notice shall contain all instructions and materials necessary to enable
such holders to tender Series A Preferred Stock pursuant to the redemption. Such
notice shall (i) state that a redemption is being effected, (ii) specify the
Redemption Date, (iii) state that holders will be required to surrender the
certificate or certificates representing such shares, properly endorsed, in the
manner and at the place specified in the notice prior to the close of business
on the business day prior to the Redemption Date, (iv) state that holders may
convert up to a maximum of 50% of their shares of Series A Preferred Stock into
shares of Common Stock, provided that the Company receives the Notice of
Conversion within twenty-four hours from the time the Redemption Notice was
received by such holder and that all other shares shall be deemed to have been
redeemed by the Company on the Redemption Date at the Redemption Price plus all
accrued but unpaid dividends whether or not declared. The Company may not redeem
any portion
30
of the Series A Preferred Stock that has been converted on or prior to the date
of the Redemption Notice. In the event the Company fails to deliver the
Redemption Price plus accrued and unpaid dividends on or before (i) six days
after the date of the Redemption Notice or (ii) in the event the redemption is
made simultaneously with the closing of a public offering of the Company, six
days after the closing date of such public offering, the Redemption Notice shall
be null and void and the Company will relinquish its Redemption rights provided
by this section.
(e) On the Redemption Date, unless the Company defaults in the
payment for the shares of Series A Preferred Stock tendered pursuant to the
redemption, dividends will cease to accrue with respect to the shares of Series
A Preferred Stock tendered. All rights of holders of such tendered shares will
terminate, except for the right to receive payment therefor, on the Redemption
Date.
(f) After receipt of the Redemption Notice, the holders of
Series A Preferred Stock may convert up to a maximum of 50% of their shares of
Series A Preferred Stock into shares of Common Stock, provided that the Company
receives the Notice of Conversion within twenty-four hours from the time the
Redemption Notice was received by such holder.
(g) The Company may, at its option, at any time after the
mailing of the Redemption Notice pursuant to Section 6 (d) above, deposit the
aggregate amount payable upon redemption of the Series A Preferred Stock with a
bank or trust company (the "Depositary") having its principal office in New
York, New York, and having a combined capital and surplus (as shown by its then
most recently published financial statement) of at least $200,000,000,
designated by the Board of Directors of the Company, to be held in trust by the
Depositary for payment to the holders of the shares to be redeemed. Upon such
deposit, the Company shall be released and discharged from any obligation to pay
the Redemption Price of the shares to be redeemed, and the holders of the shares
instead shall have the right to receive from the Depositary only, and not from
the Company, the amount payable upon redemption of the shares on surrender to
the Depositary of the certificates representing the shares. Any money so
deposited with the Depositary that is not claimed after one year from the
Redemption Date shall be repaid to the Company by the Depositary on demand, and
the holder of any of the shares shall thereafter look only to the Company for
any payment to which the holder may be entitled. Any interest which accrues on
money deposited with the Depositary shall belong to the Company and shall be
paid to the Company from time to time by the Depositary.
(h) Any Series A Preferred Stock redeemed or purchased by the
Company shall be canceled and shall have the status of authorized and unissued
shares of preferred stock, without designation as to class or series.
7. No Reissuance of Series A Preferred Stock. Any share or shares of
Series A Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be canceled, shall return to the status
of authorized but unissued preferred stock of no designated series, and shall
not be reissuable by the Company as Series A Preferred Stock.
31
8. Restrictions and Limitations
(a) Amendments to Charter. The Company shall not amend its
certificate of incorporation without the approval by the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock if such
amendment would:
(i) change the relative seniority rights of the
holders of Series A Preferred Stock as to the payment of dividends in relation
to the holders of any other capital stock of the Company, or create any other
class or series of capital stock entitled to seniority as to the payment of
dividends in relation to the holders of Series A Preferred Stock;
(ii) reduce the amount payable to the holders of
Series A Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company, or change the relative seniority of
the liquidation preferences of the holders of Series A Preferred Stock to the
rights upon liquidation of the holders of other capital stock of the Company, or
change the dividend rights of the holders of Series A Preferred Stock;
(iii) cancel or modify the conversion rights of the
holders of Series A Preferred Stock provided for in Section 5 herein; or
(iv) cancel or modify the rights of the holders of
the Series A Preferred Stock provided for in this Section 8.
9. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger of the Company, or any transfer of all or substantially all of the assets
of the Company to any other corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail or
cause to be mailed to each holder of Series A Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, merger, dissolution, liquidation
or winding up is expected to become effective and (iii) the time, if any, that
is to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation or winding up. Such notice shall be mailed at least ten
days prior to the date specified in such notice on which such action is to be
taken.
32
10. Certificate of Incorporation. The statements contained in the
foregoing, creating and designating the said Series A issue of Preferred Stock
and fixing the number, powers, preferences and relative, optional,
participating, and other special rights and the qualifications, limitations and
restrictions shall, upon the effective date of said series, be deemed to be
included in and be a part of the Certificate of Incorporation of the Company
pursuant to the relevant provisions of the General Corporation Law of the State
of Nevada.
11. Limitation on Number of Conversion Shares.
(a) Notwithstanding any other provision herein, the Company
shall not be obligated to issue any shares of Common Stock upon conversion of
the Series A Preferred Stock if the issuance of such shares of Common Stock
would exceed that number of shares of Common Stock which the Company may issue
upon conversion of the Series A Preferred Stock (the "Exchange Cap") without
breaching the Company's obligations under the rules and regulations of The
Nasdaq Stock Market, Inc., except that such limitation shall not apply in the
event that the Company (a) obtains the approval of its stockholders as required
by applicable rules of The Nasdaq Sock Market, Inc., for issuances of Common
Stock in excess of such amount or (b) obtains a written opinion from outside
counsel to the Company that such approval is not required, which opinion shall
be reasonably satisfactory to the holders of a majority of the shares of Series
A Preferred Stock then outstanding; provided, however, that notwithstanding
anything herein to the contrary, the Company will issue such number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock at the
then current Conversion Price up to the Exchange Cap. Until such approval or
written opinion is obtained, no holder of Series A Preferred Stock pursuant to
the Securities Purchase Agreement ("Purchase Agreement") shall be issued, upon
conversion of Series A Preferred Stock, shares of Common Stock in an amount
greater than the product of (i) the Exchange Cap amount multiplied by (ii) a
fraction, the numerator of which is the number of shares of Series A Preferred
Stock issued to such holder pursuant to the Purchase Agreement and the
denominator of which is the aggregate amount of all the shares of Series A
Preferred Stock issued to all holders pursuant to the Purchase Agreement (the
"Cap Allocation Amount"). In the event that any holder of Series A Preferred
Stock shall convert all of such holder's shares of Series A Preferred Stock into
a number of shares of Common Stock which, in the aggregate, is less than such
holder's Cap Allocation Amount, then the difference between such holder's Cap
Allocation Amount and the number of shares of Common Stock actually issued to
such holder shall be allocated to the respective Cap Allocation Amounts of the
remaining holders of Series A Preferred Stock on a pro rata basis in proportion
to the number of shares of Series Preferred Stock then held by each such holder.
The provisions of this paragraph will apply only in the event the Company
becomes listed for trading on the NASDAQ stock market (either Small Cap or
National Market).
(b) On each Conversion Date, the number of shares of Common
Stock underlying the Series A Preferred Stock to be issued to each holder (not
including the outstanding shares of Series A Preferred Stock or the unissued
shares of Common Stock underlying the Series A Preferred Stock not to be issued
on such Conversion Date) will not exceed the number of such shares which, when
aggregated with all other shares of Common Stock then owned of record by such
holder, would
33
result in such holder owning more than 4.99% of all of such Common Stock as
would be outstanding on such Conversion Date. The foregoing limitation shall not
apply in the event of an automatic conversion pursuant to subparagraph 5(c).
