1
EXHIBIT 10.2
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of June 3, 1999, among Advanced Optics
Electronics. Inc., a Nevada corporation (the "Company"), and the Purchasers
listed on Schedule I attached hereto (each a "Purchaser and collectively, the
"Purchasers").
RECITALS
WHEREAS, the Company desires to sell and issue to the Purchasers, and
the Purchasers desire to purchase from the Company, $500,000 aggregate principal
amount of the Company's 8% Convertible Notes due June 3, 2001 (the "Convertible
Notes"), with terms and conditions as set forth in the form of Convertible Note
attached hereto as Exhibit A; and
WHEREAS, the Convertible Notes will be convertible into shares of the
Company's common stock, par value $.001 per share (the "Common Stock"); and
WHEREAS, in order to induce the Purchasers to enter into the
transactions described in this Agreement, the Company desires to issue to the
Purchasers warrants to purchase an aggregate of 12,500,000 shares of Common
Stock on the terms and conditions described in the form of the common stock
purchase warrant attached hereto as Exhibit B (the "Warrants'); and
WHEREAS, the Purchasers will have certain registration rights with
respect to shares of Common Stock issuable (i) as interest under, and upon
conversion of, the Convertible Notes (collectively, the "Conversion Shares"),
and (ii) upon exercise of the Warrants (the "Warrant Shares"), all as set forth
in the Registration Rights Agreement in the form attached hereto as Exhibit C;
and
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"),
(i) any other Person (a "Controlling Person") that directly, or indirectly
through one or more intermediaries, Controls the Subject Person or (ii) any
other Person (other than the Subject Person) which is Controlled by or is under
common Control with a Controlling Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
2
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by the
Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 7.13.
"Closing Bid Price" shall mean for any security as of any date, the
lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed or
traded or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board, or, if
no lowest trading price is reported for such security by the electronic bulletin
board, then the average of' the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
"Closing Date" has the meaning set forth in Section 2.2(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any
entity succeeding to all of its material functions.
"Common Stock" means the common stock, $.001 par value per share, of
the Company.
"Company" means Advanced Optics Electronics, Inc., a Nevada
corporation, and its successors.
"Company Corporate Documents" means the articles of incorporation and
by-laws of the Company.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Conversion Date" shall mean the date of delivery (including delivery
via telecopy) of a Notice of Conversion for all or a portion of a Convertible
Note by the holder thereof to the Company as specified in each Convertible Note.
2
3
"Conversion Price" has the meaning set forth in the Convertible Notes.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Notes" means the Company's 8% Convertible Notes due May
31, 2001 in the form attached hereto as Exhibit A hereto.
"Debt" of any Person means at any date, without duplication. (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (x)
are capitalized in accordance with GAAP or (y) arise pursuant to sale-leaseback
transactions. (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Conversion Price" has the meaning set forth in the
Convertible Notes.
"Directors" means the individuals then serving on the Board of
Directors or similar such management council of the Company.
"Environmental Laws' means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Company, are treated as a single
employer under the Code.
"Escrow Agent" means Xxxxx Xxxxx Xxxxxx Xxxxxxxx & Xxxxxxx.
"Event of Default" has the meaning set forth in Article XI hereof.
3
4
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing (whether by virtue
of partnership arrangements, by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain a minimum net
worth, financial ratio or similar requirements, or otherwise) any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or (ii) entered into for the purpose of assuring in any other manner the
holder of such Debt of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part); provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or traction thereof). defined or
regulated as such in or under any' Environmental Laws.
"Holder" or "Holders" has the meaning set forth in the Convertible
Notes.
"Intellectual Property" has the meaning set forth in Section 4.18.
"Investment" means any investment in any Person, whether by means of
share purchase, partnership interest, capital contribution, loan, time deposit
or otherwise.
"Lien" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Majority Holders" means (i) as of the Closing Date, the Purchasers
and (ii) at any time thereafter, the holders of more than 50% in aggregate
principal amount of the Convertible Notes outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
4
5
"Maturity Date" shall mean the date of maturity of the Convertible
Notes; specifically, May 31, 2001.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Note upon conversion of all or a portion thereof to the Company in
the form of Exhibit I to the form of Convertible Note.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company in the form of
Exhibit A to the form of Warrant.
"Officer's Certificate" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company in
the form of Exhibit D attached hereto.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants.
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
the Code and either (i) is maintained, or contributed to, by any member of the
ERISA group for employees of any member of the ERISA group or (ii) has at any
time within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for employees of any
Person which was at such time a member of the ERISA group.
"Purchase Price" means the purchase price for the Securities set forth
in Section 2.2(a) hereof.
"Purchasers" means, collectively, those entities listed on the
signature page hereto and their successors and assigns, including holders from
time to time of the Convertible Notes.
"Registrable Securities" has the meaning set forth in Section 10.2(a).
"Registration Statement" has the meaning set forth in Section 10.2(b).
"Registration Rights Agreement" means the agreement between the
Company and the Purchasers dated the date hereof in the form set forth in
Exhibit C attached hereto.
5
6
"SEC Reports" shall have the meaning set forth in Section 4.7.
"Securities" means the Convertible Notes, the Warrants and, as
applicable, the Conversion Shares and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which (x) a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the Board of
Directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person or (y) the results of operations, the assets
and the liabilities of which are consolidated with such Person under GAAP.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day on which the automated
quotation system or exchange on which the Common Stock is then traded is open
for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Notes,
the Warrants, and the Registration Rights Agreement.
"Transfer" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the present value of all benefits under such
Plan exceeds (ii) the fair market value of all Plan assets allocable to such
benefits (excluding any accrued but unpaid contributions), all determined as of
the then most recent valuation date for such Plan, but only to the extent that
such excess represents a potential liability of a member of the ERISA Group to
the PBGC or any other Person under Title IV of ERISA.
"Warrants" means the Common Stock Purchase Warrants issued to the
Purchasers for 12,500,000 shares of Common Stock in the aggregate on the Closing
Date in the form of Exhibit B attached hereto.
"Warrant Shares" has the meaning set forth in the Recitals.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP" ) All references to "dollars," "Dollars"
or "$" are to United States dollars unless otherwise indicated.
6
7
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. AUTHORIZATION OF SECURITIES.
(a) The Company has duly authorized the issuance of its 8% Convertible
Notes due May 31, 2001 in the original aggregate principal amount of up to
$500,000, in the form annexed hereto as Exhibit A.
(b) The Company has duly authorized the issuance of Warrants to
purchase up to 12,500,000 shares of Common Stock in the form annexed hereto as
Exhibit B. The Warrants shall be exercisable at any time during the period
commencing September 1, 1999 and ending on or before May 31, 2002 at the
purchase price specified in the Warrants.
SECTION 2.2. PURCHASE AND SALE OF DEBENTURES.
(a) Subject to the terms and conditions set forth herein, the Company
agrees to issue and sell to each Purchaser, and each Purchaser severally agrees
to purchase from the Company, on the Closing Date (as hereinafter defined),
Convertible Notes in the principal amount set opposite its name on Schedule I
for a purchase price of 100% of the principal amount thereof (the "Purchase
Price"). Each Purchaser shall deliver a check in payment of the Purchase Price
to the Escrow Agent.
(b) In connection with the Purchasers agreement to purchase the
Convertible Notes, the Company shall issue and deliver to the Purchasers
Warrants to purchase the number of shares of Common Stock set forth opposite its
name on Schedule I. No part of the purchase price of the
Convertible Notes shall be allocated to the Warrants.
(c) The closing for the purchase and sale of the Convertible Notes
shall be held on such date (the "Closing Date") not later than June 30. 1999
that the Escrow Agent receives the Purchase Price (in cleared funds) from the
Purchasers and the Convertible Notes and Warrants registered in the names of the
Purchasers in the principal amounts and numbers, respectively, set forth on
Schedule I, duly executed by the Company.
SECTION 2.3. DELIVERIES.
On the Closing Date, subject to the satisfaction of all terms and
conditions set forth herein, the Escrow Agent shall deliver:
(a) to the Company, the Purchase Price
7
8
(b) to each Purchaser, Convertible Notes duly executed on behalf of
the Company registered in the name of such Purchaser in the principal amount set
opposite its name on Schedule I annexed hereto, together with Warrants duly
executed on behalf of the Company to purchase the number of shares of Common
Stock set forth opposite the name of such Purchaser on Schedule I, registered in
the name of such Purchaser.
ARTICLE III
PAYMENT TERMS OF CONVERTIBLE NOTE
SECTION 3.1. PAYMENT OF PRINCIPAL AND INTEREST. The Company will pay
all amounts due on each Convertible Note by the method and at the address
specified for such purpose by the applicable Purchaser in writing, without the
presentation or surrender of any Convertible Note or the making of any notation
thereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment or prepayment in full of this Convertible
Note, the holder shall surrender the Convertible Note for cancellation,
reasonably promptly after any such request, to the Company at its principal
executive office. Prior to any sale or other disposition of any Convertible
Note, the holder thereof will, at its election, either endorse thereon the
amount of' principal paid thereon and the last date to which interest has been
paid thereon or surrender the Convertible Note to the Company in exchange for a
new Convertible Note or Convertible Notes. The Company will afford the benefits
of this Section 3.1 to any direct or indirect transferee of the Convertible Note
purchased under this Agreement and that has made the same agreement relating to
this Convertible Note as the Purchaser has in this Section 3.1; provided that
such transferee is an "accredited investor" under Rule 501 of the Securities
.Act.
SECTION 3.2 PAYMENT OF INTEREST. Interest shall accrue on the
outstanding principal amount of' each Convertible Note and shall be payable
monthly on the last day of each calendar month of each year, commencing June 30,
1999, in the manner set forth in the Convertible Note.
SECTION 3.3. VOLUNTARY PREPAYMENT. For so long as no Event of Default
shall have occurred and is continuing, the Company may, at its option, repay, in
whole or in part, the Convertible Notes at 130% of the principal amount thereof,
plus accrued but unpaid interest through the date of prepayment following at
least five (5) Business Days prior written notice to the Purchasers (the
expiration of such five (5) Business Day period being referred to as the
"prepayment date"): provided, however, that if such date is not a Business Day,
the prepayment date shall be the next Business Day thereafter. Partial
prepayments shall be in an aggregate principal amount of at least $100,000 and a
principal amount of at least $10,000 or a multiple thereof for the Convertible
Notes purchased from any Holder, unless all of the Convertible Notes registered
in the name of the Holder are to be redeemed.
8
9
SECTION 3.4 MANDATORY PREPAYMENTS
Upon (i) a transfer of all or substantially all of the assets
of the Company to any Person in a single transaction or series of related
transactions, or (ii) a consolidation, merger or amalgamation of the Company
with or into another Person in which the Company is not the surviving entity
(other than a merger which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion or
exchange of outstanding shares of Common Stock solely into shares of Common
Stock) (each of items (i) and (ii) being referred to as a "Sale Event"), then,
in each case, the Company shall, upon request of any Holder, redeem the
Convertible Notes registered in the name of such Holder in cash for 130% of the
principal amount, plus accrued but unpaid interest through the date of
redemption, or at the election of the Holder, such Holder may convert the unpaid
principal amount of such Convertible Notes (together with the amount of accrued
but unpaid interest) into shares of Common Stock at the Default Conversion Rate.
SECTION 3.5 PREPAYMENT PROCEDURES.
