EXHIBIT 10.1
(Securities Purchase Agreement)
5
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March 3,
2000, by and between FLEXPOINT SENSOR SYSTEMS, INC.(the "Company"), a
Delaware corporation with an address at 0000 Xxxxx 000 Xxxx, Xxxxxxx, Xxxx
00000; and ASPEN CAPITAL RESOURCES, LLC or its assigns (the "Purchaser"), a
Utah limited liability company with an address at 0000 Xxxxx Xxxxxxxxx Xxxxxx,
Xxxxx, Xxxx 00000.
The Company desires to issue to the Purchaser and the Purchaser desires
to purchase from the Company, upon the terms and subject to the conditions set
forth herein (i) the Convertible Debentures of the Company and (ii) the
Warrants.
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties hereto
agree as follows:
Article I - DEFINITIONS
1.1 Definitions; Interpretation. For purposes of this Agreement, the
following terms have the indicated meanings:
"Affiliate" of a Person means any officer, director or employee of the
Company and any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (i) vote 10% or more of the Capital
Stock having ordinary voting power for the election of directors of such
Person or (ii) direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Capital Stock" of any Person shall mean any and all shares, interests
(including membership and economic interests in a limited liability
company), rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of such
Person, but excluding any debt securities convertible into such equity prior
to such conversion.
"Capitalized Lease" means any lease which is required under GAAP to be
capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means obligations for the payment of
rent for any Capitalized Lease; for purposes hereof, the amount of any such
obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, collectively, the Company's Common Stock,
$.001 par value per share, and any Capital Stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par
or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Company.
"Confidential Information" means any proprietary information concerning
the Company's business other than information that (i) was already known to
the Person having a duty to keep confidential such information on a
nonconfidential basis prior to the time of disclosure, (ii) is or
becomes generally available to the public through no act or omission of such
Person or (iii) becomes available to such Person on a nonconfidential basis
from a source other than any party hereto (or any agent or representative
thereof) if such source was not under a prohibition against disclosing
the information or otherwise bound by a confidentiality agreement with
respect thereto.
6
"Conversion Shares" means shares of Common Stock issued or issuable
upon conversion of the Debentures, whether or not a Debenture is presently
convertible; provided, that if there is a change such that the securities
issuable upon conversion of the Debentures are issued by an entity other
than the Company or there is a change in the securities so issuable, then
the term "Conversion Shares" shall mean shares of the security issuable
upon conversion of the Debentures if such securities are issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
"Current Balance Sheet" means the unaudited balance sheet of the Company
as at September 30, 1999.
"Debentures" has the meaning set forth in Section 2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the closing bid price of a share of Common Stock
quoted on the NASDAQ Stock Market System or reported on the NASD's OTC
Bulletin Board.
"Financial Statements" means (i) the unaudited balance sheets of the
Company as at September 30, 1999 and 1998, and the related unaudited
statements of income and consolidated cash flow for the quarterly periods then
ended, and (ii) the audited balance sheets of the Company as at December 31,
1998 and 1997, and the related audited statements of income and consolidated
cash flow for the fiscal year periods then ended, all as filed with the
Securities and Exchange Commission on the date of this Agreement.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time, consistently applied.
"Governmental Agency" means any federal, state, local, foreign or other
governmental agency, instrumentality, commission, authority, board or body
and the National Association of Securities Dealers.
"Hedging Agreement" means any interest rate swap, collar, cap, floor or
forward rate agreement or other agreement regarding the hedging of interest
rate risk exposure executed in connection with hedging the interest rate
exposure of the Company, and any confirming letter executed pursuant to
such agreement, all as amended, supplemented, restated or otherwise
modified from time to time.
"includes" and "including" mean includes and including, without
limitation.
"Indebtedness" means, without duplication, as to any Person (i)
indebtedness for borrowed money; (ii) indebtedness for the deferred purchase
price of property or services (other than current trade payables incurred in
the ordinary course of business and payable in accordance with customary
practices); (iii) indebtedness evidenced by bonds, notes, debentures or
other similar instruments (other than performance, surety and appeal or
other similar bonds arising in the ordinary course of business); (iv)
obligations and liabilities secured by a Lien upon property owned by such
Person, whether or not owing by such Person and even though such Person has
not assumed or become liable for the payment thereof; (v) obligations and
liabilities directly or indirectly guaranteed by such Person; (vi)
obligations or liabilities created or arising under any conditional sales
contract or other title retention agreement with respect to property used
and/or acquired by such Person, even though the rights and remedies of the
lessor, seller and/or lender thereunder are limited to repossession of
such property; (vii) Capitalized Lease Obligations; (viii) all liabilities
in respect of letters of credit, acceptances and similar obligations created
for the account of such Person; (ix) net liabilities of such Person under
Hedging Agreements and foreign currency exchange agreements, as calculated on
a basis satisfactory to the Purchaser and in accordance with accepted
practice; and (x) the Debentures issued hereunder valued at the Optional
Redemption Price (as defined in the Debentures) for purposes hereof.
2
6
"Initial Closing" and "Additional Closing" have the meanings set forth in
Section 3.1.
"Initial Closing Date" and "Additional Closing Dates" have the meanings
set forth in Section 3.1.
"Intellectual Property" means all domestic and foreign patents,
patent applications, disclosures, industrial designs, discoveries and
inventions; trademarks, service marks, trade dress, trade names,
d/b/a's, Internet domain names and corporate names and all goodwill associated
therewith; published and unpublished works of authorship, copyrights;
registrations, applications and renewals for any of the foregoing; trade
secrets, Confidential Information, know-how, technical and computer data,
databases, proprietary information, documentation and software, financial,
business and marketing plans, customer and supplier lists and all other
intellectual property and proprietary rights; and all copies and tangible
embodiments of the foregoing.
"IRS" means the Internal Revenue Service.
"knowledge" or "know" when used with respect to the Company means the
knowledge of the senior management (vice president or senior) of the
Company, or any other management personnel that has had significant
involvement in the business and affairs of the Company.
"Liability" means any liability or obligation (whether absolute or
contingent, liquidated or unliquidated or due or to become due).
"Lien" means any mortgage, deed of trust, pledge, lien, security
interest, charge, encumbrance, security arrangement, restriction,
covenant, encroachment or other title imperfection of any nature
whatsoever, including but not limited to any conditional sale or title
retention arrangement, and any assignment, deposit arrangement or lease
intended as, or having the effect of, security.
"Material Adverse Change" means any material adverse change in the
business, condition (financial or otherwise), prospects or results of
operations of the Company and its Subsidiaries taken as a whole.
"Material Adverse Effect" means any material adverse effect on (i) the
business, condition (financial or otherwise), prospects or results of
operations of the Company and its Subsidiaries taken as a whole, or (ii) any
of the transactions contemplated hereby or by the Related Documents.
"ordinary course of business" means the ordinary course of business
of the Company consistent with past practice (including with respect to
quantity, quality and frequency).
"Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization or other entity.
"Related Documents" means all documents and instruments to be executed
or adopted by the Company in connection herewith, including without limitation
each of the Debentures, each of the Warrants and all other documents and
instruments to be executed or adopted by the Company pursuant thereto.
"SEC" means the Securities and Exchange Commission.
"Securities" has the meaning given that term in Section 2.1.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of
3
7
any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by the Company or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or
indirectly, by the Company. For purposes hereof, the Company shall be
deemed to have a majority ownership interest in a partnership, association
or other business entity if the Company, directly or indirectly, is allocated
a majority of partnership, association or other business entity gains or
losses, or is or controls the managing director or general partner of such
partnership, association or other business entity.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code '59A),
customs duties, Capital Stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
"Tax Returns" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Warrant Shares" means shares of the Common Stock obtained or obtainable
upon exercise of the Warrants, whether or not a Warrant is presently
exercisable; provided, that if there is a change such that the securities
issuable upon exercise of the Warrants are issued by an entity other than the
Company or there is a change in the class of securities so issuable, then the
term "Warrant Shares" shall mean shares of the security issuable upon
exercise of the Warrants if such security is issuable in shares, or shall mean
the equivalent units in which such security is issuable if such security is
not issuable in shares.
Article II - ISSUANCE AND SALE OF THE SECURITIES
2.1 Authorization of the Securities. The Company has authorized the
issuance and sale to the Purchaser, on the terms and subject to the conditions
of this Agreement, of (a) its Convertible Debentures in an aggregate principal
amount of up to $5,000,000 and containing the terms and conditions and in the
form of the Debenture set forth in Exhibit A and attached hereto (the
"Debentures"), and (b) its Warrants containing the terms and conditions and in
the form of the Warrant set forth in Exhibit B and attached hereto (the
"Warrants" and, together with the Debentures, the "Securities"). The
Debentures are convertible into and the Warrants are exercisable for shares of
the Company's Common Stock.
2.2 Issuance and Sale of the Securities. At the Initial Closing, on the
terms and subject to the conditions of this Agreement, the Company shall
issue to the Purchaser and the Purchaser shall purchase from the Company (a)
Debentures in the aggregate principal amount of $2,000,000.00, and (b)
Warrants initially exercisable for an aggregate of 1,283,697 Warrant Shares
(the number of Warrant Shares shall be determined by dividing the aggregate
principal amount of the Debentures by the Conversion Price (as defined in the
Debentures) of the Debentures on their Issue Date (as defined in the
Debentures)). For federal income tax purposes, the Company and the Purchaser
agree that the aggregate amount paid by the Purchaser for (i) the Debentures
is their principal amount, and (ii) the Warrants is $0. Neither the Company
nor the Purchaser shall file any Tax Return or take any position with any
taxing authority inconsistent with the preceding sentence.
2.3 Additional Issuances and Sales of the Securities.
On or before the date which is 30 days after the Initial Closing Date, on
the terms and subject to the conditions of this Agreement, the Company shall
issue to the Purchaser and the Purchaser shall purchase from the Company (a)
additional Debentures in the aggregate principal amount of $500,000.00, and
(b) Warrants initially
4
8
exercisable for the purchase of the number of Warrant Shares calculated as
provided in Section 2.2 above with respect to such additional Debentures.
On or before the date which is 60 days after the Initial Closing Date, on
the terms and subject to the conditions of this Agreement, the Company shall
issue to the Purchaser and the Purchaser shall purchase from the Company (a)
additional Debentures in the aggregate principal amount of $500,000.00, and
(b) Warrants initially exercisable for the purchase of the number of Warrant
Shares calculated as provided in Section 2.2 above with respect to such
additional Debentures.
On the date which is 90 days after the Initial Closing Date, on the terms
and subject to the conditions of this Agreement, the Company may, at its
option, issue to the Purchaser and the Purchaser shall purchase from the
Company additional Debentures in the aggregate principal amount of
$500,000.00, and the Company shall issue to the Purchaser Warrants initially
exercisable for the purchase of the number of Warrant Shares calculated as
provided in Section 2.2 above with respect to such additional Debentures,
whether or not issued as provided in this paragraph.
On the date which is 120 days after the Initial Closing Date, on the
terms and subject to the conditions of this Agreement, the Company may, at its
option, issue to the Purchaser and the Purchaser shall purchase from the
Company additional Debentures in the aggregate principal amount of
$500,000.00, and the Company shall issue to the Purchaser Warrants initially
exercisable for the purchase of the number of Warrant Shares calculated as
provided in Section 2.2 above with respect to such additional Debentures,
whether or not issued as provided in this paragraph.
On the date which is 150 days after the Initial Closing Date, on the
terms and subject to the conditions of this Agreement, the Company may, at its
option, issue to the Purchaser and the Purchaser shall purchase from the
Company additional Debentures in the aggregate principal amount of
$500,000.00, and the Company shall issue to the Purchaser Warrants initially
exercisable for the purchase of the number of Warrant Shares calculated as
provided in Section 2.2 above with respect to such additional Debentures,
whether or not issued as provided in this paragraph.
On the date which is 180 days after the Initial Closing Date, on the
terms and subject to the conditions of this Agreement, the Company may, at its
option, issue to the Purchaser and the Purchaser shall purchase from the
Company additional Debentures in the aggregate principal amount of
$500,000.00, and the Company shall issue to the Purchaser Warrants initially
exercisable for the purchase of the number of Warrant Shares calculated as
provided in Section 2.2 above with respect to such additional Debentures,
whether or not issued as provided in this paragraph.
Notwithstanding the foregoing, the Purchaser shall have no obligation to
purchase any Securities in connection with any Additional Funding pursuant to
this Section 2.3, provided that the Purchaser may in its sole discretion
purchase such Securities, (a) if the Company is in default or has breached any
of its obligations under this Agreement or any of the Related Documents, (b)
if an Event of Default has occurred under the Debentures, or (c) if the
average of the closing bid prices for the Company's Common Stock for five (5)
consecutive trading days, as quoted in the NASDAQ Stock Market System or
reported on the NASD's OTC Bulletin Board, is less than or equal to $1.00.
Notwithstanding the foregoing, the Purchaser shall have no obligation to
purchase more than $3,000,000.00 of the Securities pursuant to this Agreement
if, and to the extent, such purchase would result in the Purchaser becoming
directly or indirectly the beneficial owner of more than 9.9% of the Common
Stock of the Company.
Article III - CLOSING; CLOSING DELIVERIES
5
9
3.1 Closing. The closing of the transactions contemplated by Section
2.2 of this Agreement (the "Initial Closing") shall take place at 10:00 a.m.
on March 3, 2000, at the offices of Corbridge Baird & Xxxxxxxxxxx, Salt Lake
City, Utah or at such other time, place and/or date as shall be agreed upon
by the parties hereto. The date upon which the Initial Closing occurs is
referred to herein as the "Initial Closing Date." The closings of the
transactions contemplated by Section 2.3 of this Agreement (the "Additional
Closings") shall take place on the dates indicated therein and at such time
and/or place as shall be agreed upon by the parties hereto. The dates upon
which the Additional Closings occur are referred to herein as the "Additional
Closing Dates."