12. Ranking.
The Series A Preferred Stock shall, with respect to dividend
rights and rights on liquidation, winding up and dissolution, rank senior to any
of the (i) Common Stock, (ii) and preferred stock issued after the date hereof,
and (iii) any other class or series of stock of the Company which by its terms
ranks junior to the Series A Preferred Stock.
Signed and attested to on March __, 2000.
ADVANCED OPTICS ELECTRONICS, INC.
By:
-------------------------------------------
Xx. Xxxxxx Xxxxxx, Executive Vice President
Attest:
------------------------------
Secretary
34
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order
to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ___ shares of Series A
Preferred Stock, Certificate No. ___ (the "Preferred Stock") into shares of
Common Stock of Advanced Optics Electronics, Inc. (the "Company"), according to
the conditions hereof, as of the date written below.
The undersigned represents and warrants that
(i) All offers and sales by the undersigned of the shares of
Common Stock issuable to the undersigned upon conversion of
the Series A Preferred Stock shall be made in compliance with
Regulation D, pursuant to an exemption from registration under
the Securities Act of 1933, as amended (the "Securities Act"),
or pursuant to registration of the Common Stock under the Act,
subject to any restrictions on sale or transfer set forth in
the purchase agreement between the Company and the original
holder of the Certificate submitted herewith for conversion.
(ii) Upon conversion pursuant to this Notice of Conversion, the
undersigned will not own of record (within the meaning of the
Securities Exchange Act of 1934, as amended) 4.99% or more of
the then issued and outstanding shares of the Company.
------------------------------ ---------------------------
Date of Conversion Applicable Conversion Price
------------------------------ ------------------------
Number of shares of Common Stock $ Amount of Conversion
issuable upon Conversion
Legal Name of Converting Holder:
--------------------------------------
-----------------------------------------------
Signature/Title of Authorized Representative of
Converting Holder
Address for Delivery of Shares:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
35
EXHIBIT B
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE LAWS.
ADVANCED OPTICS ELECTRONICS, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No. 02
Number of Shares: 20,000
Date of Issuance: March 8, 2000
Advanced Optics Electronics, Inc., a Nevada corporation (the "Company"),
hereby certifies that, for value received, RFL Asset Management, L.L.C., and
permitted assigns, the registered holder hereof ("Holder"), is entitled, subject
to the terms set forth below, to purchase from the Company upon surrender of
this Warrant, at any time after the date hereof, but not after 5:00 P.M.
Delaware time on the Expiration Date (as defined herein) 20,000 fully paid and
nonassessable shares of Common Stock (as defined herein) of the Company (each a
"Warrant Share" and collectively the "Warrant Shares") at a purchase price per
share equal to one hundred ten percent (110%) of the closing bid price for the
Common Stock on the date of this Warrant (the "Exercise Price") in lawful money
of the United States. The number of Warrant Shares purchasable hereunder and the
Exercise Price are subject to adjustment as provided in Section 9 below.
Section 1.
(a) Definitions. The following words and terms used in this Warrant
shall have the following meanings:
"Common Stock" means (a) the Company's common stock and (b) any capital
stock into which such Common Stock shall have been changed or any capital stock
resulting from a reclassification of such Common Stock.
"Convertible Securities" mean any securities issued by the Company that
are convertible into or exchangeable for, directly or indirectly, shares of
Common Stock.
36
"Expiration Date" means the date which is five (5) years from the date of
this Warrant or, if such date falls on a Saturday, Sunday or other day on which
banks are required or authorized to be closed in the State of Delaware (a
"Holiday"), the next preceding date that is not a Holiday.
"Market Price" means the closing bid price on the day prior to the date
on which the Exercise Form is delivered to the Company, as quoted on the
National Association of Securities Dealers' OTC Bulletin Board Market or such
other national securities exchange or market on which the Common Stock may then
be listed.
"Registration Rights Agreement" shall have the meaning assigned to it in
the Securities Purchase Agreement (defined below).
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement between the holder hereof (or its predecessor in interest) and the
Company for the purchase of this Warrant and the other Securities (as defined in
the Securities Purchase Agreement).
"Transfer" shall include any disposition of this Warrant or any Warrant
Shares, or of any interest in either thereof which would constitute a sale
thereof within the meaning of the Securities Act of 1933, as amended, or
applicable state securities laws.
"Warrant" shall mean this Warrant and all Warrants issued in exchange,
transfer or replacement of any thereof.
"Warrant Exercise Price" per share shall be equal to one hundred ten
percent (110%) of the closing bid price for the Common Stock on the date of this
Warrant.
(b) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A) to
the Company shall be deemed to include the Company's successors; and (B) to any
applicable law defined or referred to herein, shall be deemed references to such
applicable law as the same may have been or may be amended or supplemented from
time to time.
(ii) When used in this Warrant, unless the otherwise specified in a
particular instance, the words "herein," "hereof," and "hereunder," and words of
similar import, shall refer to this Warrant as a whole and not to any provision
of this Warrant, and the words "Section," "Schedule," and "Exhibit" shall refer
to Sections of, and Schedules and Exhibits to, this Warrant unless otherwise
specified.
(iii) Whenever the context so requires the neuter gender includes the
masculine or feminine, and the singular number includes the plural, and vice
versa.
37
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the Holder, as a whole or in part, at any time prior to 5:00 P.M.
Delaware Time on the Expiration Date. The rights represented by this Warrant may
be exercised by the Holder, as a whole or from time to time in part (except that
this Warrant shall not be exercisable as to a fractional share) by (i) delivery
of a written notice, in the form of the exercise form attached as Exhibit I
hereto (an "Exercise Form"), of the Holder's election to exercise this Warrant,
which notice shall specify the number of Warrant Shares to be purchased, (ii)
payment to the Company of an amount equal to the Warrant Exercise Price
multiplied by the number of Warrant Shares as to which the Warrant is being
exercised (plus any applicable issue or transfer taxes) in immediately available
funds (either by wire transfer or a certified or cashier's check drawn on a
United States bank), for the number of Warrant Shares as to which this Warrant
shall have been exercised, and (iii) the surrender of this Warrant, properly
endorsed, at the principal office of the Company (or at such other agency or
office of the Company as the Company may designate by notice to the Holder).
In addition, and notwithstanding anything to the contrary contained in
this Warrant, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company in a cashless exercise, including a written
calculation of the number of Warrant Shares to be issued upon such exercise in
accordance with the terms hereof (a "Cashless Exercise"). In the event of a
Cashless Exercise, in lieu of paying the Exercise Price, the Holder shall
surrender this Warrant for, and the Company shall issue in respect thereof, the
number of Warrant Shares determined by multiplying the number of Warrant Shares
to which the Holder would otherwise be entitled by a fraction, the numerator of
which shall be the difference between the then current Market Price per share of
the Common Stock and the Exercise Price, and the denominator of which shall be
the then current Market Price per share of Common Stock.
The Warrant Shares so purchased shall be deemed to be issued to the
Holder or Holder's designees, as the record owner of such Warrant Shares, as of
the date on which this Warrant shall have been surrendered, the completed
Exercise Form shall have been delivered, and payment (or notice of an election
to effect a Cashless Exercise) shall have been made for such Warrant Shares as
set forth above.
In the event of any exercise of the rights represented by this Warrant
in compliance with this Section 2(a), a certificate or certificates for the
Warrant Shares so purchased, registered in the name of, or as directed by, the
Holder, shall be delivered to, or as directed by, the Holder within three (3)
business days after such rights shall have been so exercised.
(b) Unless this Warrant shall have expired or shall have been fully
exercised, the Company shall issue a new Warrant identical in all respects to
the Warrant exercised except (i) it shall represent rights to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
the Warrant exercised, less the number of Warrant Shares with respect to which
such Warrant is exercised, and (ii) the holder thereof shall be deemed to have
become the holder of record of such Warrant Shares immediately prior to the
close of business on the date on which the Warrant is surrendered and payment of
the amount due in respect of such exercise and any applicable taxes is made,
irrespective of the date of delivery of such share certificate, except that, if
the date of such surrender and payment is a date when the stock transfer books
of the Company are properly closed, such person shall be deemed to have become
the holder of such Warrant Shares at the opening of business on the next
succeeding date on which the stock transfer books are open.