(a) Any permitted prepayment or redemption of the
Convertible Notes pursuant to Sections 3.3 or 3.4 above shall be
deemed to be effective and consummated (for purposes of determining
the time at which the Purchasers shall thereafter not be entitled to
deliver a Notice of Conversion for the Convertible Notes) as follows:
(i) A prepayment pursuant to Section 3.3, the
"prepayment date" specified therein:
(ii) A redemption pursuant to Section 3.4(a), the
date of consummation of the applicable Sale Event:
(b) On the Maturity Date and on the effective date of a
repayment or redemption of the Convertible Notes as specified in
Section 3.5(a) above, the Company shall deliver by wire transfer of
funds the repayment/redemption price to each Purchaser of the
Convertible Notes subject to redemption. Should any Purchaser not
receive payment of any amounts due on redemption of its Convertible
Notes by reason of the Company's failure to make payment at the times
prescribed above for any reason, the Company shall pay to the
applicable holder on demand (x) interest on the sums not paid when due
at an annual rate equal to the lesser of (i) the maximum lawful rate
and (ii) 2% per annum, compounded at the end of each thirty (30) days,
until the applicable holder is paid in full and (y) all costs of
collection, including, but not limited to, reasonable attorneys' fees
and costs, whether or not suit or other formal proceedings are
instituted.
(c) The Company shall select the Convertible Notes to be
redeemed in any redemption in which not all of the Convertible Notes
are to be redeemed so that the ratio of the Convertible Notes of each
holder selected for redemption to the total Convertible Notes owned by
that holder shall be the same as the ratio of all such Convertible
Notes selected for redemption bears to the total of all then
outstanding Convertible Notes. Should any
9
10
Convertible Notes required to be redeemed under the terms hereof not
be redeemed solely by reason of limitations imposed by law, the
applicable Convertible Notes shall be redeemed on the earliest
possible dates thereafter to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by any Purchaser
(including delivery via telecopy) to the Company prior to the (x)
Maturity Date or (y) effective date of a voluntary repayment pursuant
to Section 3.3 or a mandatory prepayment pursuant to Section 3.4 as
specified in Section 3.5(a) above), shall be honored by the Company
and the conversion of the Convertible Notes shall be deemed effected
on the Conversion Date. In addition, between the effective date of a
voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment
pursuant to Section 3.4 as specified in Section 3.5(a) above and the
date the Company is required to deliver the redemption proceeds in
full to the Purchasers, the Purchasers may deliver a Notice of
Conversion to the Company. Such notice will be (x) of no force or
effect if the Company timely pays the redemption proceeds to the
Purchasers when due or (y) honored on or as of the date the Notice of
Conversion if the Company fails to timely pay the redemption proceeds
to the Purchasers when due.
SECTION 3.6 PAYMENT OF ADDITIONAL AMOUNTS.
(a) Any and all payments by the Company hereunder or under
the Convertible Notes to any Purchaser and each "qualified assignee"
thereof shall be made free and clear of and without deduction or
withholding for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto (all such taxes. levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes")
unless such Taxes are required by law or the administration thereof to
be deducted or withheld. If the Company shall be required by law or
the administration thereof to deduct or withhold any Taxes from or in
respect of any sum payable under the Convertible Notes (i) the holders
of Convertible Notes subject to such Taxes shall have the right, but
not the obligation, for a period of thirty (30) days commencing upon
the day it shall have received written notice from the Company that it
is required to withhold Taxes to transfer all or any portion of the
Convertible Notes to a qualified assignee to the extent such transfer
can be effected in accordance with the other provisions of this
Agreement and applicable law: (ii) the Company shall make such
deductions or withholdings; (iii) the sum payable shall be increased
as may be necessary so that after making all required deductions or
withholdings (including deductions or withholdings applicable to
additional amounts paid under this Section 3.6) such Purchaser
receives an amount equal to the sum it would have received if no such
deduction or withholding had been made; and (iv) the Company shall
forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable law. A
"qualified assignee" of a Purchaser is a Person that is (x) organized
under the laws of (i) the United States or (ii) any jurisdiction other
than the United States or any political subdivision thereof and that
(y) represents and warrants to the Company that payments of the
Company to such assignee under the laws in existence on the date of
this Agreement would not be subject to any Taxes and (z) from time to
time, as and when requested by the Company, executes and delivers to
the Company and the Internal
10
11
Revenue Service forms, and provides the Company with any information
necessary to establish such assignee's continued exemption from Taxes
under applicable law.
(b) The Company shall forthwith pay any present or future
stamp or documentary taxes or any other excise or property taxes,
charges or similar levies (all such taxes, charges and levies
hereinafter referred to as "Other Taxes") which arise from any payment
made under any of the Transaction Agreements or from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement other than Taxes payable solely as a result of the transfer
from the Purchasers to a Person of any Security.
(c) The Company shall indemnify each Purchaser, or qualified
assignee, for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.6) paid by each
Purchaser, or qualified assignee, and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Payment under this indemnification shall be made
within 30 days from the date such Purchaser or assignee makes written
demand therefor. A certificate as to the amount of such Taxes or Other
Taxes submitted to the Company by such Purchaser or assignee shall be
conclusive evidence of the amount due from the Company to such party.
(d) Within 30 days after the date of any payment of Taxes,
the Company will furnish to each Purchaser the original or a certified
copy of a receipt evidencing payment thereof.
(e) Each Purchaser shall provide to the Company a Form W-8,
stating that it is a non-U.S. person, together with any additional tax
forms which may be required under the Code, as amended after the date
hereof, to allow interest payments to be made to it without deduction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers, and each of
them, as of the Closing Date the following:
SECTION 4.1. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, with full power and authority to own,
lease, use and operate its properties and to carry on its business as and where
now owned, leased, used, operated and conducted. The Company has no
Subsidiaries. The Company is duly qualified to conduct business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except where
such failure would not have a Material Adverse Effect. A "Material Adverse
Effect" means any material adverse effect on the operations, results of
operations,
11
12
properties, assets or condition (financial or otherwise) of the Company, or on
the transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
SECTION 4.2. AUTHORIZATION AND EXECUTION.
(a) The Company has all requisite corporate power and
authority enter into and perform each Transaction Agreement and to
consummate the transactions contemplated hereby and thereby and to
issue the Securities in accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company
of each Transaction Agreement and the issuance by the Company of the
Securities have been duly and validly authorized and no further
consent or authorization of the Company, its Board of Directors or its
shareholders is required.
(c) This Agreement has been duly executed and delivered by
the Company.
(d) This Agreement constitutes, and upon execution and
delivery thereof by the Company, each of the other Transaction
Agreements will constitute, a valid and binding agreement of the
Company, in each case enforceable against the Company in accordance
with its respective terms.
SECTION 4.3. CAPITALIZATION. As of the date hereof, the authorized,
issued and outstanding capital stock of the Company is as set forth in its Form
l0-QSB for the quarter ended March 31, 1999 and no other shares of capital stock
of the Company will be outstanding as of the Closing Date. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and non-assessable. No shares of capital
stock of the Company are subject to preemptive rights or similar rights of the
stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Other than as set forth on Schedule
4.3 hereto, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company, or arrangements by
which the Company is or may become bound to issue additional shares of capital
stock of the Company, and (ii) there are no agreements or arrangements under
which the Company is obligated to register the sale of any of its securities
under the Securities Act (except pursuant to the Registration Rights" Agreement)
and (iii) there are no anti-dilution or price adjustment provisions contained in
any security issued by the Company (or in any agreement providing rights to
security holders) that will be triggered by the issuance of the Convertible
Notes, Conversion Shares, Warrants or Warrant Shares. The Company has furnished
to Purchasers true and correct copies of the Company's Corporate Documents, and
the terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
SECTION 4.4. GOVERNMENTAL AUTHORIZATION. The execution and delivery by
the Company of the Transaction Agreements does not and will not, the issuance
and sale by the
12
13
Company of the Securities does not and will not, and the consummation of the
transactions contemplated hereby and by the other Transaction Agreements will
not, require any action by or in respect of, or filing with, any governmental
body, agency or governmental official except (a) such actions or filings that
have been undertaken or made prior to the date hereof and that will be in full
force and effect (or as to which all applicable waiting periods have expired) on
and as of the date hereof or which are not required to be filed on or prior to
the Closing Date, (b) such actions or filings that, if not obtained, would not
result in a Material Adverse Effect, and (c) the filing of a "Form D" as
described in Section 7.12 below.
SECTION 4.5. ISSUANCE OF SHARES. Upon conversion in accordance with
the terms of the Convertible Notes or upon exercise in accordance with the terms
of the Warrants (assuming the payment of the exercise price set forth in the
Warrants), the Conversion Shares and Warrant Shares shall be duly and validly
issued and outstanding, fully paid and nonassessable, free and clear of any
Taxes, Liens and charges with respect to issuance and shall not be subject to
preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of the Purchasers herein are true
and correct in all material respects, each of the Securities will have been
issued in material compliance with all applicable U.S. federal and state
securities laws. The Company understands and acknowledges that, in certain
circumstances, the issuance of Conversion Shares and Warrant Shares could dilute
the ownership interests of other stockholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Notes, and Warrant Shares upon exercise of the
Warrants, is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
SECTION 4.6. NO CONFLICTS. The execution and delivery by the Company
of the Transaction Agreements to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not. contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any its assets, or result in the
creation or imposition of any Lien on any asset of the Company. The Company is
in compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
SECTION 4.7. FINANCIAL INFORMATION AND SEC REPORTS. Since January 1,
1999, the Company has timely filed all forms, reports and documents with the
Commission required to be filed by it under the Exchange Act through the date
hereof (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 referred to
herein collectively as the "SEC Reports"). The Company has delivered to each
Purchaser true and complete copies of the SEC Reports, except for such exhibits
and incorporated documents. Such SEC Reports, at the time filed, complied in all
material respects with the requirements of the Exchange
13
14
Act and the rules and regulations of the Commission thereunder applicable to
such SEC Reports. None of the SEC Reports, including without limitation, any
financial statements or schedules included therein, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements made, in light of the circumstances under which
they were made, not misleading. There have been no material adverse changes in
the Company's business, properties, results of operations, condition (financial
or otherwise) or prospects since the date of the Company `s Report on Form 10-K
for the year ended December 31, 1998 which have not been disclosed in the
Company's SEC Reports or to the Purchasers in writing. The audited and unaudited
balance sheets of the Company contained in the SEC Reports, and the related
statements of operations, changes in stockholders' equity and changes in cash
flows for the periods then ended, including the footnotes thereto, except as
indicated therein, (i) complied in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto and (ii) have been prepared in accordance with
GAAP consistently applied throughout the periods indicated, except that the
unaudited financial statements do not contain notes and may be subject to normal
audit adjustments and normal annual adjustments. Such financial statements
fairly present the financial condition of the Company at the dates indicated and
its results of their operations and cash flows for the periods then ended and,
except as indicated therein, reflect all claims against and all Debts and
liabilities of the Company, fixed or contingent. Since December 31, 1998 (the
"Balance Sheet Date"), except as disclosed in the SEC Reports, there has been
(x) no material adverse change in the assets or liabilities, or in the business
or condition, financial or otherwise, or in the results of operations or
prospects, of the Company, whether as a result of any legislative or regulatory
change, revocation of any license or rights to do business, fire, explosion,
accident, casualty, labor trouble, flood, drought, riot, storm, condemnation,
act of God, public force or otherwise and (y) no material adverse change in the
assets or liabilities, or in the business or condition, financial or otherwise,
or in the results of operations or prospects, of the Company, except in the
ordinary course of business; and no fact or condition exists or is contemplated
or threatened which might cause such a change in the future.
SECTION 4.8. LITIGATION. Except as set forth in the SEC Reports, there
is no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company, before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable possibility
of an adverse decision which could materially adversely affect the business,
condition (financial or otherwise), operations, performance, properties or
prospects of the Company or which challenges the validity of any Transaction
Agreements.
14
15
SECTION 4.9 COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS
(a) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan. (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code or (iii) incurred any liability
under Title IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumption's and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
SECTION 4.10. ENVIRONMENTAL MATTERS. The costs and liabilities
associated with Environmental Laws (including the cost of compliance therewith)
are unlikely to have a material adverse effect on the business, condition
(financial or otherwise), operations, performance, properties or prospects of
the Company. The Company conducts it businesses in compliance in all material
respects with all applicable Environmental Laws.