3.2 Payment for and Delivery of the Securities. At the Initial Closing,
the Company shall issue and deliver to the Purchaser, (a) a Debenture in the
aggregate principal amount of $2,000,000.00, against payment by the
Purchaser, by check or wire transfer of immediately-available funds to the
account designated by the Company, of $1,800,000.00 (net of 10% placement fee
payable to Aspen Capital Resources, LLC pursuant to Section 12.10), and (b)
duly issued Warrants initially exercisable for an aggregate of 1,283,697
Warrant Shares. At each Additional Closing, the Company shall issue and
deliver to the Purchaser, (a) a Debenture in the aggregate principal amount
specified pursuant to Section 2.3, against payment by the Purchaser, by check
or wire transfer of immediately-available funds to the account designated
by the Company, of the aggregate principal amount of the Debenture (net of a
10% placement fee payable to Aspen Capital Resources, LLC pursuant to Section
12.10), and (b) duly issued Warrants exercisable for the purchase of the
number of Warrant Shares calculated as provided in Section 2.2 above with
respect to such additional Debentures.
Article IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser as follows:
4.1 Existence; Qualification; Subsidiaries. Each of the Company and its
Subsidiaries is a corporation, partnership or limited liability company, as
the case may be, duly organized, validly existing and in good standing
under the laws of the state of its incorporation or formation and has full
corporate or partnership power and authority, as the case may be, to conduct
its business and own and operate its properties as now conducted, owned and
operated. The copies of the Certificate of Incorporation, as amended, and
By-Laws of the Company and all amendments thereto previously delivered to the
Purchaser are true, correct and complete copies of such documents. The
Company and each Subsidiary is licensed or qualified as a foreign
corporation, partnership or limited liability company and is in good
standing in all jurisdictions where such person is required to be so
licensed or qualified, except where the failure to be so licensed,
qualified or in good standing would not have a Material Adverse Effect.
Except as set forth on Schedule 4.1, the Company has no Subsidiaries and owns
no Capital Stock or other securities of, and has not made any other
investment in, any other entity. All of the issued shares of Capital
Stock, partnership interests or membership interests, as the case may be,
of each Subsidiary have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or adverse
claims.
4.2 Authorization and Enforceability; Issuance of the Securities, the
Conversion Shares and the Warrant Shares.
(a) The Company has full power and authority and has taken all
required corporate and other action necessary to permit it to execute
and deliver this Agreement and the Related Documents and to carry out the
terms hereof and thereof and to issue and deliver the Securities, the
Conversion Shares and the Warrant Shares, and none of such actions will
violate any provision of the Certificate of Incorporation of the Company, the
By-Laws of the Company or of any applicable law, regulation, order, judgment
or decree or rule of any stock exchange where the Company's Common Stock is
listed or market in which the Company's Common Stock is quoted, or result in
the breach of or constitute a default (or an event which, with notice or
lapse of time or both would constitute a default) under any material
agreement (including the Company's current secured debt instruments
6
10
set forth on Schedule 4.2 (the "Existing Indebtedness")), instrument or
understanding to which the Company is a party or by which it is bound or by
which it will become bound as a result of the transactions contemplated by
this Agreement. This Agreement, each of the Related Documents and all other
agreements and instruments contemplated hereby to which the Company is a
party, have been duly executed and delivered by the Company and each
constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws of
general application related to the enforcement of creditor's rights
generally and (ii) general principles of equity.
(b) The execution, delivery and performance of this Agreement, each
of the Related Documents and all other agreements and instruments
contemplated hereby to which the Company is a party have been duly authorized
by the Company. The Conversion Shares and the Warrant Shares, will be fully
paid and nonassessable. The Conversion Shares and the Warrant Shares have
been duly reserved for issuance upon conversion of the Debentures and
exercise of the Warrants, as the case may be, and, when so issued, will be
duly authorized, validly issued and outstanding, fully paid and nonassessable
shares of Common Stock. Neither the issuance and delivery of any Conversion
Shares upon conversion of any Debentures nor the issuance and delivery of
any Warrant Shares upon exercise of the Warrants is subject to any preemptive
right of any stockholder of the Company or to any right of first refusal or
other similar right in favor of any Person.
4.3 Capitalization. The authorized Capital Stock of the Company
consists of (a) 100,000,000 shares of Common Stock, par value $.001 per share,
of which, as of March 1, 2000, 18,567,720 shares were issued and outstanding,
3,209,243 shares are reserved for issuance upon conversion of the Debentures,
3,209,243 shares are reserved for issuance upon exercise of the Warrants, and
6,743,124 shares are reserved for issuance upon the exercise of certain stock
options and warrants, and (b) 100,000,000 shares of preferred stock, par value
$.001 per share, of which 5,000 shares have been designated Series A
Preferred Stock and 2,438 shares are issued and outstanding. All of the
outstanding Capital Stock has been validly issued and is fully paid and
nonassessable and has been issued in compliance with all applicable securities
laws (including the provisions of the Securities Act and the rules and
regulations promulgated thereunder). Except as set forth in Schedule 4.3,
there are no options, convertible securities, warrants, calls, pledges,
transfer restrictions (except restrictions imposed by federal and state
securities laws), voting restrictions, liens, rights of first offer, rights
of first refusal, antidilution provisions or commitments of any character
relating to any issued or unissued shares of Capital Stock of the Company
other than as contemplated in the Related Documents. Except as contemplated
by this Agreement and the Related Documents or as set forth in Schedule
4.3, Schedule 4.25 and the Certificate of Designation of Series A Convertible
Preferred Stock dated July 1, 1999, there are no preferential rights
applicable to the issuance and sale of the Securities, the Conversion Shares
and the Warrant Shares.
4.4 Private Sale. Assuming the accuracy of the representations and
warranties made by recipients of the Company's Capital Stock in connection
with the acquisition of such Capital Stock, the Company has not violated
any applicable federal or state securities laws in connection with the offer,
sale and issuance of any of its Capital Stock. Subject to the accuracy of
the Purchaser's representations contained herein, neither the offer, sale and
issuance of the Securities hereunder nor the issuance and delivery of any
Conversion Shares upon conversion of any Debentures or any Warrant Shares upon
exercise of any Warrants requires registration under the Securities Act or any
state securities laws.
4.5 Financial Statements; Disclosure.
(a) The Financial Statements (together with the notes thereto, as
applicable), (i) are true, correct and complete in all material respects,
(ii) are in accordance with the books and records of the Company and (iii)
fairly present the financial condition and results of operations of the
Company as of the dates and for the periods indicated in accordance with GAAP,
except that the unaudited balance sheets and related financial
statements
7
11
do not contain an auditors' opinion and do not contain footnotes and are
subject to normal, recurring year-end audit adjustments which are not
material.