38
(c) In the case of any dispute with respect to an exercise, the Company
shall promptly issue such number of Warrant Shares as are not disputed in
accordance with this Section. If such dispute only involves the number of
Warrant Shares receivable by the Holder under a Cashless Exercise, the Company
shall submit the disputed calculations to an independent accounting firm of
national standing via facsimile within two (2) business days of receipt of the
Exercise Form. The accountant shall audit the calculations and notify the
Company and the Holder of the results no later than two (2) business days from
the date it receives the disputed calculations. The accountant's calculation
shall be deemed conclusive absent manifest error. The Company shall then issue
the appropriate number of shares of Common Stock in accordance with this
Section.
Section 3. Covenants as to Common Stock. The Company covenants and agrees
that all Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable. The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock to provide for the exercise of the rights then
represented by this Warrant and that the par value of said shares will at all
times be less than or equal to the applicable Warrant Exercise Price.
Section 4. Taxes. The Company shall not be required to pay any tax or
taxes attributable to the initial issuance of the Warrant Shares or any
permitted transfer involved in the issue or delivery of any certificates for
Warrant Shares in a name other than that of the registered holder hereof or upon
any permitted transfer of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. No holder, as such,
of this Warrant shall be entitled to vote or receive dividends or be deemed the
holder of shares of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of this
Warrant. Notwithstanding the foregoing, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
Section 6. No Limitation on Corporate Action. No provisions of this
Warrant and no right or option granted or conferred hereunder shall in any way
limit, affect or abridge the exercise by the Company of any of its corporate
rights or powers to recapitalize, amend its Certificate of Incorporation,
reorganize, consolidate or merge with or into another corporation, or to
transfer all or any part of its property or assets, or the exercise of any other
of its corporate rights and powers.
Section 7. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment and not with a view to, or for sale in
connection with, any distribution hereof or of any of the shares of Common Stock
or other securities issuable upon the exercise thereof, and not with any present
intention
39
of distributing any of the same. Upon exercise of this Warrant, the holder
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the Warrant Shares so purchased are being acquired solely
for the holder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale. If such holder
cannot make such representations because they would be factually incorrect, it
shall be a condition to such holder's exercise of the Warrant that the Company
receive such other representations as the Company considers reasonably necessary
to assure the Company that the issuance of its securities upon exercise of the
Warrant shall not violate any United States or state securities laws.
Section 8. Transfer; Opinions of Counsel; Restrictive Legends.
(a) The holder of this Warrant understands that (i) this Warrant and the
Warrant Shares have not been and are not being registered under the Securities
Act or any state securities laws (other than as described in the Securities
Purchase Agreement and the Registration Rights Agreement), and may not be
offered for sale, sold, assigned or transferred unless (a) subsequently
registered thereunder, or (b) pursuant to an exemption from such registration;
(ii) any sale of such securities made in reliance on Rule 144 promulgated under
the Securities Act may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Securities and Exchange Commission
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such securities (other than as described in the
Securities Purchase Agreement and the Registration Rights Agreement) under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
Section 9. Adjustments.
(a) Reclassification and Reorganization. In case of any reclassification,
capital reorganization or other change of outstanding shares of the Common
Stock, or in case of any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock),
the Company shall cause effective provision to be made so that the Holder shall
have the right thereafter, by exercising this Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation or merger by a holder of the number of shares of Common Stock that
could have been purchased upon exercise of the Warrant immediately prior to such
reclassification, capital reorganization or other change, consolidation or
merger. Any such provision shall include provision for adjustments that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 9. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations or mergers. If the
consideration received by the holders of Common Stock is other than cash, the
value shall be as determined by the Board of Directors of the Company acting in
good faith.
(b) Dividends and Stock Splits. If and whenever the Company shall effect
a stock dividend, a stock split, a stock combination, or a reverse stock split
of the Common Stock, the number of Warrant Shares
40
purchasable hereunder and the Warrant Exercise Price shall be proportionately
adjusted in the manner determined by the Company's Board of Directors acting in
good faith. The number of shares, as so adjusted, shall be rounded down to the
nearest whole number and the Warrant Exercise Price shall be rounded to the
nearest cent.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen or destroyed, the Company shall, on receipt of an
indemnification undertaking reasonably satisfactory to the Company, issue a new
Warrant of like denomination and tenor as the Warrant so lost, stolen or
destroyed. In the event the holder hereof asserts such loss, theft or
destruction of this Warrant, the Company may require such holder to post a bond
issued by a surety reasonably satisfactory to the Company with respect to the
issuance of such new Warrant.
Section 11. Notice. Any notices required or permitted to be given under
the terms of this Warrant shall be sent by mail or delivered personally or by
courier and shall be effective five days after being placed in the mail, if
mailed, certified or registered, return receipt requested, or upon receipt, if
delivered personally or by courier or by facsimile, in each case properly
addressed to the party to receive the same. The addresses for such
communications shall be as provided in the Securities Purchase Agreement (Holder
is defined therein as the "Buyer"). Each party shall provide notice to the other
party of any change in address.
Section 12. Registration Right. Notwithstanding anything herein to the
contrary, unless the Warrant Shares have been registered in accordance with the
Registration Rights Agreement, during the five (5) year period commencing on the
date of this Warrant, if the Company proposes to file a registration statement
for a public offering of any of its securities under the Securities Act of 1933,
as amended, it will give written notice, at least twenty (20) days prior to the
filing of each such registration statement, to the holder of the Warrant and/or
the Common Stock previously received upon exercise hereof (and not previously
sold by such holder) of its intention to do so. Upon the holder's request within
ten (10) days after it has received such notice from the Company, the Company
shall include the Common Stock received or receivable upon exercise of this
Warrant owned in such registration statement such that said Common Stock
received or receivable upon such exercise shall be registered or qualified under
such registration statement. This provision is not applicable to a registration
statement filed on Form S-4 or Form S-8, nor is it applicable to the Warrant
once it has expired under the terms hereof or has been exercised and the holder
received non-restricted Common Stock upon such exercise. The rights described in
this Section 12 are in addition to the rights afforded the Holder by the
applicable provisions of the Securities Purchase Agreement.
Section 13. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is sought. This Warrant shall be governed by
and interpreted under the laws of the State of Delaware. Headings are for
convenience only and shall not affect the meaning or construction of any of the
provisions hereof. This Warrant shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of the Holder and its
successors and assigns. The Holder may not assign this Warrant except in
accordance with applicable federal and state securities laws. The Holder shall
immediately notify the Company with respect to any permitted assignment of this
Warrant.
41
Section 14. Date. The date of this Warrant is March 8, 2000. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 8 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
ADVANCED OPTICS ELECTRONICS, INC.
By:
-------------------------------------------
Xx. Xxxxxx Xxxxxx, Executive Vice President
42
EXHIBIT I TO WARRANT
EXERCISE FORM TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
ADVANCED OPTICS ELECTRONICS, INC.
The undersigned hereby exercises the right to purchase the number of
Warrant Shares covered by the Warrant attached hereto as specified below
according to the conditions thereof and herewith makes payment of U.S. $_____
(unless effected by a Cashless Exercise in accordance with the terms of the
Warrant), the aggregate Warrant Exercise Price of such Warrant Shares in full
pursuant to the terms and conditions of the Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained upon exercise of the Warrant, except under
circumstances that will not result in a violation of the 1933 Act or applicable
state securities laws.
(ii) The undersigned requests that the stock certificates for the Warrant
Shares be issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the terms of the Warrant in the name of the Holder (or such
other person(s) indicated below) and delivered to the undersigned (or
designee(s)) at the address or addresses set forth below.
Dated:_____________, _____.