SECTION 4.11. TAXES. All United States federal, state, county,
municipality local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company have been filed and all material taxes due pursuant to
such returns or pursuant to any assessment received by the Company have been
paid, except those being disputed in good faith and for which adequate reserves
have been established. The charges, accruals and reserves on the books of the
Company in respect of taxes or other governmental charges have been established
in accordance with GAAP.
15
16
SECTION 4.12. INVESTMENTS, JOINT VENTURES. Other than as set forth in
SEC Reports, the Company does not have a direct or indirect Investment in any
Person, and the Company is not a party to any partnership, management,
shareholders' or joint venture or similar agreement.
SECTION 4.13. NOT AN INVESTMENT COMPANY. The Company is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 4.14. FULL DISCLOSURE. The information heretofore furnished by
the Company to the Purchasers for purposes of or in connection with this
Agreement or any transaction contemplated hereby does not, and all such
information hereafter furnished by the Company to the Purchasers will not (in
each case taken together and on the date as of which such information is
furnished), contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein, in
the light of the circumstances under which they are made, not misleading.
SECTION 4.15. NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS. No
form of general solicitation or general advertising was used by the Company or,
to the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. Neither the
Company, nor, to its knowledge, any Person acting on behalf of the Company, has,
either directly or indirectly, sold or offered for sale to any Person (other
than the Purchasers) any of the Securities or, within the six months prior to
the date hereof, any other similar security of the Company except as
contemplated by this Agreement, and the Company represents that neither itself
nor any Person authorized to act on its behalf (except that the Company makes no
representation as to the Purchasers and their .Affiliates) will sell or offer
for sale any such security to, or solicit any offers to buy any such security
from, or otherwise approach or negotiate in respect thereof with, any Person or
Persons so as thereby to cause the issuance or sale of any of the Securities to
be in violation of any of the provisions of Section 5 of the Securities Act.
SECTION 4.16. PERMITS. (a) The Company has all material Permits; (b)
all such Permits are in full force and effect, and the Company has fulfilled and
performed all material obligations with respect to such Permits; (c) no event
has occurred which allows, or after notice or lapse of time would allow,
revocation or termination by the issuer thereof or which results in any other
material impairment of the rights of the holder of any such Permit; and (d) the
Company has no reason to believe that any governmental body or agency is
considering limiting, suspending or revoking any such Permit.
SECTION 4.17. ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS.
There are no liabilities of the Company of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability, other than (i) those liabilities
provided for in the financial statements delivered pursuant to Section 4.7
hereof and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
16
17
SECTION 4.18. INTELLECTUAL PROPERTY RIGHTS. The Company owns, or is
licensed under, and has the rights to use, all material patents, trademarks,
trade names, copyrights, technology, know-how and processes (collectively.
"Intellectual Property") used in, or necessary for the conduct of its business;
no claims have been asserted by any Person to the use of any such Intellectual
Property or challenging or questioning the validity or effectiveness of any
license or agreement related thereto. To the best of the Company's knowledge,
there is no valid basis for any such claim and the use of such Intellectual
Property by the Company will not infringe upon the rights of any Person.
SECTION 4.19. INSURANCE. The Company maintains, with financially sound
and reputable insurance companies, insurance in at least such amounts and
against such risks such that any uninsured loss would not have a Material
Adverse Effect. All insurance coverages of the Company are in full force and
effect and there are no past due premiums in respect of any such insurance.
SECTION 4.20. TITLE TO PROPERTIES. The Company has good and marketable
title to all its properties reflected on the financial statements referred to in
Section 4.7, free and clear of all Liens, other than Liens set forth on Schedule
4.20.
SECTION 4.21. INTERNAL ACCOUNTING CONTROLS. The Company maintains a
system of internal accounting controls sufficient, in the judgment of the
Company's Board of Directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
SECTION 4.22. FOREIGN PRACTICES. Neither the Company nor, to the
Company's knowledge, any employee or agent of the Company has made any payments
of funds of the Company, or received or retained any funds, in each case (x) in
violation of any law, rule or regulation or (y) of a character required to be
disclosed by the Company' in any of the SEC Reports.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 5.1. PURCHASERS. Each Purchaser severally (and not jointly)
hereby represents and warrants to the Company solely as to such Purchaser that:
(a) the Purchaser is an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act and the Securities to
be acquired by it pursuant to this Agreement are being acquired for
its own account and, as of the date hereof, not with a view toward, or
for sale in connection with, any distribution thereof except in
compliance with applicable
17
18
United States federal and state securities law; provided that the
disposition of the Purchaser's property shall at all times be and
remain within its control;
(b) if the Purchaser is a corporation or partnership, the
execution, delivery and performance of this Agreement and the purchase
of the Securities pursuant hereto are within the Purchaser's corporate
or partnership powers, as applicable, and have been duly and validly
authorized by all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by
the Purchaser.
(d) the execution and delivery by the Purchaser of the
Transaction Agreements to which it is a party does not, and the
consummation of the transactions contemplated hereby and thereby will
not, contravene or constitute a default under or violation of (i) any
provision of applicable law or regulation, or (ii) any agreement,
judgment, injunction, order, decree or other instrument binding upon
such Purchaser;
(e) such Purchaser understands that the Securities have not
been registered under the Securities Act and may not he transferred or
sold except as specified in this Agreement or the remaining Transition
Agreements;
(f) this Agreement constitutes a valid and binding agreement
of the Purchaser enforceable in accordance with its terms, subject to
(i) applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable
principles of general applicability:
(g) the Purchaser has such knowledge and experience in
financial and business matters so as to be capable of evaluating the
merits and risks of its investment in the Securities and the Purchaser
is capable of bearing the economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and
experienced in business and financial matters; the Purchaser has
previously invested in securities similar to the Securities and fully
understands the limitations on transfer described herein; the
Purchaser has been afforded access to information about the Company
and the financial condition, results of operations, property,
management and prospects of the Company sufficient to enable it to
evaluate its investment in the Securities; the Purchaser has been
afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the
Securities and the merits and the risks of investing in the
Securities: and the Purchaser has been afforded the opportunity to
obtain such additional information which the Company possesses or can
acquire that is necessary to verify the accuracy and completeness of
the information given to the Purchaser concerning the Company. The
foregoing does not in any way relieve the Company of its
representations and other undertakings hereunder, and shall not limit
any Purchaser's ability to rely thereon; and
18
19
(i) no part of the source of funds used by the Purchaser to
acquire the Securities constitutes assets allocated to any separate
account maintained by the Purchaser in which any employee benefit plan
(or its related trust) has any interest.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1. CONDITIONS PRECEDENT TO THE PURCHASERS' OBLIGATION TO
PURCHASE. The obligation of each Purchaser hereunder to purchase the Convertible
Notes 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
such Purchaser's sole benefit and may be waived by such Purchaser at any time in
its sole discretion:
(a) The Company shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the
Purchasers;
(b) The Company shall have delivered to the Escrow Agent
duly executed certificates representing the Convertible Notes and the
Warrants in accordance with Section 2.3(b) hereof;
(c) The representations and warranties of the Company
contained in each Transaction Agreement shall be true and correct in
all material respects as of the date when made and as of the Closing
Date as though made at such time (except for representations and
warranties that speak as of a specified date) and the Company shall
have performed, satisfied and complied with all covenants, agreements
and conditions required by such Transaction Agreements to be
performed, satisfied or complied with by it at or prior to the Closing
Date. The Purchasers shall have received an Officer's 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 Purchasers, including but not
limited to certificates with respect to the Company Corporate
Documents, resolutions relating to the transactions contemplated
hereby and the incumbencies of certain officers and Directors of the
Company. The form of such certificate is attached hereto as Exhibit D;
(d) The Company shall have received all governmental, Board
of Directors, shareholders and third party consents and approvals
necessary or desirable in connection with the issuance and sale of the
Securities;
(e) All applicable waiting periods in respect to the
issuance and sale of the Securities shall have expired without any
action having been taken by any competent authority that could
restrain, prevent or impose any materially adverse conditions thereon
or that could seek or threaten any of the foregoing;
19
20
(f) No law or regulation shall have been imposed or enacted
that, in the judgment of the Purchasers, could adversely affect the
transactions set forth herein or in the other Transaction Agreements,
and no law or regulation shall have been proposed that in the
reasonable judgment of Purchasers could reasonably have any such
effect;
(g) The Company Corporate Documents shall be in full force
and effect and no term or condition thereof shall have been amended,
waived or otherwise modified without the prior written consent of the
Purchasers;
(h) There shall have occurred no material adverse change in
the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company since December 31,
1998;
(i) There shall exist no action, suit, investigation,
litigation or proceeding pending or threatened in any court or before
any arbitrator or governmental instrumentality that challenges the
validity of or purports to affect this Agreement or any other
Transaction Agreement, or other transaction contemplated hereby or
thereby or that could reasonably be expected to have a Material
Adverse Effect, or any material adverse effect on the enforceability
of the Transaction Agreements or the Securities or the rights of the
holders of the Securities or the Purchasers hereunder;
(j) The Purchasers shall have confirmed receipt of the
Convertible Notes and the Warrants to be issued, duly executed by the
Company in the denominations and registered in the names of the
Purchasers specified in or pursuant to Schedule I;
(k) There shall not have occurred any disruption or adverse
change in the financial or capital markets generally, or in the market
for the Common Stock (including but not limited to any suspension or
delisting), which the Purchasers reasonably deem material in
connection with the purchase of the Securities;
(l) Immediately before and after the Closing Date, no
Default or Event of Default shall have occurred and be continuing; and
(m) The Purchasers shall have received all other
certificates, instruments, agreements or other documents as they shall
reasonably request.
SECTION 6.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations
of the Company to issue and sell the Securities to the Purchasers pursuant to
this Agreement are subject to the satisfaction, at or prior to any Closing Date,
of the following conditions:
(a) The representations and warranties of the Purchasers
contained herein shall be true and correct in all material respects on
the Closing Date and the Purchasers shall have performed and complied
in all material respects with all agreements required by this
Agreement to be performed or complied with by the Purchasers at or
prior to the Closing Date;
20
21
(b) The issue and sale of the Securities by the Company
shall not be prohibited by any applicable law, court order or
governmental regulation;
(c) Receipt by the Company of duly executed counterparts of
this Agreement and the Registration Rights Agreement signed by the
Purchasers; and
(d) The Escrow Agent shall have received payment of the
Purchase Price in cleared funds.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as any Convertible Notes remain outstanding(except for Sections 7.1., 7.9.,
7.10 and 7.11. which shall apply for so long as any Convertible Notes or
Warrants remain outstanding) and for the benefit of the Purchasers:
SECTION 7.1. INFORMATION. The Company will deliver to each holder of
the Convertible Notes:
(a) promptly upon the filing thereof, copies of (i) all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent), and (ii) all
reports on Forms 10-K, 10-Q and S-K (or their equivalents which the
Company has filed with the Commission; and
(b) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and
proxy statements so mailed and any other document generally
distributed to shareholders,
SECTION 7.2. PAYMENT OF OBLIGATIONS. The Company will, pay and
discharge, at or before maturity, all its liabilities, except where the same may
be contested in good faith by appropriate proceedings and will maintain, in
accordance with GAAP, appropriate reserves for the accrual of any of the same.
SECTION 7.3. MAINTENANCE OF PROPERTY; INSURANCE. The Company will keep
all property useful and necessary in its business in good working order and
condition. ordinary wear and tear excepted. In addition, the Company will
maintain insurance in at least such amounts and against such risks as it has
insured against as of the Closing Date.
SECTION 7.4. MAINTENANCE OF EXISTENCE. The Company will continue to
engage in business of the same general type as now conducted by it, and will
preserve, renew and keep in
21
22
full force and effect its corporate existence and its material rights,
privileges and franchises necessary or desirable in the normal conduct of
business.