(b) This Agreement together with the schedules, attachments,
exhibits, written statements and certificates supplied to the Purchaser by or
on behalf of the Company with respect to the transactions contemplated hereby
does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein,
in light of the circumstances in which they were made, not misleading.
There is no fact which has not been disclosed to the Purchaser of which the
Company has knowledge, and which has had or could reasonably be anticipated to
have a Material Adverse Effect. On the date of this Agreement, the Company
has a working capital deficit of approximately $1.8 million.
(c) As of its filing date, each document filed with the SEC by the
Company, as amended or supplemented prior to the Initial Closing Date or any
Additional Closing Date, if applicable, pursuant to the Securities Act and/or
the Exchange Act, true and correct copies of which have been given to the
Purchaser, (i) complied in all material respects with the applicable
requirements of the Securities Act and/or Exchange Act and (ii) did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. Each
final registration statement filed with the SEC by the Company pursuant to the
Securities Act, as of the date such statement became effective (i) complied
in all material respects with the applicable requirements of the Securities
Act and (ii) did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of any prospectus, in
light of the circumstances under which they were made).
4.6 Absence of Certain Changes.
(a) Since the date of the Current Balance Sheet, neither the Company
nor any Subsidiary has:
(i) incurred any Liabilities other than current Liabilities
incurred, or obligations under contracts entered into, in the ordinary course
of business and for individual amounts not greater than $250,000;
(ii) paid, discharged or satisfied any claim, Lien or Liability,
other than any claim, Lien or Liability (A) reflected or reserved against
on the Current Balance Sheet and paid, discharged or satisfied in the
ordinary course of business since the date of the Current Balance Sheet or
(B) incurred and paid, discharged or satisfied since the date of the Current
Balance Sheet, in each case in the ordinary course of business;
(iii) sold, leased, assigned or otherwise transferred any of its
assets, tangible or intangible (other than sales of inventory in the ordinary
course of business and use of supplies in the ordinary course of
business);
(iv) permitted any of its assets, tangible or intangible,
to become subject to any Lien;
(v) written off as uncollectible any accounts receivable other
than (A) in the ordinary course of business or (B) for amounts not greater
than $50,000 in the aggregate;
(vi) terminated or amended or suffered the termination
or amendment of, or other than in the ordinary course of business, failed to
perform in all material respects all of its obligations or suffered or
permitted any material default to exist under, any material agreement,
license or permit;
8
12
(vii) suffered any damage, destruction or loss of tangible
property (whether or not covered by insurance) which in the aggregate exceeds
$100,000;
(viii) made any loan (other than intercompany advances) to any
other Person (other than advances to employees in the ordinary course of
business which do not exceed $10,000 individually or $50,000 in the
aggregate);
(ix) canceled, waived or released any debt, claim or right in an
amount or having a value exceeding $100,000;
(x) paid any amount to or entered into any agreement, arrangement
or transaction with, or any series of agreements, arrangements or
transactions with, any Affiliate (including its officers, directors
and employees) having a value of in excess of $50,000 in the aggregate (other
than as Company-wide employee benefits or termination benefits paid in the
ordinary course of business);
(xi) declared, set aside, or paid any dividend or distribution
with respect to its Capital Stock or redeemed, purchased or otherwise
acquired any of its Capital Stock;
(xii) other than in the ordinary course of business or under
existing contractual terms or obligations, granted any increase in the
compensation of any officer or employee or made any other change in employment
terms of any officer or employee;
(xiii) made any change in any method of accounting or accounting
practice;
(xiv) suffered or caused any other occurrence, event or
transaction outside the ordinary course of business or which could have a
Material Adverse Effect; or
(xv) agreed, in writing or otherwise, to any of the foregoing.
(b) Since the date of the Current Balance Sheet, there has been no
Material Adverse Change.
(c) Schedule 4.6(c) hereto sets forth a complete and accurate list as
of the date hereof of (i) each place of business of the Company and each of
its Subsidiaries and (ii) the chief executive office of the Company and each
of its Subsidiaries.
4.7 Litigation. Except as set forth in Schedule 4.7, no claim, suit,
proceeding or investigation is proceeding, pending or, to the knowledge of the
Company, threatened against or affecting the Company or any Subsidiary or
any officer or director thereof or the Company's or the Subsidiaries' business
which if decided adversely to any such person could have a Material Adverse
Effect.
4.8 Licenses, Compliance with Law, Other Agreements, Etc. Each of the
Company and its Subsidiaries has all material franchises, permits, licenses
and other rights to allow it to conduct its business and is not in violation,
in any material respects of any order or decree of any court, or of any law,
order or regulation of any Governmental Agency, or of the provisions of any
contract or agreement to which it is a party or by which it is bound, and
neither this Agreement nor the Related Documents nor the transactions
contemplated hereby or thereby will result in any such violation. Each of the
Company's and its Subsidiary's business has been conducted in compliance
with all federal, state and local laws, ordinances, rules and regulations, in
all material respects. To the knowledge of the Company, conditions or events
of non-compliance with respect to the Company's licensees that would have a
Material Adverse Effect on the Company or its contractual relationships with
its licensees.
9
13
4.9 Third-Party Approvals. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the Company is
not required to obtain any order, consent, approval or authorization of, or to
make any declaration or filing with, any Governmental Agency or other third
party (including under any state securities or "blue sky" laws) in connection
with the execution and delivery of this Agreement or the Related Documents, or
the consummation of the transactions contemplated hereby or thereby to occur
on the Initial Closing Date or any Additional Closing Date, except that the
Company intends to file a Form D - Notice of Sale of Securities - with the
SEC.
4.10 No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any material Liabilities except (i) as and to the extent of
the amounts reflected or reserved against on the Current Balance Sheet and
(ii) liabilities and obligations incurred in the ordinary course of business
since the date thereof that in the aggregate could not result in a Material
Adverse Effect.
4.11 Tangible Assets. Each of the Company and its Subsidiaries has good
and marketable title to, or valid leasehold interests in, all material
tangible assets used or reasonably necessary in connection with the conduct
of its business. The equipment of the Company is subject to a security
interest granted by the Company to The Xxxxx and Xxxxx Xxxxx Family Trust to
secure the repayment of the Company's promissory note in the principal amount
of $1,000,000.00, and upon repayment of the aforementioned note and
termination of the aforementioned security interest, the Company may grant a
security interest in its equipment to Zions First National Bank to secure the
repayment of a loan of $1,500,000.00.
4.12 Inventory. All inventory of each of the Company and its
Subsidiaries, whether reflected on the Current Balance Sheet or otherwise,
consists of a quality and quantity usable or salable in the ordinary course of
business, subject to defect or obsolescence consistent with the Company's
historical experience.