HOLDER:
------------------------------------
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
Number of Warrant Shares
Being Purchased:
--------------------------
43
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
as of March 8, 2000, by and between Advanced Optics Electronics, Inc., a
corporation organized under the laws of the State of Nevada, U.S.A., with
headquarters located at 0000 Xxxxxxxxxx Xxxxxx XX, Xxxxx 0, Xxxxxxxxxxx, Xxx
Xxxxxx 00000 (the "Company") and the purchaser named on the signature page to
this Agreement (the "Purchaser").
This Agreement is being entered into pursuant to that
Securities Purchase Agreement, dated as of the date hereof, by and between the
Company and the Purchaser (the "Purchase Agreement").
The Company and the Purchaser hereby agree as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have the meaning set forth in Section 3(m).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Blackout Period" shall have the meaning set forth in Section
3(n).
"Board" shall have the meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of Delaware generally are authorized or required by law or other
government actions to close.
"Certificate of Designations" means the Certificate of
Designation of the Relative Rights and Preferences of the Series A Convertible
Preferred Stock of Advanced Optics Electronics, Inc., the form of which is
attached as Exhibit A to the Purchase Agreement, with respect to the Preferred
Stock (defined below) filed by the Company on or before the date of this
Agreement with the Secretary of State of the State of Nevada.
44
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.001 value
per share.
"Effectiveness Date" means with respect to the Registration
Statement the 120th day following the Closing Date.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Event" shall have the meaning set forth in Section 7(e)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 45th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"OTC Bulletin Board" shall mean the over-the-counter
electronic bulletin board market or exchange.
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" means the Series A Convertible Preferred
Stock, par value $.001 per share and stated value $1,000 per share, of the
Company issued to the Purchaser pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
45
"Registrable Securities" means (i) the shares of Common Stock
issuable upon conversion of the Preferred Stock (the "Conversion Shares") or in
payment of dividends in accordance with the terms of the Preferred Stock
("Dividend Shares") and exercise of the Warrants (the "Warrant Shares"), and
upon any stock split, stock dividend, recapitalization or similar event with
respect to such Conversion Shares, Dividend Shares, Warrant Shares or any
Preferred Stock, (ii) the shares of Common Stock issued upon any redemption of
Preferred Stock pursuant to the terms of the Certificate of Designations and
(iii) any other dividend or other distribution with respect to, conversion or
exchange of, or in replacement of, Registrable Securities; provided, however,
that Registrable Securities shall include (but not be limited to) a number of
shares of Common Stock (the "Required Number") equal to no less than the greater
of (x) 1,250,000 shares of Common Stock, or (y) 200% of the maximum number of
shares of Common Stock which would be issuable upon conversion of the Preferred
Stock and upon exercise of the Warrants, assuming such conversion and exercise
occurred on the Closing Date or the Filing Date, whichever date would result in
the greater number of Registrable Securities. Notwithstanding anything contained
herein to the contrary, if the actual number of shares of Common Stock issuable
upon conversion of the Preferred Stock and upon exercise of the Warrants exceeds
the Required Number, the term "Registrable Securities" shall be deemed to
include such additional shares of Common Stock as are necessary to include all
of the shares of Common Stock issuable upon conversion of the Preferred Stock
(and in payment of dividends, if applicable) and upon exercise of the Warrants.
"Registration Statement" means the registration statements and
any additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holder, for
which the Holder will be reimbursed by the Company pursuant to Section 4.
46
2. Registration.
(a) Required Registration. On or prior to the Filing Date the
Company shall prepare and file with the Commission a Registration Statement
covering all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form SB-1,
Form SB-2 or Form S-3 (except if the Company is not then eligible to register
for resale the Registrable Securities on Form SB-1, Form SB-2 or Form S-3, in
which case such registration shall be on another appropriate form in accordance
herewith). The Company shall use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, but in any event prior to the Effectiveness
Date, and to keep such Registration Statement continuously effective under the
Securities Act until such date as is the earlier of (x) the date when all
Registrable Securities covered by such Registration Statement have been sold by
the Purchaser or (y) the date on which the Registrable Securities may be sold
without any restriction pursuant to Rule 144(k) as determined by the counsel to
the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "Effectiveness Period"). If an additional
Registration Statement is required to be filed because the actual number of
shares of Common Stock into which the Preferred Stock is convertible and the
Warrants are exercisable exceeds the number of shares of Common Stock initially
registered in respect of the Conversion Shares and the Warrant Shares based upon
the computation on the Closing Date, the Company shall have twenty (20) Business
Days to file such additional Registration Statement, and the Company shall use
its best efforts to cause such additional Registration Statement to be declared
effective by the Commission as soon as possible, but in no event later than
ninety (90) days after filing.
(b) Shelf Registration. If the Company is not on the Filing
Date eligible to file a registration statement on Form S-3, then as soon as
possible but no later than thirty (30) days after becoming eligible to file a
registration statement for a secondary or resale offering of the Registrable
Securities on Form S-3, the Company shall prepare and file with the Commission a
post-effective amendment to Form SB-2 (or such other applicable form filed in
accordance with Section 2(a) above) on Form S-3 to continue the registration of
all Registrable Securities pursuant to a "shelf" Registration Statement on Form
S-3 covering all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. Notwithstanding anything to the contrary
contained herein, at no time during the Effectiveness Period shall any of the
Registrable Securities cease being registered.
3. Registration Procedures.
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form SB-1 or Form SB-2 (or if the
Company is not then eligible to register for resale the Registrable Securities
on Form SB-1 or Form SB-2 such registration shall be on another appropriate form
in accordance herewith) in accordance with the method or methods of distribution
thereof as specified by the Holder (except if otherwise directed by the Holder),
and cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than five (5) Business Days
prior to the filing of the Registration Statement or any related Prospectus or
any amendment or supplement thereto (including any document that
47
would be incorporated therein by reference), the Company shall (i) furnish to
the Holder and any Special Counsel, copies of all such documents proposed to be
filed, which documents (other than those incorporated by reference) will be
subject to the review of the Holder and such Special Counsel, and (ii) at the
request of the Holder cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be necessary,
in the reasonable opinion of counsel to such Holder, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holder or any Special Counsel shall reasonably
object in writing within three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible to any comments received
from the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as possible provide the Holder true and complete copies
of all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holder thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) Notify the Holder of Registrable Securities to be sold and
any Special Counsel as promptly as possible (and, in the case of (i)(A) below,
not less than five (5) Business Days prior to such filing) and (if requested by
any such Person) confirm such notice in writing no later than one (1) Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement,
48
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will 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 the light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of
the Registrable Securities, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment to the Registration Statement such information as
the Company reasonably agrees should be included therein and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment.
(f) Furnish to the Holder and any Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to the Holder and any Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders and any Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder reasonably requests
in writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to a Registration Statement, which
49
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any Holder may request at least two (2) Business Days prior to any sale of
Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the OTC Bulletin Board
and any other securities exchange, quotation system, market or over-the-counter
bulletin board, if any, on which similar securities issued by the Company are
then listed as and when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.
(m) Require each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who fails to furnish such information within a reasonable time
prior to the filing of each Registration Statement, supplemented Prospectus
and/or amended Registration Statement.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
50
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
(n) If (i) there is material non-public information regarding
the Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose and which the Company would be required to disclose
under the Registration Statement, then the Company may postpone or suspend
filing or effectiveness of a registration statement for a period not to exceed
20 consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate during
any 12 month period (each, a "Blackout Period"); provided, however, that no such
postponement or suspension shall be permitted for consecutive 20 day periods,
arising out of the same set of facts, circumstances or transactions.
4. Registration Expenses
All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Registration Statement is filed or becomes effective and
whether or not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with the OTC Bulletin Board and each other securities exchange or market on
which Registrable Securities are required hereunder to be listed, (B) with
respect to filings required to be made with the Commission, (C) with respect to
filings required to be made under the OTC Bulletin Board and (D) in compliance
with state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holder in connection with Blue Sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holder, in the case of the Special Counsel,
to a maximum amount of $2,500.00, (v) Securities Act liability insurance, if the
Company so desires such insurance, and (vi) fees and expenses of all
51
other Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
Company's independent public accountants (including the expenses of any comfort
letters or costs associated with the delivery by independent public accountants
of a comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, which information was
reasonably relied on by the Company for use therein or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto.