SECTION 7.5. COMPLIANCE WITH LAWS. The Company will comply, in all
material respects, with all federal, state, municipal, local or foreign
applicable laws, ordinances, rules, regulations, municipal by-laws, codes and
requirements of governmental authorities (including. without limitation,
Environmental Laws and ERISA and the rules and regulations thereunder) except
(i) where compliance therewith is contested in good faith by appropriate
proceedings or (ii) where non-compliance therewith could not reasonably be
expected, in the aggregate, to have a material adverse effect on the business,
condition (financial or otherwise), operations, properties or prospects of the
Company.
SECTION 7.6. INSPECTION OF PROPERTY. BOOKS AND RECORDS. The Company
will keep proper books of record and account in which full, true and correct
entries shall be made of all dealings and transactions in relation to its
business and activities; and will permit, during normal business hours, a
representative of the Purchasers to visit and inspect any of its properties,
upon reasonable prior notice, to examine and make abstracts from any of its
books and records and to discuss its affairs, finances and accounts with its
executive officers and independent public accountants (and by this provision the
Company authorizes its independent public accountants to disclose and discuss
with the Purchasers the affairs, finances and accounts of the Company), all at
such reasonable times.
SECTION 7.7. INVESTMENT COMPANY ACT. The Company will not be or become
an open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECTION 7.8. USE OF PROCEEDS. The proceeds from the issuance and sale
of the Convertible Notes by the Company shall be used for working capital
purposes. None of the proceeds from the issuance and sale of the Convertible
Notes by the Company pursuant to this Agreement will be used directly or
indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
SECTION 7.9. RESERVED SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Convertible Notes and issuance of the Conversion Shares and the exercise in full
of the Warrants and the issuance of the Warrant Shares.
SECTION 7.10. IRREVOCABLE INSTRUCTIONS. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
issue irrevocable instructions to its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares or Warrant Shares, as applicable, in such amounts as specified from time
to time by each Purchaser to the Company upon proper conversion of the
Convertible Notes or exercise of the Warrants. Upon conversion of any
Convertible Notes in accordance with their terms and/or exercise of any Warrants
in accordance with their terms, the Company will, and will use its best
22
23
lawful efforts to cause its transfer agent to, issue one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of' Conversion or Notice of
Exercise, as the case may be. As long as the Registration Statement contemplated
by the Registration Rights Agreement shall remain effective, the shares of
Common Stock issuable upon conversion of any Convertible Notes or exercise of
any Warrants shall be issued to any transferee of such shares from a Purchaser
without any restrictive legend. The Company further warrants and agrees that no
instructions other than these instructions have been or will be given to its
transfer agent. Nothing in this Section 7.10 shall affect in any way a
Purchaser's obligation to comply with all securities laws applicable to such
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
SECTION 7.11. `MAINTENANCE OF REPORTING STATUS: SUPPLEMENTAL
INFORMATION. So long as any of the Securities are outstanding, the Company shall
timely file all reports required to be filed with the Commission pursuant to the
Exchange Act. The Company shall not terminate its status as an issuer required
to file reports under the Exchange Act, even if the Exchange Act or the rules
and regulations thereunder would permit such termination. If at anytime the
Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company will promptly furnish at its expense, upon request,
for the benefit of the holders from time to time of Securities, and prospective
purchasers of Securities, information satisfying the information requirements of
Rule 144 under the Securities Act.
SECTION 7.12. FORM D; BLUE SKY LAWS. The Company agrees to file a
"Form D" with respect to the Securities as required under Regulation D of the
Securities Act and to provide a copy thereof to each Purchaser promptly after
such filing. The Company shall, on or before the Closing Date, take such action
as the Company shall reasonably determine is necessary to qualify the Securities
for sale to the Purchasers at the Closing pursuant to this Agreement under
applicable securities or "blue sky" laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to each Purchaser on or prior to the Closing Date.
SECTION 7.13. CAPITAL REORGANIZATION. If and whenever there shall
occur:
(i) a reclassification or redesignation of the shares of
Common Stock or any change of the shares of Common Stock into other
shares, or,
(ii) a Sale Event.
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Notes or
exercise the Warrants after the effective date of such Capital Reorganization
shall be entitled to receive and shall accept, upon the exercise of such right,
in lieu of the number of shares of Common Stock to which such holder was
theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Company or of
the body corporate resulting from such Capital Reorganization that such holder
would have been entitled to receive as a result of such Capital Reorganization
if, on the effective date thereof, such holders had been the holder of the
number of shares of Common Stock
23
24
to which such holder was theretofore entitled upon conversion; provided,
however, that no such Capital Reorganization shall be consummated in effect
unless all necessary steps shall have been taken so that such holders shall
thereafter be entitled to receive such number of shares or other securities of
the Company or of the body corporate resulting from such Capital Reorganization,
subject to adjustment thereafter in accordance with provisions the same, as
nearly as may be possible, as those contained above.
SECTION 7.14. NOTICE TO NOTEHOLDERS.
The Company shall give the registered holders of the Convertible Notes
and Warrants written notice of any record, not less than 10 Business Days prior
to such record date or, if no record date is fixed, not less than 10 Business
Days prior to the effective date of such event, which notice shall set forth the
particulars of the proposed event or the extent that such particulars have been
determined at the time of giving the notice.
SECTION 7.15 ADJUSTMENTS TO CONVERSION PRICE OF CONVERTIBLE NOTES AND
PURCHASE OF WARRANTS. If at any time within twelve (12) months after the Closing
Date the Company issues or sells any Common Stock (or other equity securities or
rights exercisable or exchangeable for, or convertible into, its Common Stock or
such other equity securities) in a private placement at a discount to the Market
Price greater (or in the judgment of the registered holders of the Convertible
Notes and Warrants more favorable to the purchase thereof) than the discount
from the Market Price provided for in the Convertible Notes and Warrants, the
Conversion Price and the Purchase Price shall be reduced effective concurrently
with such issue or sale to provide such holders such greater discount or lower
Conversion Price, or Purchase Price, and a similar reduction shall be made to
the Default Conversion.
ARTICLE VIII
NEGATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as any Convertible Notes, and in the case of Section 8.1, the Warrants
remain outstanding and for the benefit of the Purchasers:
SECTION 8.1. NO REVERSE STOCK SPLIT. The Company will not consolidate
the outstanding shares of Common Stock into a smaller number of shares.
SECTION 8.2. LIMITATION ON FUTURE FINANCING. The Company agrees that
it will not, without the consent of the registered holders of the Convertible
Notes, enter into any financing at a discount to Market Price until six months
after the effective date of the Registration Statement; provided, however,
anything to the contrary appearing herein notwithstanding, neither this Section
nor any other provision hereof shall be construed to restrict or prohibit the
Company's right to restructure, amend or modify any facility existing on the
date hereof that does not materially impair the rights of the holders of the
Convertible Notes.
24
25
ARTICLE IX
RESTRICTIVE LEGENDS
SECTION 9.1 RESTRICTIONS ON TRANSFER. From and after their respective
dates of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
SECTION 9.2. RESTRICTIVE LEGENDS.
(a) Each certificate for Securities issued to a Purchaser or to a
subsequent transferee shall (except as contemplated by Section 7.10 and Section
9. 1 hereof) include a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT.
SECTION 9.3. NOTICE OF PROPOSED TRANSFERS. Prior to any proposed
Transfer of the Securities (other than a Transfer (i) registered or exempt from
registration under the Securities Act. (ii) to an affiliate of a Purchaser which
is an "accredited investor" within the meaning of Rule 501(a) under the
Securities Act, provided that any such transferee shall agree to be bound by the
terms of this Agreement and the Registration Rights Agreement, or (iii) to be
made in reliance on Rule 144 under the Securities Act), the holder thereof shall
give written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (A) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
25
26
ARTICLE X
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1. CONVERSION LIMIT. Notwithstanding the conversion rights
under the Convertible Notes and exercise rights under the Warrants, unless the
Purchaser delivers a waiver in accordance with the immediately following
sentence, in no event shall the Purchaser be entitled to convert any portion of
the Convertible Notes or exercise any portion of the Warrants, in excess of that
portion of the Convertible Notes or Warrants upon conversion and exercise, as
applicable, of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Purchaser and its Affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Convertible Note and unexercised portion of the
Warrants, or other Derivative Securities convertible into or exchangeable for
shares of Common Stock which contain a limitation similar to that set forth in
this Section 10.1), and (ii) the number of shares of Common Stock issuable upon
the conversion of the portion of the Convertible Note or issuable upon exercise
the portion of the Warrants with respect to which this determination is being
made, would result in beneficial ownership by the Purchaser and its Affiliates
of more than 4.99% of the outstanding shares of Common Stock. For purposes of
this Section 10.1(a), beneficial ownership shall be determined in accordance
with Rule l3d-3 of the Exchange Act and Regulations 13 D-G thereunder, except as
otherwise provided in this Section 10.1(a). The foregoing limitation shall not
apply and shall be of no further force or effect (i) immediately preceding and
upon the occurrence of any voluntary or mandatory redemption or repayment
transaction described herein or in the Convertible Notes, (ii) on the Maturity
Date or (iii) fo11owing the occurrence of any Event of Default which is not
cured within the greater of' the applicable time period specified in either (A)
such written notice of Purchaser or (B) Section 11.1 hereof.
SECTION 10.2 REGISTRATION RIGHTS.
(a) The Company shall grant the Purchasers registration
rights covering the Conversion Shares and Warrant Shares (the
"Registrable Securities") on the terms set forth in the Registration
Rights Agreement and herein.
(b) The Company shall prepare and file as soon as practicable
following the Closing Date a registration statement (the "Registration
Statement") on Form SB-2 (or such other form as is then available for
registration) covering the sale of the Registrable Securities. The
Company shall use its best efforts to cause the Registration Statement
to be declared effective by the Commission. The Company shall pay all
expenses of registration, other than underwriting fees and discounts,
if any, in respect of Registrable Securities offered and sold under
such Registration Statement by the Purchasers.
26
27
ARTICLE XI
EVENTS OF DEFAULT
SECTION 11.1. EVENTS OF DEFAULT. If one or more of the following
events (each an "Event of' Default") shall have occurred and be continuing:
(a) failure by the Company to pay or prepay when due, all or
any part of the principal on any of the Convertible Notes (whether by
virtue of the agreements specified in this Agreement or the
Convertible Notes):
(b) failure on the part of the Company to observe or perform
in any material respect any covenant contained in Sections 7.9, 7.10,
7.1 1 or 8.1 of this Agreement.