4.13 Owned Real Property. Set forth on Schedule 4.13 is a true and
correct description of all real property owned by the Company and its
Subsidiaries. The Company and each of its Subsidiaries has good and
marketable title in fee simple, free and clear of all Liens, to all of the
real property owned by the Company and each of its Subsidiaries.
4.14 Real Property Leases. There exists no event of default (nor any
event which with notice or lapse of time would constitute an event of
default) with respect to the Company, any Subsidiary and, to the
Company's knowledge, with respect to any other party thereto under any
agreement pursuant to which the Company is the lessee or lessor of any
real property, except for such defaults and defects in enforceability
as could not in the aggregate be expected to have a Material Adverse
Effect, and all such agreements are in full force and effect and
enforceable against the lessor or lessee in accordance with their terms
except for such defaults and defects in enforceability as could not in the
aggregate be expected to have a Material Adverse Effect.
4.15 Agreements. Neither the Company nor any Subsidiary is in default,
nor to the knowledge of the Company is there any basis for a valid claim of
default, and to the Company's knowledge no event has occurred which, with
notice or lapse of time, would constitute a default, under any agreement,
arrangement or understanding to which the Company or any Subsidiary is a
party, and to the knowledge of the Company, no Person other than the
Company is in default under any such agreement, in each case other than
defaults which in the aggregate could not be expected to have a Material
Adverse Effect. Additionally, neither the Company nor any Subsidiary is party
to any agreement the performance of which in accordance with its terms
(including any termination provision thereof) could be expected to have a
Material Adverse Effect.
4.16 Intellectual Property. Schedule 4.16 sets forth a complete list of
(i) all patented, registered, applied for or otherwise material
Intellectual Property owned, filed or used by the Company; and (ii) all
trade names and material unregistered trademarks and other designations
used by the Company in connection with its business. The Company owns and
possesses all right, title and interest in and to, or has a valid and
enforceable license to
10
14
use, all Intellectual Property used by the Company in its business as
currently conducted and as currently proposed to be conducted. No claim
by any third party contesting the validity, enforceability, use or
ownership of Intellectual Property owned, held or used by the Company has
been made or, to the knowledge of the Company, is threatened. To the
knowledge of the Company, neither it nor its indemnitees has violated or
misappropriated the Intellectual Property of any third party and no third
party has violated or misappropriated Intellectual Property owned, held
or used by the Company. No claim by any third party has been asserted, or
to the knowledge of the Company threatened, that the Company or its
indemnitees is violating or misappropriating Intellectual Property. To the
knowledge of the Company, all Intellectual Property owned or held by the
Company is valid, subsisting and enforceable, and all such Intellectual
Property is free of all Liens, and, except as set forth on Schedule 4.16, is
fully assignable by the Company to any Person, without payment, consent
of any Person or other condition or restriction. The Company has
taken all reasonable measures to protect the secrecy, confidentiality and
value of all Confidential Information, proprietary information and trade
secrets owned, held or used by the Company (including, without limitation,
entering into appropriate confidentiality agreements with all officers,
directors, employees, and other Persons with access to such information
and trade secrets). To the knowledge of the Company, such
information and trade secrets have not been disclosed to any Persons other
than Company employees or Company contractors who had a need to know and
use such information and trade secrets in the ordinary course of employment
or contract performance and who executed appropriate confidentiality
agreements.
4.17 Employees. The Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strike, material
grievance, material claim of unfair labor practice or other collective
bargaining dispute. To the knowledge of the Company there is no organizational
effort being made or threatened by or on behalf of any labor union with
respect to its employees. To the knowledge of the Company, it has not
committed any unfair labor practice or violated any federal, state or local
law or regulation regulating employers or the terms and conditions of its
employees' employment, including laws regulating employee wages and hours,
employment discrimination, employee civil rights, equal employment opportunity
and employment of foreign nationals, except for such violations as could not
be expected to have a Material Adverse Effect.
4.18 Transactions With Affiliates. Except as set forth on Schedule
4.18, neither the Company nor any Subsidiary is party to any
agreement, arrangement or transaction or series of agreements, arrangements or
transactions with any Affiliate which agreements, arrangements,
transactions and series of transactions in the aggregate have a value
over $50,000 (other than as Company-wide employee benefits paid in the
ordinary course of business).
4.19 Taxes.
(a) Except as disclosed on Schedule 4.19, each of the Company and its
Subsidiaries has filed all Tax Returns that it was required to file, and has
paid all Taxes due with respect to the periods covered by such Tax Returns.
(b)None of the Company and its Subsidiaries (i) has been a member
of an affiliated group filing a consolidated federal Tax Return (other than
a group the common parent of which was the Company) or (ii) has any
Liability for the Taxes of any Person (other than any of the Company and
its Subsidiaries) under Treas. Reg. '1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(c) Each of the Company and its Subsidiaries has withheld and paid
all taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
11
15
(d) Except as set forth on Schedule 4.19, there is no dispute or
claim concerning any Tax Liability of any of the Company and its Subsidiaries
either (i) claimed or raised by any authority in writing or (ii) as to which
any of the directors and officers (and employees responsible for Tax matters)
of the Company and its Subsidiaries has knowledge based upon personal contact
with any agent of such authority.
4.20 Other Investors. Set forth on Schedule 4.20 is a list of all
stockholders (including option and convertible security holders) of the
Company who as of the date hereof, based on SEC filings of such
stockholders, after giving effect to the terms hereof, own more than 5% of
the fully diluted common equity of the Company and sets forth such percentage
ownership.
4.21 Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
4.22 Certain Fees. Other than fees and expenses due and payable to the
Purchaser pursuant to Section 12.4, no fees or commissions will be payable by
the Company to any broker, financial advisor, finder, investment banker, or
bank with respect to the transactions contemplated by this Agreement. The
Purchaser shall not have any obligation with respect to any fees or with
respect to any claims made by or on behalf of any Persons for fees of a type
contemplated in this section that may be due in connection with the
transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchaser, its employees, officers, directors, agents and
partners, and their respective Affiliates from and against all claims, losses,
damages, costs (including attorney's fees) and expenses suffered in respect
to any such claimed or existing fees.
4.23 Solicitation Materials. The Company has not (i) distributed any
offering materials to the Purchaser in connection with the offering and sale
of the Securities other than its public filings with the SEC, or (ii)
solicited any offer to buy or sell the Securities by means of any form of
general solicitation or general advertising within the meaning of Regulation D
under the Securities Act. None of the information provided to the Purchaser by
or on behalf of the Company contain any untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
4.24 Listing and Maintenance Requirements Compliance.
(a) The Company has not received notice (written or oral) from the
National Association of Securities Dealers that the Company is not in
compliance with its listing or maintenance requirements for the OTC Bulletin
Board.
(b) Upon conversion of the Debentures into Conversion Shares or the
exercise of the Warrants for the Warrant Shares, all such Conversion
Shares and Warrant Shares shall be listed on the NASDAQ Stock Market System
or reported on the NASD's OTC Bulletin Board.