The Company shall notify the Holder promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of an
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Holder.
(b) Indemnification by Holder. The Holders shall, severally
and not jointly, indemnify and hold harmless the Company, the directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or arising solely out of or based
52
solely upon any omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, to the extent, but only to the extent,
that such untrue statement or omission is contained in or omitted from any
information so furnished in writing by such Holder to the Company specifically
for inclusion in the Registration Statement or such Prospectus and that such
information was reasonably relied upon by the Company for use in the
Registration Statement, such Prospectus or such form of prospectus or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus Supplement.
Notwithstanding anything to the contrary contained herein, the Holder shall be
liable under this Section 5(b) for only that amount as does not exceed the net
proceeds to such Holder as a result of the sale of Registrable Securities
pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party) in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such 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 or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
53
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
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, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party 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 of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying, Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms. Notwithstanding anything to the contrary contained
herein, the Holder shall be liable or required to contribute under this Section
5(c) for only that amount as does not exceed the net proceeds to such Holder as
a result of the sale of Registrable Securities pursuant to such Registration
Statement.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in 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.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Rule 144.
As long as any Holder owns Preferred Stock, Dividend Shares,
Conversion Shares, Warrants or Warrant Shares, the Company covenants to timely
file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company
54
after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act and
to promptly furnish the Holder with true and complete copies of all such
filings. As long as any Holder owns Preferred Stock, Dividend Shares, Conversion
Shares, Warrants or Warrant Shares, if the Company is not required to file
reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare
and furnish to the Holder and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act, as well as any other information required thereby, in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable such Person to sell Dividend Shares, Conversion Shares
and Warrant Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including providing any legal opinions of counsel to the Company
referred to in the Purchase Agreement. Upon the request of any Holder, the
Company shall deliver to such Holder a written certification of a duly
authorized officer as to whether it has complied with such requirements.
7. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has, as of the date hereof entered into and currently in
effect, nor shall the Company or any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holder in this Agreement or
otherwise conflicts with the provisions hereof except for registration rights
provisions disclosed in the Company's Disclosure Schedule to the Purchase
Agreement. Except for registration rights provisions disclosed in the Company's
Disclosure Schedule to the Purchase Agreement, neither the Company nor any of
its subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holder set forth herein, and are not otherwise in conflict with the
provisions of this Agreement. This Section 7(b) shall not prohibit the Company
from entering into any agreements concerning the registration of securities on
Form S-8 or Form S-4.
55
(c) [Intentionally Omitted.]
(d) Piggy-Back Registrations. If at any time when there is not
an effective Registration Statement covering (i) Conversion Shares or (ii)
Warrant Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or its then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each holder of Registrable Securities
written notice of such determination and, if within thirty (30) days after
receipt of such notice, any such holder shall so request in writing (which
request shall specify the Registrable Securities intended to be disposed of by
the Purchaser), the Company will cause the registration under the Securities Act
of all Registrable Securities which the Company has been so requested to
register by the holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 7(d) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 7(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities, would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Registrable Securities of
the Holder, then (x) the number of Registrable Securities of the Holders
included in such registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y)
none of the Registrable Securities of the Holder shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holder than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).
(e) Failure to File Registration Statement and Other Events.
The Company and the Purchaser agree that the Holder will suffer damages if the
Registration Statement is not filed on
56
or prior to the Filing Date and not declared effective by the Commission on or
prior to the Effectiveness Date and maintained in the manner contemplated herein
during the Effectiveness Period or if certain other events occur. The Company
and the Holder further agree that it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration
Statement is not filed on or prior to the Filing Date, or is not declared
effective by the Commission on or prior to the Effectiveness Date (or in the
event an additional Registration Statement is filed because the actual number of
shares of Common Stock into which the Preferred Stock is convertible and the
Warrants are exercisable exceeds the number of shares of Common Stock initially
registered is not filed and declared effective within the time periods set forth
in Section 2(a)), or (ii) the Company fails to file with the Commission a
request for acceleration in accordance with Rule 12dl-2 promulgated under the
Exchange Act within five (5) Business Days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed," or not subject to further review,
or (iii) the Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities at any time prior to the expiration of the Effectiveness Period,
without being succeeded immediately by a subsequent Registration Statement filed
with and declared effective by the Commission, or (iv) trading in the Common
Stock shall be suspended or if the Common Stock is delisted from the OTC
Bulletin Board for any reason for more than ninety (90) days in the aggregate,
or (v) the conversion rights of the Holder are suspended for any reason,
including by the Company, or (vi) the Company breaches in a material respect any
covenant or other material term or condition to this Agreement, the Certificate
of Designations, the Purchase Agreement (other than a representation or warranty
contained therein) or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated hereby and
thereby, and such breach continues for a period of thirty days after written
notice thereof to the Company, or (vii) the Company has breached Section 3(n) of
this Agreement (any such failure or breach being referred to as an "Event"), the
Company shall pay in cash as liquidated damages for such failure and not as a
penalty to the Holder an amount equal to 2% of the Purchase Price paid by the
Holder for all Preferred Stock and Warrants purchased and then outstanding
pursuant to the Purchase Agreement for each thirty (30) day period until the
applicable Event has been cured, which shall be pro rated for such periods less
than thirty (30) days (the "Periodic Amount"). Payments to be made pursuant to
this Section 7(e) shall be due and payable immediately upon demand in
immediately available funds. The parties agree that the Periodic Amount
represents a reasonable estimate on the part of the parties, as of the date of
this Agreement, of the amount of damages that may be incurred by the Holder if
the Registration Statement is not filed on or prior to the Filing Date or has
not been declared effective by the Commission on or prior to the Effectiveness
Date and maintained in the manner contemplated herein during the Effectiveness
Period or if any other Event as described herein has occurred.
(f) Specific Enforcement, Consent to Jurisdiction.
(i) The Company and the Purchaser acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Registration Rights Agreement or the Purchase Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Registration Rights Agreement or the Purchase Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
57
(ii) Each of the Company and the Purchaser (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the City of Wilmington, State of Delaware for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement or the
Purchase Agreement and (ii) hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Purchaser consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 7(f) shall affect or limit any right to serve
process in any other manner permitted by law.
(g) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holder. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holder and that does not directly or indirectly affect the rights
of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates; provided,
however, that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(h) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., pacific
standard time, on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice later than 5:00 p.m., pacific
standard time, on any date and earlier than 11:59 p.m., pacific time, on such
date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications with respect to each party shall be the address(es) for such
party that are set forth in the Purchase Agreement (as the same may be modified
from time to time by such party in accordance with the terms of the Purchase
Agreement), or to such other address or addresses or facsimile number or numbers
as any such party may most recently have designated in writing to the other
parties hereto by such notice.
(i) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns and shall inure to the benefit of the Holder and its successors and
assigns. The Company may not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the Holder. The
Purchaser may assign its rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.
58
(j) Assignment of Registration Rights. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any transferee of such Holder of all
or a portion of the Preferred Stock or the Registrable Securities if: (i) the
Holder agrees in writing with the transferee or assignee to assign such rights,
and a copy of such agreement is furnished to the Company within a reasonable
time after such assignment, (ii) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such securities
by the transferee or assignees is restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. In
addition, each Holder shall have the right to assign its rights hereunder to any
other Person with the prior written consent of the Company, which consent shall
not be unreasonably withheld. The rights to assignment shall apply to the
Holders (and to subsequent) successors and assigns.
(k) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(l) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to principles of conflicts of law thereof.
(m) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(n) Severability. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable in any respect, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto
shall use their reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(o) Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
59
(p) Shares Held by the Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage and shall not be counted as outstanding.