(c) trading in the Common Stock shall have been suspended by
the Commission or by the OTC Bulletin Board (except for any suspension
of trading of limited duration solely to permit dissemination of
material information regarding the Company and except if, at the time
there is any suspension on the OTC Bulletin Board, the Common Stock is
then listed and approved for trading on either the Nasdaq Stock
Market's SmallCap Market or the Nasdaq Stock Market's National Market
or a stock exchange within ten (10) Trading Day's thereof);
(d) the Company shall have its Common Stock delisted from
the OTC Bulletin Board for at least ten (10) consecutive Trading Days
and is unable to obtain a listing on either the Nasdaq Stock Market's
SmallCap Market or the Nasdaq Stock Market's National Market or a
stock exchange within such ten (10) Trading Days thereof;
(e) the Company has commenced a voluntary case or other
proceeding seeking liquidation, winding-up, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or has consented to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or has made
a general assignment for the benefit of creditors, or has failed
generally to pay its debts as they become due, or has taken any
corporate action to authorize any of the foregoing;
(f) an involuntary case or other proceeding has been
commenced against the Company seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency, moratorium or other similar law, now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 90
days, or an order for relief has been entered against the Company
under the federal bankruptcy laws as now or hereafter in effect;
27
28
(g) default in any provision (including payment) of any
agreement governing the terms of any Debt of the Company in excess of
$100,000, which has not been cured within any applicable period of
grace associated therewith;
(h) judgments or orders for the payment of money which in
the aggregate at any one time exceed $100,000 and are not covered by
insurance have been rendered against the Company by a court of
competent jurisdiction and such judgments or orders shall continue
unsatisfied and unstayed for a period of 90 days.
then, and in every such occurrence, any Purchaser may, with respect to
an Event of Default specified in paragraph (a), and the Majority
Holders may, with respect to any other Event of Default, by notice to
the Company, declare the Convertible Notes to be, and the Convertible
Notes shall thereon become immediately due and payable; provided that
in the case of any of the Events of Default specified in paragraph (e)
or (f) above with respect the Company or any Subsidiary, then, without
any notice to the Company or any other act by any Holder, the entire
amount of the Convertible Notes shall become immediately due and
payable, provided further, if any Event of Default has occurred and is
continuing, and irrespective of whether any Convertible Note has been
declared immediately due and payable hereunder, any Holder of
Convertible Notes may proceed to protect and enforce the rights of
such Holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement
contained herein or in any Convertible Note, or for an injunction
against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or
otherwise, and provided further, in the case of any Event of Default
other than those specified in paragraphs (e) and (f) the amount
declared due and payable on the Convertible Notes shall be 130% of the
principal amount thereof, including accrued but unpaid interest
through the date of payment, except that any Holder may convert the
unpaid principal amount of any Convertible Note (including the amount
of accrued but unpaid interest) into shares of Common Stock at the
Default Conversion Price.
SECTION 11.2. POWERS AND REMEDIES CUMULATIVE. No right or remedy
herein conferred upon or reserved to the Purchasers is intended to be exclusive
of any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy. Every power and remedy given by the Convertible
Notes or by law may be exercised from time to time, and as often as shall be
deemed expedient, by the Purchasers.
28
29
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. NOTICES. All notices, demands and other communications
to any parts hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page hereof, (ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the address specified in or pursuant to this
Section.
SECTION 12.2. NO WAIVERS; AMENDMENTS.
(a) No failure or delay on the part of any party in
exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
(b) Any provision of this Agreement may be amended,
supplemented or waived if, but only if, such amendment, supplement or
waiver is in writing and is signed by the Company and the Majority
Holders; provided, that without the consent of each holder of any
Convertible Note affected thereby, an amendment or waiver may not (a)
reduce the aggregate principal amount of Convertible Notes whose
holders must consent to an amendment or waiver, (b) reduce the rate or
extend the time for payment of interest on any Convertible Note, (c)
reduce the principal amount of or extend the stated maturity of any
Convertible Note or (d) make any Convertible Note payable in money or
property other than as stated in such Convertible Note. In determining
whether the holders of the requisite principal amount of Convertible
Notes have concurred in any direction, consent, or waiver as provided
in any Transaction Agreement, Convertible Notes which are owned by the
Company or any other obligor on or guarantor of the Convertible Notes,
or by any Person Controlling, Controlled by. or under common Control
with any of the foregoing, shall be disregarded and deemed not to be
outstanding for the purpose of any such determination; and provided
further that no such amendment, supplement or waiver which affects the
rights of the Purchasers and their affiliates otherwise than solely in
their capacities as holders of Convertible Notes shall be effective
with respect to them without their prior written consent.
SECTION 12.3. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates, and each Person, if any, who controls such
Purchaser, or any of its Affiliates, within the meaning of the
Securities Act or the Exchange Act (each, a "Controlling Person"), and
the respective partners, agents, employees, officers and Directors of
each Purchaser, their
29
30
Affiliates and any such Controlling Person (each an "Indemnified
Party" and collectively, the "Indemnified Parties"), from and against
any and all losses, claims, damages. liabilities and expenses
(including, without limitation and as incurred, reasonable costs of
investigating, preparing or defending any such claim or action,
whether or not such Indemnified Party is a party thereto, provided
that the Company shall not be obligated to advance such costs to any
Indemnified Party other than the Purchasers unless it has received
from such Indemnified Party an undertaking to repay to the Company the
costs so advanced if it should be determined by final judgment of a
court of competent jurisdiction that such Indemnified Party was not
entitled to indemnification hereunder with respect to such costs)
which may be incurred by such Indemnified Parry in connection with any
investigative, administrative or judicial proceeding brought or
threatened that relates to or arises out of, or is in connection with
any activities contemplated by any Transaction Agreement or any other
services rendered in connection herewith; provided that the Company
will not be responsible for any claims, liabilities losses, damages or
expenses that are determined by final judgment of a court of competent
jurisdiction to result from such Indemnified Party's gross negligence,
willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified
Party with respect to which indemnity may be sought against the
Company under this Agreement, such Indemnified Party shall promptly
notify the Company in writing and the Company, at its option, may,
assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Party and payment of all
reasonable fees and expenses. The failure to so notify the Company
shall not affect any obligations the Company may have to such
Indemnified Xxx under this Agreement or otherwise unless the Company
is materially adversely affected by such failure. Such Indemnified
Party shall have the right to employ separate counsel in such action
and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Part, unless:
(i) the Company has failed to assume the defense and employ counsel or
(ii) the named parties to any such action (including any impleaded
parties) include such Indemnified Party and the Company, and such
Indemnified Party shall have been advised by counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to
employ separate counsel at the expense of the Company, the Company
shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, provided, however,
that the Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the
reasonable fees and expenses of more than one such firm of separate
counsel, in addition to any local counsel, which counsel shall be
designated by the Purchasers. The Company shall not be liable for any
settlement of any such action effected without the written consent of
the Company (which shall not be unreasonably withheld) and the Company
agrees to indemnify and hold harmless each Indemnified Party from and
against any loss or liability by reason of settlement of any action
effected with the consent of the Company. In addition, the Company
will not, without the prior written consent of the Purchasers, settle
or compromise or consent to the entry of
30
31
any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or
not any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of the Purchasers and the other Indemnified Parties,
satisfactory in form and substance to the Purchasers, from all
liability arising out of such action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party
harmless, then in lieu of indemnifying such Indemnified Party, the
Company shall contribute to the amount paid or payable by such
Indemnified Party as a result of such claims, liabilities, losses,
damages, or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and by the Purchasers on the other from the transactions contemplated
by this Agreement or (ii) if the allocation provided by clause (i) is
not permitted under applicable law, in such proportion as is
appropriate to reflect not only the relative benefits received by the
Company on the one hand and the Purchasers on the other, but also the
relative fault of the Company and the Purchasers as well as any other
relevant equitable considerations. Notwithstanding the provisions of
this Section 12.3, the aggregate contribution of all Indemnified
Parties shall not exceed the amount of interest and fees actually
received by the Purchasers pursuant to this Agreement. It is hereby
further agreed that the relative benefits to the Company on the one
hand and the Purchasers on the other with respect to the transactions
contemplated hereby shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of material
fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or by the Purchasers
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. 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.
(d) The indemnification, contribution and expense
reimbursement obligations set forth in this Section 12.3 (i) shall be
in addition to any liability the Company may have to any Indemnified
Party at common law or otherwise, (ii) shall survive the termination
of this Agreement and the other Transaction Agreements and the payment
in full of the Convertible Notes and (iii) shall remain operative and
in full force and effect regardless of any investigation made by or on
behalf of the Purchasers or any other Indemnified Party.
SECTION 12.4. EXPENSES. The Company and each of the Purchasers agrees
to pay their own expenses in connection with the negotiation and preparation of
the Transaction Agreements.
SECTION 12.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and upon the Purchasers and their respective successors and
assigns; provided that the Company shall not assign or otherwise transfer its
rights or obligations under this Agreement to any other Person without the prior
written consent of the Majority Holders. All provisions hereunder
31
32
purporting to give rights to Purchasers and their affiliates or to holders of
Securities are for the express benefit of such Persons and their successors and
assigns.
SECTION 12.6. BROKERS. The Company agrees to pay any brokerage,
finder's or other fee or commission payable in connection with the sale of the
Securities.
SECTION 12.7. NEW YORK LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; APPOINTMENT OF AGENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEVADA. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR PURPOSES OF .ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, AT THE
ELECTION OF A HOLDER, ANY DISPUTE BETWEEN THE HOLDER AND THE COMPANY MAY BE
ARBITRATED, RATHER THAN LITIGATED IN THE COURTS, BEFORE AND IN ACCORDANCE WITH
THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION IN NEW YORK CITY. THE COMPANY
AGREES TO SUBMIT TO AND PARTICIPATE IN ANY SUCH ARBITRATION.
SECTION 12.8. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated unless a failure
of consideration would result thereby.
SECTION 12.9. SURVIVAL. All provisions contained in this Agreement
(unless specifically noted to the contrary) shall survive the payment in full of
the Convertible Notes and shall remain operative and in full force and effect.
32
33
SECTION 12.10 COUNTERPARTS. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers, as of the date first
above written.
ADVANCED OPTICS ELECTRONICS, INC.
By: /s/ XXXXXX X. XXXXXX
--------------------------------
Name: Xxxxxx X. Xxxxxx
--------------------------------
Title: Exec. Vice President
--------------------------------
Address:
---------------------------
Fax:
--------------
Attn:
--------------
PURCHASER
/s/ Y.L. XXXXXX
------------------------------------
Y. L XXXXXX
/s/ XXXXXX XXXXXXXXXX
------------------------------------
XXXXXX XXXXXXXXXX
/s/ XXXXX XXXXXXX
------------------------------------
XXXXX XXXXXXX
/s/ XXXXXX XXXXXXXX
------------------------------------
XXXXXX XXXXXXXX
/s/ XXX X. XXXXXXXXXX
------------------------------------
XXX X. XXXXXXXXXX
00
00
EXHIBITS
Exhibit A - Form of Convertible Note
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Officer's Certificate
34
35
SCHEDULE I
Y.L. Xxxxxx
259 Batai Ugarin
Jerusalem, Israel
Xxxxxx Xxxxxxxxxx
2 Hachoma Hashlishit
East Jerusalem, Israel
Xxxxx Xxxxxxx
Rechov Xxxxxx 00
Xxxxxxxxx X., Xxxxxx
Xxxxxx Xxxxxxxx
3 Rechov Xxxx Sha'arim
Jerusalem, Israel
Avi X. Xxxxxxxxxx
X.X. Xxx 00000
Xxxxxxxxx, Xxxxxx
36
Exhibit A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE
DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS
OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT. PREPAYMENT AND
REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING
WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED.
No.1 $
ADVANCED OPTICS ELECTRONICS, INC.
8% Convertible Note due June 3, 2001
ADVANCED OPTICS ELECTRONICS, INC., a Nevada corporation (together with
its successors, the "Company"), for value received hereby promises to pay to: or
registered assigns, the principal sum of _____________________________________
Dollars ($_________________), if less, the principal amount of this Note then
outstanding, on the Maturity Date to the Holder in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest, monthly in arrears, on
(i) the last day of each calendar month of each year until the Maturity Date,
commencing July 3, 1999 (unless such day is not a Business Day, in which event
on the next succeeding Business Day) (each an "Interest Payment Date"), (ii) the
Maturity Date. (iii) each Conversion Date, as hereafter defined, and (iv) the
date the principal amount of the Convertible Notes shall be declared to be or
shall automatically become due and payable, on the principal sum hereof
outstanding in like coin or currency, at the rates per annum set forth below,
from the most recent Interest Payment Date to which interest has been paid on
this Convertible Note, or if no interest has been paid on this Convertible Note,
from the date of this Convertible Note until payment in full of the principal
sum hereof has been made.