4.25 Registration Rights; Rights of Participation. Except as described
on Schedule 4.25 hereto, (a) the Company has not granted or agreed to grant
to any Person any rights (including "piggy-back" registration rights) to
have any securities of the Company registered with the SEC or any other
Governmental Agency which has not expired or been satisfied in full and
(b) no Person, including, but not limited to, current or former
stockholders of the Company, underwriters, brokers or agents, has any
right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by this
Agreement or any other related document which has not been waived. None of
the rights granted to the Purchaser hereunder and under the Related
Documents conflicts with or would cause a default under any of the
agreements or arrangements listed on Schedule 4.25 hereto.
12
16
Article V - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as
follows:
5.1 Authorization and Enforceability. The Purchaser has full power and
authority and has taken all action necessary to permit it to execute and
deliver this Agreement and the other documents and instruments to be executed
by it pursuant hereto and to carry out the terms hereof and thereof. This
Agreement and each such other document and instrument, when duly executed and
delivered by the Purchaser, will constitute a valid and binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its terms,
except to the extent limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application related to
the enforcement of creditors' rights generally and (ii) general principles of
equity.
5.2 Purchaser's Ability to Perform. As of the Initial Closing, the
Purchaser has the financial resources to perform fully its total obligations
under this Agreement.
Article VI - COMPLIANCE WITH SECURITIES LAWS
6.1 Investment Intent of the Purchaser. The Purchaser represents and
warrants to the Company that it is acquiring the Securities for its own
account, with no present intention of selling or otherwise distributing
the same in violation of the Securities Act.
6.2 Status of Securities. The Purchaser has been informed by the
Company that the Securities have not been registered under the Securities
Act or under any state securities laws and are being offered and sold in
reliance upon federal and state exemptions for transactions not involving any
public offering.
6.3 Accredited Investor Status. The Purchaser represents and warrants
to the Company that it is an "Accredited Investor" as defined in Regulation
D under the Securities Act.
6.4 Access to Information. The Purchaser has had access to management
of the Company and has been able to ask questions of management related to
the Company and has reviewed the Company's filings pursuant to the Exchange
Act. Notwithstanding any due diligence investigations conducted by or on
behalf of the Purchaser, it is understood and agreed by each of the parties
hereto that the Purchaser is entitled to rely, and is relying, on the
representations and warranties made by the Company herein and in the Related
Documents.
6.5 Transfer of Securities, Conversion Shares and Warrant Shares.
(a) Securities, Conversion Shares and Warrant Shares may be
transferred (i) pursuant to public offerings registered under the
Securities Act, (ii) pursuant to Rule 144 of the SEC (or any similar rule
then in force), (iii) to an Affiliate or member of the family of the
transferor (provided that the subsequent transfer of the Securities,
Conversion Shares or Warrant Shares is restricted), or (iv) subject to the
conditions set forth in Section 6.5(b), any other legally available means of
transfer.
(b) In connection with any transfer of any Securities,
Conversion Shares or Warrant Shares (other than a transfer described in
Section 6.5(a)(i), (ii) or (iii)), the holder of such shares shall
deliver written notice to the Company describing in reasonable detail the
proposed transfer, together with an opinion of counsel (which, to the
Company's reasonable satisfaction, is knowledgeable in securities law
matters), to the effect that such transfer may be effected without
registration of such shares under the Securities Act.
(c) Until transferred pursuant to clauses (a)(i) or (ii) above
or pursuant to clause (a)(i) above with an opinion of counsel pursuant to
paragraph (b) above that such legend is not required, each Debenture, Warrant,
Conversion Shares and Warrant Shares shall be imprinted with a legend
substantially in the following form:
13
17
THE SECURITIES REPRESENTED BY THIS [DEBENTURE/CERTIFICATE/
WARRANT] WERE ORIGINALLY ISSUED ON ________, 2000 AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW. THE
TRANSFER OF THE SECURITIES REPRESENTED BY THIS [DEBENTURE/
CERTIFICATE/ WARRANT] IS SUBJECT TO THE CONDITIONS SET
FORTH IN THE SECURITIES PURCHASE AGREEMENT, DATED AS OF
MARCH 3, 2000, BETWEEN THE ISSUER (THE "COMPANY") AND THE
PURCHASER NAMED THEREIN. THE COMPANY RESERVES THE RIGHT TO
REFUSE ANY TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS
HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF
SUCH CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE TO THE
HOLDER HEREOF UPON WRITTEN REQUEST TO THE COMPANY.
6.6 Right of First Refusal. If, during the 12 months following the date
of this Agreement, the Company proposes to offer or sell any of its
securities, whether debt or equity, the Company, at least 10 days prior to the
date of any such sale, shall deliver a written notice to the Purchaser,
including the terms of the sale and the Purchaser shall have the right, during
such 10 day period, to elect to acquire such securities upon the same terms
and subject to the same conditions as are contained in the notice. If the
Purchaser does not exercise this right, the Company may sell such securities
upon the terms and subject to the same conditions as are contained in the
notice during the 40 days following the date of the notice. If the proposed
sale is not completed during such 40 day period, the Company shall treat any
subsequent sale as a new sale subject to the requirement to give notice to the
Purchaser. This right of first refusal shall not apply to the conversion or
exercise of securities outstanding on the date of this Agreement nor to the
grant of compensatory stock options.
Article VII - CONDITIONS PRECEDENT
7.1 Conditions Precedent. The obligation of the Purchaser to purchase
any Securities hereunder is subject to the satisfaction of each of the
following conditions precedent:
(a) The issuance and sale of the Securities shall not contravene any
law, rule or regulation applicable to, or result in any liability or
obligation for, the Purchaser or the Company or any of its Subsidiaries;
(b) The following conditions have been satisfied as of the Initial
Closing Date and each Additional Closing Date,
(i) The representations and warranties of the Company contained
herein and in any Related Document and in any writing delivered pursuant
hereto or thereto shall be true and correct when made and materially true
and correct as of the time of the Initial Closing and each Additional Closing;
(ii) No action, suit, investigation or proceeding shall be
pending or threatened before any court or Governmental Agency to
restrain, prohibit, collect damages as a result of or otherwise challenge
this Agreement or any Related Document or any transaction contemplated
hereby or thereby;
(iii) All acts or covenants required hereunder to be performed by
the Company prior to the Initial Closing and each Additional Closing shall
have been fully performed by it; and
(iv) No Material Adverse Change shall have occurred between the
date of the Current Balance Sheet and the Initial Closing Date or Additional
Closing Date and no event or occurrence shall have occurred that could have a
Material Adverse Effect.
14
18
(c) The following documents and items shall be delivered to the
Purchaser at or prior to the Initial Closing and each Additional Closing:
(i) A fully executed counterpart of this Agreement (at the Initial
Closing only), and fully executed Debentures, the Warrants and the
certificates (in such denominations as the Purchaser shall request) for the
Warrants being delivered by the Company at the Initial Closing and each
Additional Closing.