(q) Notice of Effectiveness. Within two (2) business days
after the Registration Statement which includes the Registrable Securities is
ordered effective by the Commission, the Company shall deliver, and shall cause
legal counsel for the Company to deliver, to the transfer agent for such
Registrable Securities and to the Purchaser (with copies to the Holders whose
Registrable Securities are included in such Registration Statement, if other
than the Purchaser) confirmation that the Registration Statement has been
declared effective by the Commission in the form attached hereto as Exhibit A.
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
[SIGNATURE PAGE FOLLOWS]
60
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT DATED AS OF MARCH 8, 2000]
ADVANCED OPTICS ELECTRONICS, INC.
By:
------------------------------------------
Name: Xx. Xxxxxx Xxxxxx
Title: Executive Vice President
RFL ASSET MANAGEMENT, L.L.C.
By:
------------------------------------------
(Duly Authorized Managing Member)
61
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT
[NAME AND ADDRESS OF TRANSFER AGENT]
Attn:
----------------------
[NAME OF INVESTOR]
[ADDRESS]
[ADDRESS]
[ADDRESS]
Attn:
----------------------
Re: ADVANCED OPTICS ELECTRONICS, INC.
Ladies and Gentlemen:
We are counsel to Advanced Optics Electronics, Inc., a Nevada
corporation (the "COMPANY"), and have represented the Company in connection with
that certain Securities Purchase Agreement (the "PURCHASE AGREEMENT"), dated as
of March 8, 2000, by and among the Company and the Purchaser named therein (the
"HOLDER") pursuant to which the Company issued to the Holder its Series A Seven
and One Half Percent (7.5%) Convertible Preferred Stock (the "PREFERRED STOCK")
along with warrants (the "WARRANTS") to purchase shares of the Company's common
stock, $.001 par value per share (the "COMMON STOCK"). Pursuant to the Purchase
Agreement, the Company has also entered into a Registration Rights Agreement
with the Holder (the "REGISTRATION RIGHTS AGREEMENT"), dated of even date with
the Purchase Agreement, pursuant to which the Company agreed, among other
things, to register the Registrable Securities (as defined in the Registration
Rights Agreement), including the shares of Common Stock issuable upon conversion
of the Preferred Stock and exercise of the Warrants, under the Securities Act of
1933, as amended (the "1933 ACT"). In connection with the Company's obligations
under the Registration Rights Agreement, on _____________, 2000, the Company
filed a Registration Statement on Form ___ (File No. 333- _________) (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the resale of the Registrable Securities which names the
Holder as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
62
EXHIBIT D
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is dated as of March 8, 2000,
by and among Advanced Optics Electronics, Inc., a corporation organized under
the laws of the State of Nevada, U.S.A. (the "Company"), the buyer set forth on
the execution page hereof (the "Buyer") and H. XXXXX XXXXXXX, XX., a duly
licensed attorney who practices law in the State of North Carolina, U.S.A., as
Escrow Agent (the "Escrow Agent").
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in that Securities Purchase Agreement between the
Company and the Buyer dated of even date herewith (the "Securities Purchase
Agreement").
WITNESSETH:
WHEREAS, the Buyer and the Company have entered into the Securities
Purchase Agreement, pursuant to which the Company has agreed to sell, and the
Buyer has agreed to purchase, at the Closing, a number of shares of Preferred
Stock along with a number of Warrants (collectively, the "Securities"); and
WHEREAS, the Buyer and the Company have agreed to effectuate the
Closing utilizing an escrow arrangement as described in this Agreement; and
WHEREAS, it is a condition of the Company's obligation to sell, and the
Buyer's obligation to purchase, the Securities, that this Agreement be executed
and delivered; and
WHEREAS, the Escrow Agent is willing to act hereunder on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth below, the parties hereto hereby agree as follows:
1. ESCROW ACCOUNT.
1.1 Deposit. On the Closing Date, by wire transfer of immediately
available funds in United States Dollars, Buyer shall deposit the full Purchase
Price (the "Escrow") with the Escrow Agent, to be held by the Escrow Agent in a
separate non-interest bearing account (the "Escrow Account"), established at
Wachovia Bank, N.A., (the "Bank"), subject to the terms and provisions contained
herein. At the request of the Company the Escrow Agent shall provide the Company
with all Bank statements, notices and other writings that it receives from the
Bank in connection with the Escrow Account.
63
2. DISBURSEMENT OF ESCROW/SECURITIES.
2.1 Disbursement. At the Closing, upon receipt by the Escrow Agent of
all of the moneys, documents, and things from the respective parties with
respect to such Closing as described in the Securities Purchase Agreement and as
further described in Sections 2.1(a) and 2.1(b) below, the Escrow Agent shall
deliver to each party via facsimile the documents and things (or if requested by
the parties, only the signature pages thereto) to have been delivered by the
other party in accordance with the Securities Purchase Agreement and this
Agreement. The Escrow Agent shall transfer, by the next business day following
the Closing, by wire transfer to the Company the full Escrow then held, less any
charges and fees agreed to be paid by the Company. The Escrow Agent shall, upon
receipt thereof, deliver (via overnight delivery service) to the Company
originals of all other documents and things listed in Section 2.1(b) below. The
Escrow Agent shall, upon receipt thereof, deliver (via overnight delivery
service) originals of all of the documents and things listed in Section 2.1(a)
below to the Buyer at the address provided in writing by the Buyer to the Escrow
Agent.
The Closing may take place via facsimile. This shall be accomplished in
the following manner. Each party shall deliver via facsimile to the Escrow
Agent, at the telecopier number provided on the signature page to this
Agreement, the first page and the fully executed signature page to each of the
documents and things to be executed by such party at the Closing. If stock
certificates (whether Common Stock or Preferred Stock) or Warrants are to be
delivered, each such certificate or document shall be delivered via overnight
courier to the Escrow Agent. Upon receipt of the requisite documents and things
via facsimile or otherwise from each party, the Escrow Agent shall in turn send
to each party the documents and things received from the other party.
Thereafter, upon receipt by the Escrow Agent of the Purchase Price and the
original Preferred Stock and Warrants being sold at such Closing, the Escrow
Agent shall wire transfer the Escrow (less any charges and fees agreed to be
paid by the Company to third parties) to the Company. Each party closing the
transactions contemplated herein via facsimile shall deliver via overnight
courier service to the Escrow Agent complete originals of all documents and
things (as called for in Sections 2.1(a) and 2.1(b) below) within one (1)
business day after such delivery via facsimile. Each party hereby agrees that a
facsimile of each document and thing to be delivered hereunder, once delivered
to the Escrow Agent, shall be binding upon such party in the same manner as
would an original to the full extent allowed by applicable law.
(a). Items to be Delivered by the Company to the Escrow Agent.
At the Closing. On the Closing Date, the Company shall deliver to the
Escrow Agent on behalf of the Buyer, unless otherwise stated, three (3) fully
executed (by the authorized officer(s) of the Company) originals of each of the
following documents: (I) the Securities Purchase Agreement, (II) the
Registration Rights Agreement, (III) one (1) or more original certificates
representing the Preferred Stock purchased at the Closing; (IV)
64
one (1) original fully executed Warrant along with two (2) copies of the
Warrant; (V) the executed original Legal Opinion (Exhibit E to the Securities
Purchase Agreement) along with two (2) copies thereof; and (VII) this Agreement.
(b) Items to be Delivered by the Buyer to the Escrow Agent.
At the Closing. On or before the Closing Date, the Buyer shall deliver
to the Escrow Agent on behalf of the Company, unless otherwise stated, three (3)
fully executed originals of each of the following documents: (I) the Securities
Purchase Agreement, (II) the Registration Rights Agreement, (III) this
Agreement; and (IV) the full purchase price for the Securities being purchased
at such Closing, via wire transfer to the Escrow Account.