The interest rate shall be eight percent (8%) per annum (the "Interest
Rate") or, if less, the maximum rate permitted by applicable law. Past due
amounts (including interest, to the extent permitted by law) will also accrue
interest at the Interest Rate plus 2% per annum or, if less, the maximum rate
permitted by applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Note will be calculated on the basis of a 360-day
year of twelve 30 day months. All payments of principal and interest hereunder
shall be made for the benefit of the Holder pursuant to the terms of the
Agreement (hereafter defined). Except as otherwise provided in this Convertible
Note, the interest payable on each Interest Payment Date shall be added to the
outstanding principal amount of this Convertible Note on such date and
thereafter be considered part of the outstanding principal amount. The Company
may elect to pay the interest payable on any
37
Interest Payment Date in cash, provided it gives the registered holder written
notice of such election at least five (5) Business Days prior to the applicable
Interest Payment Date and pays the same by such date. On each Conversion Date,
interest shall be paid in shares of Common Stock on the portion of the principal
balance of the Convertible Note then being converted. The number of shares of
Common Stock issued as interest shall be determined by dividing the dollar
amount of interest due on the applicable Interest Payment Date by the Conversion
Price or Default Conversion Price then in effect.
This Convertible Note (this "Convertible Note") is one of a duly
authorized issuance of $500,000 original aggregate principal amount of
Convertible Notes of the Company referred to in that certain Securities Purchase
Agreement dated as of the date hereof between the Company and the Purchasers
named therein (the "Agreement"). The Agreement contains certain additional
agreements among the parties with respect to the terms of this Convertible Note,
including, without limitation, provisions which (A) limit the conversion rights
of the Holder, (B) specify voluntary and mandatory repayment, prepayment and
redemption rights and obligations and (C) specify Events of Default following
which the remaining balance due and owing hereunder may be accelerated. All such
provisions are an integral part of this Convertible Note and are incorporated
herein by reference. This Convertible Note is transferable and assignable to one
or more Persons, in accordance with the limitations set forth in the Agreement.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Note and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder or "Holders" shall
mean the Person listed in the Register as the registered holder of such
Convertible Notes. The ownership of this Convertible Note shall be proven by the
Register.
1. CERTAIN TERMS DEFINED. All terms defined in the Agreement and not
otherwise defined herein shall have for purposes hereof the meanings provided
for in the Agreement.
2. COVENANTS. Unless the Majority Holders otherwise consent in writing,
the Company covenants and agrees to observe and perform each of its covenants,
obligations and undertakings contained in the Agreement, which obligations and
undertakings are expressly assumed herein by the Company and made for the
benefit of the holder hereof.
3. PAYMENT OF PRINCIPAL. The Company shall repay the remaining unpaid
balance on this Convertible Note on the Maturity Date. The Company may, and
shall be obligated to, prepay all or a portion of this Convertible Note on the
terms specified in the Agreement.
4.1 CONVERSION OF CONVERTIBLE NOTE. The Holder shall have the right, at
its option, at any time from and after the earlier to occur of (x) August 1,
1999, or (y) the date the Registration Statement has been declared effective by
the Securities and Exchange Commission, to convert the principal amount of this
Convertible Note, or any portion of such principal amount, into that number of
fully paid and nonassessable shares of Common Stock (as such shares shall then
be constituted) determined pursuant to this Section 4.1. The number of shares of
Common Stock to be issued upon each conversion of this Convertible Note shall be
determined by dividing the Conversion Amount (as defined below) by the
Conversion Price in effect on the date (the "Conversion Date") a Notice of
Conversion is delivered to the Company by the Holder by facsimile or other
reasonable means of communication dispatched prior to 5:00 p.m., New Mexico
Time. The term "Conversion Amount" means, with respect to any conversion of this
Convertible Note, the sum of (1) the principal amount of this Convertible Note
to be converted in such conversion plus (2) accrued and unpaid interest, if any,
on such principal amount at the interest rates provided in this Convertible Note
to the Conversion Date plus (3) Default Interest, if any, on the interest
referred to in the immediately preceding clause (2); the term "Conversion Price"
means 75% of the Market Price; the term "Default
38
Conversion Price" means 65% of the Market Price; and the term "Market Price"
means the closing bid price of a share of Common Stock as reported by the
National Association of Securities Dealers Electronic Bulletin Board ("OTC
Bulletin Board") for the trading day immediately preceding the date of receipt
by the Company of Notice of Conversion. If on any Conversion Date the Common
Stock is not listed or traded on the OTC Bulletin Board, the Market Price shall
be determined by reference to the Nasdaq Stock Market or the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, L.P, or the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the closing bid price cannot be calculated for such
security on such date on any of the foregoing bases, the closing bid price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holders of a majority in interest of Convertible Notes
being converted for which the calculation of the closing hid price is required
in order to determine the Conversion Price or Default Conversion Price of such
Convertible Notes.
4.2 IRREVOCABLE INSTRUCTIONS TO TRANSFER AGENT.
Consistent with Section 7.10 of the Agreement, the Company (i) shall
promptly irrevocably instruct its transfer agent to issue certificates for the
Common Stock issuable upon conversion of this Convertible Note and (ii) agrees
that its issuance of this Convertible Note shall constitute full authority to
its officers and agents who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock in accordance with the terms and conditions of this Convertible
Note.
4.3 METHOD OF CONVERSION
(a) Notwithstanding anything to the contrary set forth
herein, upon conversion of this Convertible Note in accordance
with the terms hereof, the Holder shall not be required to
physically surrender this Convertible Note to the Company
unless the entire unpaid principal amount of this Convertible
Note is so converted. Rather, records showing the principal
amount converted (or otherwise repaid) and the date of such
conversion or repayment shall be maintained on a ledger
substantially in the form of Annex A attached hereto a copy of
which shall be delivered to the Company or transfer agent with
each Notice of Conversion). It is specifically contemplated
that the Company hereof shall act as the calculation agent for
conversions and repayments. In the event of any dispute or
discrepancies, such records maintained by the Company shall be
controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this
Convertible Note, acknowledge and agree that, by reason of the
provisions of this paragraph, following a conversion of a
portion of this Convertible Note, the principal amount
represented by this Convertible Note will be the amount
indicated on Annex A attached hereto (which may be less than
the amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock or other
securities or property on conversion of this Convertible Note
in a name other than that of the Holder (or in street name),
and the Company shall not be required to issue or deliver any
such shares or other securities or property unless and until
the person or persons (other than the Holder or the custodian
in whose street name such shares are to be held for the
Holder's account) requesting the issuance thereof shall have
paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax
has been paid.
39
(c) Upon receipt by the Company of a Notice of Conversion,
the Holder shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest
on this Convertible Note shall be reduced to reflect such
conversion, and, unless the Company defaults on its
obligations under this Article 4, all rights with respect to
the portion of this Convertible Note being so converted shall
forthwith terminate except the right to receive the Common
Stock or other securities, cash or other assets, as herein
provided, on such conversion. If the Holder shall have given a
Notice of Conversion as provided herein, the Company's
obligation to issue and deliver the certificates for shares of
Common Stock shall be absolute and unconditional, irrespective
of the absence of any action by the Holder to enforce the
same, any waiver or consent with respect to any provision
thereof, the recovery of any judgment against any person or
any action by the Holder to enforce the same, any failure or
delay in the enforcement of any other obligation of the
Company to the Holder of record, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or
alleged breach by the Holder of any obligation to the Company,
and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder
in connection with such conversion. The date of receipt
(including receipt via telecopy) of such Notice of Conversion
shall be the Conversion Date so long as it is received before
5:00 p.m. New Mexico Time, on such date.
5. MISCELLANEOUS. This Convertible Note shall be deemed to be a
contract made under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of said State.
The parties hereto, including all guarantors or endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Convertible Note, except as specifically provided herein, and assent to
extensions of the time of payment, or forbearance or other indulgence without
notice. The Company hereby submits to the exclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
state court sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Convertible Note. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum. The Company hereby irrevocably waives any
and all right to trial by jury in any legal proceeding arising out of or
relating to this Convertible Note. Notwithstanding anything to the contrary in
the foregoing, at the election of the Holder, any dispute between the Holder and
the Company may be arbitrated, rather than litigated in the courts, before and
in accordance with the rules of the American Arbitration Association in New York
City. The Company agrees to submit to and participate in any such arbitration.
The Holder of this Convertible Note by acceptance of this Convertible
Note agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
[Signature page follows]
40
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: June ___, 1999
ADVANCED OPTICS ELECTRONICS, INC.
------------------------------------------------
By:
Name:
Title:
41
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Convertible Note)
The undersigned hereby irrevocably elects to convert
$_______________ of the above Convertible Note into shares of Common Stock of
Advanced Optics Electronics. Inc. ("Company") according to the conditions set
forth in such Convertible Note, as of the date written below.
If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer and other taxes and
charges payable with respect thereto.
Date of Conversion
--------------------------------------
Applicable Conversion Price
------------------------------
Signature
-----------------------------------------------
[Print Name of Holder and Title of Signer]
Address:
------------------------------------------------
------------------------------------------------
SSN or EIN:
-------------------------------
Shares are to be registered in the following name:
Name:
---------------------------------------------------
Address:
-------------------------------------------------
Tel:
--------------------------------------
Fax:
---------------------------------------
SSN or EIN:
--------------------------------
Shares are to be sent or delivered to the following account:
Account Name:
--------------------------------------------
Address:
-------------------------------------------------
Tel:
--------------------------------------
Fax:
--------------------------------------
SSN or EIN:
---------------------------
Shares are to be sent or delivered to the following account:
Account Name:
--------------------------------------------
Address:
-------------------------------------------------
Tel:
-----------------------------------
42
EXHIBIT B
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED THE DATE
HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE
HOLDER.
ADVANCED OPTICS ELECTRONICS, INC.
COMMON STOCK PURCHASE WARRANT
No. 1 Warrant to Purchase ________ Shares
ADVANCED OPTICS ELECTRONICS, INC., a Nevada corporation (the
"Company"), hereby certifies that, for value received, _____________________ or
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company at any time or from time to time during the period commencing September
1, 1999 and ending June 3, 2002 (the "Exercise Period"), at the Purchase Price
(as hereinafter defined), ________________________ (___________) shares of the
fully paid and nonassessable shares of Common Stock of the Company. The number
and character of such shares of Common Stock and the Purchase Price are subject
to adjustment as provided herein.
This Warrant (this `Warrant"; such term to include any warrants issued
in substitution therefor) is one of a series of 12,500,000 warrants issued in
connection with that certain Securities Purchase Agreement (the "Agreement")
dated of even date herewith among the initial Holder hereof the Company and
certain other parties thereto.
Capitalized terms used herein not otherwise defined shall have the
meanings ascribed thereto in the Agreement. As used herein the following terms,
unless the context otherwise requires, have the following respective meanings:
(a) The term "Agreement" refers to that certain Securities
Purchase Agreement dated the date herewith among the initial Holder
hereof, the Company and certain other parties hereto.
43
(b) The term "Company" shall include Advanced Optics
Electronics, Inc. Corporation and any corporation that shall succeed or
assume the obligations of such corporation hereunder.
(c) The term "Common Stock" includes (a) the Company's common
stock. par value $.001 per share, (b) any other capital stock of any
class or classes (however designated.) of the Company, authorized on or
after such date, the Holders of which shall have the right. without
limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and
the Holders of which shall ordinarily, in the absence of contingencies,
be entitled to vote for the election of a majority of directors of the
Company (even though the right so to vote has been suspended by the
happening of such a contingency) and (c) any other securities into
which or for which any of the securities described in (a) or (b) may be
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(d) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) that the Holder of this Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of this Warrant, in lieu of or in addition to Common Stock, or
that at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 3 or otherwise.