(ii) Certificates of a duly authorized officer of the Company
dated as of the Initial Closing Date and each Additional Closing Date:
(A) Stating that the following conditions have been
satisfied as of the Initial Closing Date and each Additional Closing Date:
(1) The representations and warranties of the Company
contained herein and in any writing delivered pursuant hereto were true and
correct when made and are materially true and correct as of the time of the
Initial Closing and each Additional Closing;
(2) No action, suit, investigation or proceeding
is pending or threatened before any court or Governmental Agency to
restrain, prohibit, collect damages as a result of or otherwise challenge
this Agreement or any Related Document or any transaction contemplated
hereby or thereby;
(3) All acts or covenants required hereunder to be
performed by the Company prior to the Initial Closing and each Additional
Closing have been fully performed by it; and
(4) No Material Adverse Change shall have occurred
between the date of the Current Balance Sheet and the Initial Closing Date and
each Additional Closing Date and there shall have been no event or occurrence
that could result in a Material Adverse Effect; and
(B) Setting forth the resolutions of the Board of
Directors authorizing the execution and delivery of this Agreement and the
Related Documents and the consummation of the transactions contemplated
hereby and thereby, and certifying that such resolutions were duly adopted
and have not been rescinded or amended;
(iii) The Company shall have paid fees payable pursuant to
Section 12.10 hereof;
(iv) A copy of a certificate of the appropriate official(s) of
the state of organization and each state of foreign qualification of the
Company and each of its Subsidiaries certifying as of the date of the
certificate to the existence in good standing of, and the payment of taxes by,
such Person in such states;
(v) A true and complete copy of the Certificate of
Incorporation, as amended, of the Company, certified as of a date not more
than six months prior to the Initial Closing Date by an appropriate official
of the state of organization of each such Person, a true and complete copy of
the Bylaws of the Company, certified as of the Initial Closing Date by the
Secretary of the Company, and a certificate as of each Additional Closing Date
by the Secretary of the Company that there has been no change to the
Certificate of Incorporation or Bylaws of the Company since the Initial
Closing Date; and
15
19
(vi) Such other documents relating to the transactions
contemplated hereby as the Purchaser may reasonably request.
7.2 Closing Deliveries to the Company. The Purchaser will deliver to
the Company the aggregate purchase price for the Securities to be acquired by
the Purchaser, net of a 10% placement fee payable to Aspen Capital Resources,
LLC.
Article VIII - COVENANTS OF THE COMPANY
8.1 Restricted Actions. Without the prior written consent of the
Purchaser, and for so long as any of the Debentures remain outstanding, the
Company shall not, and shall not permit any Subsidiary to:
(a) become subject to any agreement or instrument which by its terms
would (under any circumstances) restrict or impair the Company's right to
comply with or fulfill its obligations under the terms of this Agreement or
any of the Related Documents;
(b) use the proceeds from the sale of the Securities other than
for repayment of indebtedness, including the repayment of its note to The
Xxxxx and Xxxxx Xxxxx Family Trust in the principal amount of $1,000,000.00,
working capital and other general corporate purposes; provided, that the
Company will in no event use the proceeds to invest in any securities other
than short-term, interest-bearing government securities;
(c) enter into any transaction or series of transactions with any
stockholder, director, officer, employee or Affiliate, including, without
limitation, the purchase, sale, lease or exchange of any property, the
rendering of any service or any investment, loan or advance, unless such
transaction (i) is consummated by the Company in good faith on an
arm's-length basis, (ii) is less than $100,000 per occurrence or $250,000 in
the aggregate, and (iii) is approved by the Board of Directors, including by a
majority of the Company's disinterested directors;
(d) declare or pay any dividends, purchase or otherwise acquire for
value any of its membership interests or other Capital Stock now or hereafter
outstanding, return any capital to its members as such, or make any other
payment or distribution of assets to its stockholders as such, or permit any
of its Subsidiaries to do any of the foregoing or to purchase or otherwise
acquire for value any Capital Stock of the Company or its Subsidiaries, or
make any payment or prepayment of principal of, premium, if any, or interest
on, or redeem, decrease or otherwise retire, any Indebtedness before its
scheduled due date;
(e) materially alter or change the business of the Company;
(f) issue any stock option or warrant at less than the Fair Market
Value at the time of grant;
(g) unless the Company has issued and sold $3,000,000.00 of the
Debentures to the Purchaser, create, incur or suffer to exist any
Indebtedness, other than:
(i) Indebtedness created hereunder and under the Debentures; and
(ii) Indebtedness existing on the date hereof, and any extension
of maturity, refinancing or modification of the terms there of provided,
however, that such extension, refinancing or modification (A) is pursuant to
terms that are not materially less favorable to the purchaser than the terms
of the Indebtedness being extended, refinanced or modified and (B) after
giving effect to the extension, refinancing or modification, such Indebtedness
is not greater than the amount of Indebtedness outstanding immediately prior
to such extension, refinancing or modification.
16
20
(h) alter the rights, preferences and privileges of the Securities,
the Conversion Shares or the Warrant Shares; and
(i) grant any rights of registration under the Securities Act
relating to any of its shares of Capital Stock or other securities to any
Person other than pursuant to this Agreement, unless (i) the rights so
granted to another Person do not limit, restrict or impair the rights of
the Purchaser under this Agreement and under the Related Documents and
(ii) such rights so granted to another Person do not grant priority in
registration rights to such other Person over rights granted to Purchaser
under this Agreement and under the Related Documents.