2.2 Controversies. If any controversy arises between two or more of the
parties hereto, or between any of the parties hereto and any person not a party
hereto, as to whether or not or to whom the Escrow Agent shall deliver the
Escrow or any portion thereof or as to any other matter arising out of or
relating to this Escrow Agreement, the Escrow Agent shall not be required to
determine the same and need not make any delivery of the Escrow concerned or any
portion thereof but may retain the same until the rights of the parties to the
dispute shall have been finally determined by agreement or by final judgment of
a court of competent jurisdiction after all appeals have been finally determined
(or the time for further appeals has expired without an appeal having been
made). The Escrow Agent shall deliver that portion of the Escrow concerned
covered by such agreement or final order within five (5) days after the Escrow
Agent receives a copy thereof. The Escrow Agent shall assume that no such
controversy has arisen unless and until it receives written notice from the
Buyer or the Company that such controversy has arisen, which refers specifically
to this Agreement and identifies the adverse claimants to the controversy.
2.3 No Other Disbursements. No portion of the Escrow monies shall be
disbursed or otherwise transferred except in accordance with this Section 2,
Section 4 or Section 5.1(b). Without limiting the foregoing, neither Escrow
Agent nor the Buyer shall be entitled to any right of offset against the Escrow
or otherwise entitled to receive any portion of the Escrow.
3. ESCROW AGENT. The acceptance by the Escrow Agent of his duties
hereunder is subject to the following terms and conditions, which the parties to
this Agreement hereby agree shall govern and control with respect to the rights,
duties, liabilities and immunities of the Escrow Agent:
3.1 The Escrow Agent shall not be responsible or liable in any manner
whatever for the sufficiency, correctness, genuineness or validity of any cash,
investments or other amounts deposited with or held by the Escrow Agent.
65
3.2 The Escrow Agent shall be protected in acting upon any written
notice, certificate, instruction, request or other paper or document believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties.
3.3 The Escrow Agent shall not be liable for any act done hereunder
except in the case of the Escrow Agent's willful misconduct or bad faith.
3.4 The Escrow Agent shall not be obligated or permitted to investigate
the correctness or accuracy of any document or to determine whether or not the
signatures contained in said documents are genuine or to require documentation
or evidence substantiating any such document or signature.
3.5 The Escrow Agent shall have no duties as Escrow Agent except those
that are expressly set forth herein, and in any modification or amendment
hereof; provided, however, that no such modification or amendment hereof shall
affect his duties unless it shall have given his written consent thereto. The
Escrow Agent shall not be prohibited from owning an equity interest in the
Company, the Buyer, another buyer, any of their respective subsidiaries or any
third party that is in any way affiliated with or conducts business with either
the Company, the Buyer or another buyer.
3.6 The Company and the Buyer specifically acknowledge that the Escrow
Agent is a practicing attorney in Raleigh, North Carolina U.S.A., and may have
worked with or be affiliated with the Company, the Buyer, or affiliates of
either of them on other unrelated transactions, and that they and each of them
has specifically requested that the Escrow Agent draft the documents for the
said transactions and act as Escrow Agent with respect to the said transactions.
Each party represents that it has retained legal and other counsel of its
choosing with respect to the transactions contemplated herein and in the
Securities Purchase Agreement, and is satisfied in its sole discretion with the
form and content of the documentation drafted by the Escrow Agent, as the same
has been approved prior to closing by the parties and their respective counsel.
The Escrow Agent may own an equity interest in the Company and/or may be an
equity owner of the Buyer or another buyer, and may increase or sell any such
interest, so long as in accordance with any and all applicable law. The said
parties hereby waive any objection to the Escrow Agent so acting based upon
conflict of interest or lack of impartiality. The Escrow Agent agrees to act
impartially and in accordance with the terms of this Agreement and with the
parties' respective instructions, so long as they are not in conflict with the
terms of this Agreement.
4. TERMINATION. This Agreement shall terminate on the earlier of (a)
the date on which the Escrow and all other escrowed documents and things
described herein shall have been fully disbursed in accordance with the terms
and conditions of this Agreement, (b) any other date agreed to by the Buyer and
the Company, or (c) the next business day after the expiration of the last of
the Warrants to be issued by the Company in accordance with the terms of the
Securities Purchase Agreement, in which event the Escrow shall be disbursed in
full to the Company.
66
5. MISCELLANEOUS.
5.1 Indemnification of Escrow Agent.
(a) The Company and the Buyer each agree, jointly and severally, to
indemnify the Escrow Agent for, and to hold him harmless against, any loss
incurred without willful misconduct or bad faith on the Escrow Agent's part,
arising out of or in connection with the administration of this Agreement,
including the costs and expenses of defending himself against any claim or
liability in connection with the exercise or performance of any of his powers or
duties hereunder. This indemnification shall not apply to a party with respect
to a direct claim against the Escrow Agent by such party alleging in good faith
a breach of this Agreement by the Escrow Agent, which claim results in a final
non-appealable judgment against the Escrow Agent with respect to such claim.
(b) In the event of any dispute as to the nature of the rights or
obligations of the Buyer, the Company or the Escrow Agent hereunder, the Escrow
Agent may at any time or from time to time interplead, deposit and/or pay all or
any part of the Escrow Funds with or to a court of competent jurisdiction
sitting in Wake County, North Carolina or in any appropriate federal court, in
accordance with the procedural rules thereof. The Escrow Agent shall give notice
of such action to the Company and the Buyer. Upon such interpleader, deposit or
payment, the Escrow Agent shall immediately and automatically be relieved and
discharged from all further obligations and responsibilities hereunder,
including the decision to interplead, deposit or pay such funds.
5.2 Amendments. This Agreement may be modified or amended only by a
written instrument executed by each of the parties hereto.
5.3 Notices. All communications required or permitted to be given under
this Agreement to any party hereto shall be sent by first class mail or
facsimile to such party at the address, except in the case of the Escrow Agent,
of such party set forth in the Securities Purchase Agreement and, in the case of
the Escrow Agent, at 0000 Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxx Xxxxxxxx
X.X.X. 00000.
5.5 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Escrow Agent shall not assign his duties under this
Agreement.
5.6 Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of North Carolina.
5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, and all of which together
shall constitute one and the same agreement.
67
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
[SIGNATURE PAGE FOLLOWS]
68
[SIGNATURE PAGE TO ESCROW AGREEMENT DATED AS OF MAR. 8, 2000]
THE COMPANY:
ADVANCED OPTICS ELECTRONICS, INC.
By:
----------------------------------------------
Xx. Xxxxxx Xxxxxx, Executive Vice President
THE BUYER:
RFL ASSET MANAGEMENT, L.L.C.
By:
----------------------------------------------
(Duly Authorized Managing Member)
ESCROW AGENT:
-------------------------------------------------
H. XXXXX XXXXXXX, XX., ESQ.
Address: 0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx XXX 00000
Telephone 000.000.0000
Telecopier 919.785.3116
69
EXHIBIT E
March 8, 2000
Triton Private Equities Fund, L.P.
Wichita, Kansas
RFL Asset Management, L.L.C.
New York, New York
X/x X. Xxxxx Xxxxxxx, Xx., Xxx.
0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Re: Advanced Optics Electronics, Inc.
Gentlemen:
We have acted as counsel to Advanced Optics Electronics, Inc.,
a Nevada corporation (the "Company"), in connection with your purchase of Series
A Convertible Preferred Stock, along with certain warrants, in accordance with
the terms of that Securities Purchase Agreement dated as of March 8, 2000 (the
"Agreement") between the Company and Salksanna, L.P. (the "Investor"), (ii) the
Registration Rights Agreement dated as of the date hereof (the "Registration
Rights Agreement") between the Company and the Investor, and (iii) the Escrow
Agreement dated as of the date hereof (the "Escrow Agreement") among the
Company, the Investor and H. Xxxxx Xxxxxxx, Xx., Esq., as escrow agent.
Capitalized terms used herein but not otherwise defined herein shall have the
meanings set forth in the Agreement.