(e) The term "Purchase Price" means 75% of the lower of (i)
the closing bid price of a share of Common Stock as reported by the
National Association of Securities Dealers Electronic Bulletin Board
("OTC Bulletin Board") for the trading day immediately preceding the
date of receipt by the Company of Notice of Exercise, and (ii) the
closing bid price of the Common Stock as reported by the OTC Bulletin
Board on the trading day immediately preceding the date of the
Agreement subject, in each case, to equitable adjustments for Capital
Reorganizations as provided in the Agreements. If on any trading date
relevant to the determination of the Purchase Price the Common Stock is
not listed or traded on the OTC Bulletin Board, the Purchase Price
shall be determined by reference to the Nasdaq Stock Market or the
principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, L.P., or the average of the
bid prices of any market makers for such security as reported in the
"pink sheets" by the National Quotation Bureau, Inc. If the closing bid
price cannot be calculated for such security on such date on any of the
foregoing bases, the closing bid price of such security on such date
shall be the fair market value as mutually determined by the Company
and the Holders of a majority in interest of Warrants being exercised
for which the calculation of the closing bid price is required in order
to determine the Purchase Price of such Warrants.
44
1. Exercise of Warrant.
1.1. Method of Exercise.
(a) This Warrant may be exercised in whole or in part
(but not as to a fractional share of Common Stock), at any
time and from time to time during the Exercise Period by the
Holder hereof by delivery of a notice of exercise (a "Notice
of Exercise) in the form attached hereto as Exhibit A via
facsimile to the Company. Promptly hereafter the Holder shall
surrender this Warrant to the Company at its principal office,
accompanied by payment of the Purchase Price multiplied by the
number of shares of Common Stock for which this Warrant is
being exercised (the "Exercise Price"). Payment of the
Exercise Price shall be made by wire transfer to the account
of the Company. Upon exercise, the Holder shall be entitled to
receive, one or more certificates, issued in the Holder's name
or in such name or names as the Holder may direct, subject to
the limitations on transfer contained herein, for the number
of shares of Common Stock so purchased. The shares of Common
Stock so purchased shall be deemed to be issued as of the
close of business on the date on which the Company shall have
received from the Holder payment of the Exercise Price (the
"Exercise Date").
(b) Notwithstanding anything to the contrary set
forth herein, upon exercise of all or a portion of this
Warrant in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Warrant to the
Company. Rather, records showing the amount so exercised and
the date of exercise shall be maintained on a ledger in the
form of Annex B attached hereto (a copy of which shall be
delivered to the Company or transfer agent with each Notice of
Exercise). It is specifically contemplated that the Company
hereof shall act as the calculation agent for all exercises of
this Warrant. In the event of any dispute or discrepancies,
such records maintained by the Company shall be controlling
and determinative in the absence of manifest error. The Holder
and any assignee, by acceptance of this Warrant, acknowledge
and agree that, by reason of the provisions of this paragraph,
following an exercise of a portion of this Warrant, the number
of shares of Common Stock represented by this Warrant will be
the amount indicated on Annex B attached hereto (which may be
less than the amount stated on the face hereof).
1.2. Regulation D Restrictions. The Holder hereof represents
and warrants to the Company that it has acquired this Warrant and
anticipates acquiring the shares of Common Stock issuable upon exercise
of the Warrant solely for its own account for investment purposes and
not with a view to or for resale of such securities unless such resale
has been registered with the Commission or an applicable exemption is
available therefor. At the time this Warrant is exercised, the Company
may require the Holder to state in the Notice of Exercise such
representations concerning the Holder as are necessary or appropriate
to assure compliance by the Holder with the Securities Act.
1.3. Limitation on Exercise. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described
herein, such exercise rights shall be limited, solely to the extent set
forth in the Agreement as if such provisions were specifically set
forth herein. Specifically, the rights of the Holder to exercise all or
a portion of this Warrant are subject to the limitation on exercise
provisions specified in Section 10.1 of the Agreement.
45
2. Delivery of Stock Certificates on Exercise. As soon as practicable
after the exercise of this Warrant, the Company at its expense (including the
payment by it of any applicable issue, stamp or transfer taxes) will cause to be
issued in the name of and delivered to the Holder thereof, or, to the extent
permissible hereunder, to such other person as such Holder may direct, a
certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock (or Other Securities) to which such Holder shall be
entitled on such exercise, plus, in lieu of any fractional share to which such
Holder would otherwise be entitled, cash equal to such fraction multiplied by
the then applicable Purchase Price, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment of Purchase Price In Certain Events. The Purchase Price
to be paid by the Holder upon exercise of this Warrant, and the consideration to
be received upon exercise of this Warrant, shall be adjusted in case at any time
or from time to time for Capital Reorganizations as provided in the Agreement as
if such provisions were specifically set forth herein.
4. No Impairment. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock receivable on the
exercise of this Warrant above the amount payable therefor on such exercise, (b)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of this Warrant, and (c) will not transfer all or
substantially all of its properties and assets to any other person (corporate or
otherwise), or consolidate with or merge into any other person or permit any
such person to consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly assume in
writing and will be bound by all the terms of this Warrant.
5. Redemption of Warrants. The Warrants are redeemable by the Company,
in whole or in part, on not less than ten (10) Business Days prior written
notice at a redemption price of $.01 per Warrant, provided the closing bid price
of the Common Stock on the OTC Bulletin Board if traded thereon, or in the "pink
sheets" as reported by the National Quotation Bureau, Inc., or if not traded
thereon, the closing sale price as reported by Bloomberg, L.P., if listed on the
Nasdaq Stock market or a national securities exchange (or other reporting system
that provides last sale prices) has been at least $2.00, for the period of 20
consecutive Trading Days ending on the third day prior to the date on which the
Company gives notice of redemption.. Any redemption in part shall be made pro
rata to all Warrant holders. The redemption notice shall be mailed to the
holders of the Warrants at their respective addresses appearing in the Warrant
register maintained by the Company. Any such notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the registered holder receives such notice. No failure to mail such
notice nor any defect therein or in the
46
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a registered holder of a Warrant to whom notice was not mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein. Holders of the Warrants will have exercise rights until the close of
business on the day immediately preceding the date fixed for redemption.
6. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the
Holders of any class or 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 or any transfer of all or substantially all the
assets of the Company to or consolidation or merger of the
Company with or into any other person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder of this Warrant 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
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which 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 on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any action is to be taken.
7. Reservation of Stock Issuable on Exercise of Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
8. Exchange of Warrant. On surrender for exchange of this Warrant,
properly endorsed and in compliance with the restrictions on transfer set forth
in the legend on the face of this Warrant, to the Company, the Company at its
expense will issue and deliver to or on the order of the Holder thereof a new
Warrant of like tenor, in the name of such Holder or as such Holder (on payment
by such Holder of any applicable transfer taxes) may direct, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face of the Warrant so surrendered.
9. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
47
10. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Negotiability etc. This Warrant is issued upon the following terms,
to all of which each Holder or owner hereof by the taking hereof consents and
agrees:
(a) title to this Warrant may be transferred by
endorsement and delivery in the same manner as in the case of
a negotiable instrument transferable by endorsement and
delivery.
(b) any person in possession of this Warrant properly
endorsed is authorized to represent himself as absolute owner
hereof and is empowered to transfer absolute title hereto by
endorsement and delivery hereof to a bona fide purchaser
hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in
favor of each such bona fide purchaser, and each such bona
fide purchaser shall acquire absolute title hereto and to all
rights represented hereby;
(c) until this Warrant is transferred on the books of
the Company, the Company may treat the registered Holder
hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary; and
(d) notwithstanding the foregoing, this Warrant may
not be sold, transferred or assigned except pursuant to an
effective registration statement under the Securities Act or
pursuant to an applicable exemption therefrom.
12. Registration Rights. The Company is obligated to register the
shares of Common Stock issuable upon exercise of this Warrant in accordance with
the terms of the Registration Rights Statement.
13. Notices. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such Holder or, until any such Holder furnishes to the
Company an address, then to, and at the address of. the last Holder of this
Warrant who has so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Nevada. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
[Signature Page Follows]
48
Dated as of June 3, 1999.
ADVANCED OPTICS ELECTRONICS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[Corporate Seal]
Attest:
By:
----------------------
Secretary
49
EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
(To be executed only upon exercise
of the Warrant in whole or in part)
To: ADVANCED OPTICS ELECTRONICS, INC.
The undersigned registered Holder of the accompanying Warrant hereby
exercises such Warrant or portion thereof for, and purchases thereunder.
______________(1) shares of Common Stock (as defined in such Warrant) and
herewith makes payment therefor in the amount and manner set forth below, as of
the date written below. The undersigned requests that the certificates for such
shares of Common Stock be issued in the name of, and delivered to,
_________________________ whose address is _________________________________
______________________.
The Exercise Price is paid by check or wire transfer to the account of
the Company in the amount of $___________________.
Upon exercise pursuant to this Notice of Exercise, the Holder will be
in compliance with the Limitation on Exercise (as defined in the Securities
Purchase Agreement pursuant to which this Warrant was issued).
Dated:
---------------------------- -----------------------------------
(Name must conform to name of
Holder as
specified on the face of the
Warrant)
By:
-------------------------------
Name:
-----------------------------
Title
-----------------------------
Address of Holder:
-----------------
-----------------
Date of exercise:
--------------------------------
--------
(1) Insert the number of shares of Common Stock as to which the
accompanying Warrant is being exercised. In the case of a partial exercise, a
new Warrant or Warrants will be issued and delivered, representing the
unexercised portion of the accompanying Warrant to the holder surrendering the
same.
50
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
June ____, 1999, among ADVANCED OPTICS ELECTRONICS, INC., a Nevada corporation
(the "Company"), and the other undersigned parties hereto (collectively, the
"Purchasers").
1. INTRODUCTION. The Company and the Purchasers have today executed
that certain Securities Purchase Agreement (the "Securities Purchase
Agreement"). pursuant to which the Company has agreed, among other things, to
issue an aggregate of its $500,000 principal amount of 8% Convertible Notes due
June 3, 2001 (the "Notes") to the Purchasers. The Notes are convertible into an
indeterminable number of shares (the "Conversion Shares") of the Company's
common stock, par value $.001 per share (the "Common Stock"), pursuant to the
terms of the Notes. In addition, pursuant to the terms of the Securities
Purchase Agreement and the transactions contemplated thereby, the Company has
issued to the Purchasers Common Stock Purchase Warrants exercisable for an
aggregate of 12.500.000 shares of Common Stock (the "Warrant Shares"). The
number of Conversions Shares and Warrant Shares is subject to adjustment upon
the occurrence of stock splits. recapitalizations and similar events occurring
after the date hereof. The Conversion Shares and the Warrant Shares are
collectively herein referred to as the "Securities." Certain capitalized terms
used in this Agreement are defined in Section 3 hereof: references to sections
shall be to sections of this Agreement.
2. REGISTRATION UNDER SECURITIES ACT.
2.1 MANDATORY REGISTRATION. As soon as practicable after the
date hereof, the Company shall prepare and file a registration
statement on Form SB-2 or such other appropriate registration form of
the Commission (the "Registration Statement") to effect the
registration under the Securities Act of all, but not less than all, of
the Registrable Securities to permit the public disposition of such
Registrable Securities in accordance with the intended method or
methods of disposition specified by the Purchasers and their permitted
assigns or transferees (collectively, the "Holders"); provided,
however, such intended method of disposition shall not include an
underwritten offering of the Registrable Securities. The Company shall
use its best efforts to cause the Registration Statement to be declared
effective by the Commission. The Company will pay all Registration
Expenses in connection with the registration of the Registrable
Securities.
2.2 REGISTRATION PROCEDURES. In connection with the
registration of the Registrable Securities under the Securities Act as
provided in Section 2. 1 the Company shall:
(i) prepare and file with the Commission as soon as
practicable after the date hereof the Registration Statement
(including such audited financial statements as may be
required by the Securities Act or the rules and regulations
promulgated thereunder) and thereafter use its best efforts to
cause such registration statement to be declared effective by
the Commission;
(ii) prepare and file with the Commission such
amendments and supplements to the Registration Statement and
the prospectus used in connection therewith as may he
necessary to keep the Registration Statement effective and to
comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by
the Registration Statement, until the earlier to occur of
three (3) years after the date of this Agreement (subject to
the right of the Company to suspend the effectiveness thereof
for not more
51
than 60 consecutive days or an aggregate of 120 days in such
three (3) years period) or such time as all of the securities
which are the subject of the Registration Statement cease to
be Registrable Securities (such period, in each case, the
"Registration Maintenance Period");
(iii) furnish to each seller of Registrable
Securities covered by the Registration Statement such number
of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case including
all exhibits), such number of copies of the prospectus
contained in the Registration Statement (including each
preliminary prospectus and any summary prospectus) and any
other prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the Securities
Act, and such other documents, as such seller may reasonably
request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such
seller:
(iv) use its reasonable efforts to register or
qualify' all Registrable Securities and other securities
covered by the Registration Statement under such other
securities laws or blue sky laws as any seller thereof shall
reasonably request. to keep such registrations or
qualifications in effect for so long as the Registration
Statement remains in effect, and take any other action which
may be reasonably necessary to enable such seller to
consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall
not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this
subdivision (iv) be obligated to be so qualified or to consent
to general service of process in any such jurisdiction:
(v) use its best efforts to cause all Registrable
Securities covered by the Registration Statement to be
registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of
such Registrable Securities:
(vi) notify each seller of the Registrable Securities
covered by the Registration Statement promptly and confirm
such advice in writing promptly after the Company has
knowledge thereof:
(A) when the Registration Statement, the
prospectus or any prospectus supplement related
thereto or post-effective amendment to the
Registration Statement has been filed, and, with
respect to the Registration Statement or any
post-effective amendment thereto, when the same has
become effective;
52
(B) of any request by the Commission for
amendments or supplements to the Registration
Statement or the prospectus or for additional
information;
(C) of the issuance by the Commission of an
stop order suspending the effectiveness of the
Registration Statement or the initiation of any
proceedings by any Person for that purpose: and
(D) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of any Registrable Securities for sale
under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any
proceeding for such purpose:
(vii) notify each seller of Registrable Securities
covered by the Registration Statement, at any time when a
prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the happening
of any event as a result of which. the prospectus included in
the Registration Statement, as then in effect, includes an
untrue statement of a material fact or omits to state any
material fact required to he stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing and at the request of any such
seller promptly prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that. as thereafter
delivered to the purchasers of such securities, such
prospectus shall not include 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 not
misleading in the light of the circumstances then existing;
(viii) use its best efforts to obtain the withdrawal
of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment;
(ix) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the
effective date of the Registration Statement, which earnings
statement shall satisfy the provisions of Section 1(a) of the
Securities Act and Rule 1 58 thereunder:
(x) enter into such agreements and take such other
actions as the sellers of the Registrable Securities covered
by the Registration Statement shall reasonably request in
writing (at the expense of the requesting or benefiting
sellers) in order to expedite or facilitate the disposition of
such Registrable Securities; and
(xi) use its best efforts to list all Registrable
Securities covered by the Registration Statement on any
securities exchange (if any) on which any of the Registrable
Securities are then listed.
53
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
The Company will not file any registration statement pursuant to
Section 2. 1. or amendment thereto or any prospectus or any supplement thereto
(including such documents incorporated by reference and proposed to be filed
after the initial filing of the Registration Statement) to which a seller of
Registrable Securities shall reasonably object, provided that the Company may
file such document in a form required by law or upon the advice of its counsel.
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby other than such waivers, consents and/or
authorizations specifically contemplated by the Securities Purchase Agreement.
Each Purchaser agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in subdivision (vii) of
this Section 2.2. such Purchaser will forthwith discontinue such Purchaser's
disposition of Registrable Securities pursuant to the Registration Statement
relating to such Registrable Securities until such Purchaser's receipt of the
copies of the supplemented or amended prospectus contemplated by subdivision
(vii) of this Section 2.2 and, if so directed by the Company, will deliver to
the Company all copies. other than permanent file copies. then in such
Purchaser's possession of the prospectus relating to such Registrable Securities
current at the time of receipt of such notice.
2.3 PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of the Registration Statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under the Registration Statement, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary to conduct a reasonable investigation within
the meaning of the Securities Act.
2.4 INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. The Company
will, and hereby does agree to, indemnify and hold harmless the holder of any
Registrable Securities covered by the Registration Statement, its directors and
officers, and each other Person, if any, who controls such holder within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such director or
officer or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings. whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged
54
Omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such holder and each such director, officer and controlling person for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding, provided that the Company' shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or proceeding
in respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by such holder stating that it
is for use in the preparation thereof and. provided further that the Company
shall not be liable to any Person to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus as
the same may be then supplemented or amended, within the time required by the
Securities Act to the Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such final prospectus or an
amendment or supplement thereto. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such holder or
any such director, officer or controlling person and shall survive the transfer
of such securities by such holder.
(b) INDEMNIFICATION BY THE SELLERS. Each Purchaser agrees,
and any other seller of Registrable Securities must agree, as a condition to
including any Registrable Securities in the Registration Statement, to indemnify
and hold harmless (in the same manner and to the same extent as set forth in
subdivision (a) of this Section 2.4) the Company, each director of the Company,
each officer of the Company and each other Person, if any, who controls the
Company within the meaning of the Securities Act, with respect to any statement
or alleged statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such Purchaser or other seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. This indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such securities
by the Purchaser or other such seller.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.4,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.4 except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly
55
with any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
path shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement of any such action which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability, or a covenant not to
xxx, in respect to such claim or litigation. No indemnified party shall consent
to entry of any judgment or enter into any settlement of any such action the
defense of which has been assumed by an indemnifying party without the consent
of such indemnifying party.
(d) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.4 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) INDEMNIFICATION PAYMENTS. The indemnification required by
this Section 2.4 shall he made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) CONTRIBUTION. If the indemnification provided for in the
preceding subdivisions of this Section 2.4 is unavailable to an indemnified
party in respect of any expense, loss, claim, damage or liability referred to
therein, 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 expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the holder on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the holder on the other in
connection with the statements or omissions which resulted in such expense,
loss, damage or liability, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the holder on the other in connection with the distribution of the
Registrable Securities shall be deemed to be in the same proportion as the total
net proceeds received by the Company from the initial sale of the Registrable
Securities by the Company to the Purchasers bear to the gain, if any, realized
by all selling holders participating in such offering. The relative fault of the
Company on the one hand and of the holder, on the other shall be determined by
56
reference to among other things, whether the untrue or alleged untrue statement
of a material fact or omission to state a material fact relates to information
supplied by the Company or by the holder and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, provided that the foregoing contribution agreement shall
not inure to the benefit of any indemnified party if indemnification would he
unavailable to such indemnified party by reason of the provisions contained in
the first sentence of subdivision (a) of this Section 2.4 and in no event shall
the obligation of any indemnifying party to contribute under this subdivision
(f) exceed the amount that such indemnifying path would have been obligated to
pay by way of indemnification if the indemnification provided for under
subdivisions (b) of this Section 2.4 had been available under the circumstances.
The Company and the holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this subdivision (f)
were determined by pro rata allocation (even if the holders were treated as one
entity for such purpose) or by' any other method of allocation that does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in the preceding sentence and subdivision (c of this
Section 2.4. any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities shall be required to contribute any amount in excess of
the amount by which the net proceeds received by such holder from the sale of
Registrable Securities exceeds the amount of any damages that such holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission. 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.
3. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"Commission": The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock": As defined in Section 1.
"Company": As defined in the introductory paragraph of this Agreement.
"Conversion Shares": As defined in Section 1.
"Exchange Act": The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
57
"Notes": As defined in Section 1, such term to include any securities
issued in substitution of or in addition to such Notes.
"Person": A corporation, association, partnership. organization,
business, individual. governmental or political subdivision thereof or a
governmental agency.
"Purchasers": As defined in the introductory paragraph of this
Agreement.
"Registrable Securities": The Securities and any securities issued or
issuable with respect to such Securities by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. Once issued such securities
shall cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement. (b) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, (c) they shall have been otherwise transferred new certificates for them
not bearing a legend restricting further transfer shall have been delivered by
the Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force (d) they shall have ceased to be outstanding, (e) on the expiration of the
Registration Maintenance Period or (f) any and all legends restricting transfer
thereof have been removed in accordance with the provisions of Rule 144(k) (or
any successor provision) under the Securities Act.
"Registration Expenses": All expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration, filing and listing fees (if any), all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses, the fees and disbursements
of counsel for the Company and of its independent public accountants, including
the expenses of any special audits required by or incident to such performance
and compliance, premiums and other costs of policies of insurance of the Company
against liabilities arising out of the public offering of the Registrable
Securities being registered but excluding underwriting discounts and commissions
and transfer taxes, if any.
"Registration Maintenance Period": As defined in Section 2.2.
"Securities Act": The Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
"Securities Purchase Agreement": As defined in Section 1.
"Warrant Shares": As defined in Section 1.
4. RULE 144, THE COMPANY shall timely file the reports required to be
filed by it under the Securities Act and the Exchange Act (including but not
limited to the reports under Sections 13
58
and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144
adopted by the Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder (or. it the Company is not
required to file such reports, will, upon the request of any holder of
Registrable Securities, make publicly available other information) and will take
such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (a) Rule 144 under the Securities
Act, as such Rule may he amended from time to time, or by any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any holder
of Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with the requirements of this Section 4.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the
Company may take any action herein prohibited or omit to perform any act herein
required to be performed by it only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of the sum of 51% or more of the shares of (i) Registrable Securities
issued at such time, plus (ii) Registrable Securities issuable upon exercise or
conversion of the Securities then constituting derivative securities (if such
Securities were not fully exchanged or converted in full as of the date such
consent is sought). Each holder of any Registrable Securities at the time or
thereafter outstanding shall be bound by any consent authorized by this Section
5 whether or not such Registrable Securities shall have been marked to indicate
such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of' Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
7. NOTICES. Except as otherwise provided in this Agreement all notices,
requests and other communications to any Person provided for hereunder shall be
in writing and shall be given to such Person (a) in the case o a party hereto
other than the Company addressed to such party in the manner set forth in the
Securities Purchase Agreement or at such other address as such party shall have
furnished to the Company in writing, or (b) in the case of any other holder of
Registrable Securities, at the address that such holder shall have furnished to
the Company in writing, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company, or (c) in
the case of the Company, at the address set forth on the signature page hereto,
to the attention of its President, or at such other address, or to the attention
of such other officer, as the Company shall have furnished to each holder of
Registrable Securities at the time outstanding. Each such notice, request or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage
59
prepaid, addressed as aforesaid or (ii) if given by any other means (including,
without limitation, by fax or air courier), when delivered at the address
specified above, provided that any such notice, request or communication shall
not be effective until received.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities. Each of the Holders of the Registrable Securities
agrees, by accepting any portion of the Registrable Securities after the date
hereof, to the provisions of this Agreement including, without limitation,
appointment of the Sellers' Representative to act on behalf of such Holder
pursuant to the terms hereof which such actions shall be made in the good faith
discretion of the Sellers' Representative and be binding on all persons for all
purposes.
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
11. COUNTERPARTS. This Agreement may be executed by facsimile and may
be signed simultaneously' in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.
12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
13. SEVERABILITY. If any provision of this Agreement. or the
application of such provisions to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those to which it is held invalid, shall
not be affected thereby.
[Signature Page Follows]
60
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
ADVANCED OPTICS ELECTRONICS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
----------------------------------
PURCHASERS
-----------------------------------------
Y.L. XXXXXX
-----------------------------------------
XXXXXX XXXXXXXXXX
-----------------------------------------
XXXXX XXXXXXX
-----------------------------------------
XXXXXX XXXXXXXX
-----------------------------------------
Z.Y. ZELIKOVITZ