In connection with rendering this opinion, we have examined
the Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Certificate of Designations as filed (or as it will be filed prior to the
closing) and the form of the Warrants (collectively, the "Transaction
Documents"), as well as the Company's Certificate of Incorporation ("Articles")
and By-laws and the resolutions of the Board of Directors of the Company
approving the transactions contemplated by the Agreement.
We have also made such examination of law and have examined
originals or copies, certified or otherwise, of such corporate records and
documents of the Company, such agreements, certificates of officers or
representatives of the Company, and such other records, certificates, including
certificates of public officials, and documents as we have deemed relevant and
necessary as a basis for the opinions hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted
70
to us as originals and the conformity with authentic original documents of all
documents submitted to us as copies. As to any facts relevant to the opinions
expressed below, we have relied upon certificates and written and/or oral
representations of officers of the Company (including the representations of the
Company set forth in the Transaction Documents) and public officials. We have
also assumed that the representations and warranties of the Investor as set
forth in the Transaction Documents are true and correct as of the date hereof.
All references herein to contracts, instruments or other documents of the
Company are limited to such documents as have been provided to us by the Company
or of which we have actual knowledge after due inquiry of the Company and its
officers. As to our opinion in paragraphs 2, 3, and 7 set forth below, we have
examined only resolutions of the Board of Directors of the Company relating to
such share issuances and our opinion set forth in such paragraphs is limited
thereto. We have not examined or reviewed any communication, instrument,
agreement, document or other item or conducted any independent inquiry or
investigation of any matter except as otherwise expressly set forth above. We
have also assumed that the Agreement and the other Transaction Documents have
been executed and delivered by and are binding on each of the parties thereto.
The opinions expressed below with respect to compliance with
certain statutes, rules and regulations are based upon a review of those
statutes, rules and regulations that, in our experience, are applicable to
transactions of the type contemplated by the Agreement and to businesses such as
the Company's. Our opinion as to the good standing of the Company in Nevada set
forth in the first sentence of paragraph 1 below is based solely upon our
examination of a certificate of good standing dated ________, 2000 provided by
the Secretary of State of Nevada, and such opinion is given solely as of such
date.
In connection with our opinion with respect to pending
litigation and existing orders, contracts, injunctions, judgements and decrees
set forth in paragraph 5 below we have not undertaken searches of the dockets of
any court of any jurisdiction, nor conducted a judgment, lien, litigation or
similar search and have relied upon certificates and written or oral
representations of officers of the Company.
We express no opinion respecting the enforceable nature of the
Agreement, the other Transaction Documents, or any document or instrument
executed pursuant thereto or in connection therewith, insofar as the enforceable
nature thereof, or any right, power, privilege, remedy or interest intended to
be created thereunder, may be limited (i) by applicable bankruptcy, insolvency,
moratorium, fraudulent conveyance, reorganization or other laws or judicial
decisions affecting any rights, powers, privileges, remedies or interests of
creditors generally, (ii) by rules or principles of equity affecting the
enforcement of obligations generally, whether at law, in equity or otherwise,
(iii) by the exercise of the discretionary powers of any court or other
authority before which may be brought any proceeding seeking equitable or other
remedies, including, without limitation, specific performance, injunctive relief
and indemnification or (iv) insofar as rights to indemnity and/or contribution
are concerned, by federal or state securities laws or the public policy
underlying such laws.
71
Our opinion is limited to the date hereof and we do not in any
event undertake to advise you of any facts or circumstances occurring or coming
to our attention subsequent to the date hereof.
Where reference is made in this opinion to matters within or
to our knowledge, to the best of our knowledge, or to facts or circumstances
known to us or which have come to our attention, such reference means the actual
knowledge of those attorneys in our firm who have given substantive attention to
the preparation of the Agreement and other Transaction Documents and those
attorneys in our firm who, from time to time, have given substantive attention
to the general corporate and securities matters for which our firm has been
engaged by the Company, their review of documents in connection with this
engagement and the general corporate and securities matters for which our firm
has been engaged by the Company, and inquiries of officers of the Company,
without, however, independent investigation of any matter unless expressly set
forth herein.
We call your attention to the fact that we are counsel
admitted to practice in the State of _____, and we do not express any opinion
with respect to the applicable laws, or the effect or applicability of the laws,
of any jurisdiction other than those of the State of _____, the General
Corporation Law of the State of _____ and the securities laws of the United
States of America. In particular, but without limitation, we do not express any
opinion with respect to the Blue Sky or securities laws of any State or other
jurisdiction (other than the federal securities laws of the United States of
America), or any law relating specifically to telecommunications or patents,
trademarks or other intellectual property rights. Accordingly, and
notwithstanding anything contained in any document or instrument to the
contrary, for purposes of the opinions expressed below, we have assumed that
notwithstanding any choice of law provision contained in the Agreement and in
the other Transaction Documents, the internal laws of the State of _____ will be
applied to the Agreement and to each other document and instrument with respect
to which we opine below and that the Agreement and each other document and
instrument with respect to which we opine below will be governed by, and
construed and enforced in accordance with, the laws of the State of _____,
without regard to principles of conflicts or choice of law.
Based upon and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation organized, validly existing
and in good standing under the laws of the State of Nevada and has all requisite
power and authority to carry on its business and to own, lease and operate its
properties and assets. The Company is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which the Company
owns or leases property, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
72
2. The Company has the requisite corporate power and authority
to enter into and perform its obligations under the Agreement and the other
Transaction Documents, to file the Certificate of Designations and to issue the
Common Stock and the Warrants. The execution and delivery of the Agreement, and
the execution, issuance and delivery of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required except for approval of the stockholders of the Company with respect to
the issuance by the Company of more than 19.99% of the outstanding shares of
Common Stock that may be required by the NASDAQ Market (if applicable). The
Agreement and the other Transaction Documents have been duly executed and
delivered, and the Warrants have been duly executed, issued and delivered by the
Company and each of the Agreement and the other Transaction Documents
constitutes valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms.
3. Subject to the Company maintaining the requisite number of
authorized shares of Preferred Stock and of Common Stock, the execution,
delivery and performance of the Agreement and the other Transaction Documents by
the Company and the consummation by the Company of the transactions contemplated
thereby, including, without limitation, the issuance of the Securities, do not
and will not (i) result in a violation of the Company's Articles or By-Laws, or
(ii) to our knowledge, conflict with, or constitute a material default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any "lock-up"
or similar provision of any underwriting or similar agreement to which the
Company is a party, except for such conflicts, defaults, terminations,
amendments, accelerations and cancellations as would not, individually or in the
aggregate, have a Material Adverse Effect.
4. The issuance of the Securities in accordance with the
Agreement will be exempt from registration under the Securities Act of 1933, as
amended. When so issued against payment in full of the Purchase Price, the
Securities will be duly and validly issued, fully-paid and nonassessable, and
free of any liens, encumbrances and preemptive or similar rights contained in
the Company's Articles or By-laws or, to our knowledge, in any agreement to
which the Company is party.
5. To our knowledge, except as disclosed in the Financial
Statements or in a schedule to the Agreement, there are no claims, actions,
suits, proceedings or investigations that are pending against the Company or its
properties, nor has the Company received any written threat of any such claims,
actions, suits, proceedings or investigations. To our knowledge, the Company is
not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
6. To our knowledge, other than as referenced in Schedule 3(c)
to the Agreement, there are no outstanding options, warrants, calls or
commitments of any character
73
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any right to subscribe for or acquire any shares of
Common Stock or contracts, commitments, understanding, or arrangements by which
the Company is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common Stock,
except as described in a schedule to the Agreement.
7. The issuance of the Securities will not violate the
applicable listing agreement between the Company and any securities exchange or
market on which the Company's securities are listed.
This opinion is rendered solely to the Investor in connection
with the transactions contemplated by the Agreement and only the Investor is
entitled to rely hereon. This opinion may not be used or relied on by the
Investor for any other purpose, or by any other person, firm, corporation or
entity for any purpose, without our prior written consent.
Very truly yours,
[NAME OF LAW FIRM OR ATTORNEY]