8.2 Required Actions. For so long as any of the Debentures remain
outstanding, the Company shall, and shall cause each Subsidiary to:
(a) cause all properties owned by the Company or any of its
Subsidiaries or used or held for use in the conduct of its business or the
business of any of its Subsidiaries to be maintained and kept in good
condition, repair and working order (reasonable wear and tear excepted) and
supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Board of Directors may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the foregoing
shall not prevent the Company from discontinuing the maintenance or operation
of any of such properties if such discontinuance is, in the judgment of the
management of the Company, desirable in the conduct of its business or the
business of any of its Subsidiaries and is not disadvantageous in any
material respect to the holders of the Securities;
(b) preserve and keep in full force and effect the corporate
existence, rights (charter and statutory), licenses and franchises of
the Company and each of its Subsidiaries; provided, however, that the Company
shall not be required to preserve any such right, license or franchise if the
Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries as a whole and that the loss thereof is not disadvantageous in
any material respect to the holders of Securities;
(c) maintain the books, accounts and records of the Company and its
Subsidiaries in accordance with past custom and practice as used in the
preparation of the Financial Statements except to the extent permitted or
required by GAAP;
(d) keep all of its and its Subsidiaries' properties which are of an
insurable nature insured with insurers, believed by the Company in good faith
to be financially sound and responsible, against loss or damage to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties (which may include
self-insurance, if reasonable and in comparable form to that maintained by
companies similarly situated);
(e) comply with all material legal requirements and material
contractual obligations applicable to the operations and business of the
Company and its Subsidiaries and pay all applicable Taxes as they become due
and payable;
(f) permit representatives of any holder of the Securities and its
agents (including their counsel, accountants and consultants), subject to
the execution of a reasonable confidentiality agreement, to have reasonable
access upon reasonable notice during business hours to the Company's books,
records, facilities, key personnel, officers, directors, customers,
independent accountants and legal counsel so long as such access does
not violate any applicable Federal or state law or cause the loss
of the attorney-client privilege;
17
21
(g) at all times (i) file all reports (including annual
reports, quarterly reports and the information, documentation and other
reports) required to be filed by the Company under the Exchange Act and
Sections 13 and 15 of the rules and regulations adopted by the SEC
thereunder, and the Company shall use its best efforts to file each of such
reports on a timely basis, and take such further action as any holder or
holders of the Securities, the Conversion Shares or the Warrant Shares
may reasonably request (including providing copies of such reports to
the holders of the Securities, the Conversion Shares or the Warrant
Shares), all to the extent required to enable such holders to sell
Securities pursuant to Rule 144 adopted by the SEC under the Securities Act
(as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the SEC and to enable the Company to
register securities with the SEC on Form S-3 or any similar short-form
registration statement and upon the filing of each such report deliver a
copy thereof to each holder of the Securities, the Conversion Shares or the
Warrant Shares, (ii) if the Company is no longer subject to the
requirements of the Exchange Act, provide reports to the holders of
the Securities, the Conversion Shares or the Warrant Shares in
substantially the same form and at the same times as would be required if the
Company were subject to the Exchange Act, and (iii) provide to each initial
holder of the Securities, the Conversion Shares or the Warrant Shares and
each other holder who has entered into a confidentiality agreement with the
Company, pursuant to mutually agreeable terms, any material information
distributed to the Board of Directors;
(h) maintain at all times a valid listing for the Common Stock on a
national securities exchange, the NASDAQ Stock Market System or reporting on
the NASD's OTC Bulletin Board;
(i) maintain all material Intellectual Property Rights necessary
to the conduct of its business and own or have a valid license to use all
right, title and interest in and to, such material Intellectual Property
Rights;
(j) deliver Conversion Shares in accordance with the terms and
conditions, and time periods, set forth in the Debentures; and
(k) take such actions and execute, acknowledge and deliver, and cause
each of the Subsidiaries to take such actions and execute, acknowledge and
deliver, at its sole cost and expense such agreements, instruments or other
documents as the Purchaser may reasonably require from time to time in order
to (i) carry out more effectively the purposes of this Agreement and the
Related Documents, (ii) maintain the validity and effectiveness of any of
the Related Documents, and (iii) to better assure, convey, grant, assign,
transfer and confirm unto the Purchaser the rights now or hereafter intended
to be granted to the Purchaser under this Agreement or any Related Document.
8.3 Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common
Stock, solely for the purposes of issuance upon conversion of the Debentures
and the exercise of the Warrants, such number of shares of Common Stock as
are issuable upon the conversion or exercise of all Debentures and all
Warrants. All shares of Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free
from all Taxes, liens and charges. The Company, at its sole cost and
expense, shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Common Stock may be
listed (except for official notice of issuance which shall be immediately
transmitted by the Company upon issuance).
8.4 Payments Free of Withholding. All payments by the Company hereunder
or under the Debentures or the Warrants shall be made free and clear of, and
without any deduction for, any Tax imposed by any taxing jurisdiction,
domestic or foreign.
18
22
Article IX - REGISTRATION RIGHTS
9.1 Registration Rights. The Company, at its sole cost and expense,
covenants to immediately register or qualify or cause to be registered or
qualified by one or more registrations or qualifications under applicable
federal and state securities laws the sale and resale by the Purchaser of (i)
all of the Conversion Shares, (ii) all of the Warrant Shares, and (iii) all of
the additional shares of Common Stock issued or issuable to the Purchaser
pursuant to this Agreement, if any, (the "Registrable Securities") and to
maintain such registrations or qualifications effective for all periods during
which any portion of any Debenture may be converted or any Warrants may be
exercised. The Company covenants to use its best efforts to cause such
registrations or qualifications to become effective as soon after filing as
possible and to remain effective for all periods during which any portion of
any Debenture may be converted or any Warrants may be exercised. The Company
covenants to prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registrations or qualifications and the
prospectus used in connection therewith as may be necessary to keep such
registrations or qualifications effective and to comply with the provisions of
the Securities Act of 1933, as amended, with respect to the disposition of all
securities covered by such registration or qualification in accordance with
the intended methods of disposition by the sellers thereof set forth in such
registration or qualification.
If such registrations or qualifications, registering all of the
Registrable Securities owned by the Purchaser on May 15, 2000, have not become
effective on or before June 15, 2000 or on any date thereafter cease to remain
effective as provided herein, or if such registrations or qualifications,
registering all of the Registrable Securities acquired by the Purchaser after
May 15, 2000, have not been filed within 3 business days after the issuance of
such Registrable Securities and have not become effective within 10 business
days after the issuance of such Registrable Securities if such registration or
qualification is not reviewed by the SEC or have not become effective within
45 calendar days after the issuance of such Registrable Securities is such
registration or qualification is reviewed by the SEC or on any date thereafter
ceases to remain effective as provided herein, the Company hereby covenants
and agrees to issue or cause to be issued to the Purchaser on such date and on
every date which is 30 days or a multiple thereof after such date, until such
registrations or qualifications shall become effective with respect to all of
the Registrable Securities, as additional consideration for this Debenture and
not as a penalty, additional shares of Common Stock equal in number to 10% of
(i) the total number of shares of Common Stock issued or issuable upon
conversion of all issued and outstanding Debentures or portions thereof which
are convertible by the Purchaser and (ii) the additional shares of Common
Stock issued or issuable to the Purchaser pursuant to this Agreement, if any,
and to cause the sale and resale of all such additional shares to be included
in the registrations or qualifications described herein.
9.2 Piggyback Registration Rights. The Company covenants that if at any
time when any Debenture may be converted or any Warrant may be exercised the
Company should file a non-underwritten registration statement or offering
statement on behalf of the Company pursuant to applicable federal and state
securities laws for a public offering of securities, the Company will provide
written notification to the Purchaser at least 30 days but not more than 60
days prior to the filing date of such registration statement or offering
statement and will register or qualify or cause to be registered or qualified,
subject to the rights pursuant to which the registration or qualification is
filed, at the option of the Purchaser and at the sole cost and expense of the
Company, the sale and resale by the Purchaser of (i) all of the Conversion
Shares, (ii) all of the Warrant Shares, and (iii) all of the additional shares
of Common Stock issuable to the Purchaser pursuant to this Agreement, if any,
and the Company will maintain such registration statement effective for all
periods during which any Debentures may be converted or any Warrants may be
exercised.
Article X - SURVIVAL
10.1 Survival. The representations, warranties, covenants and agreements
of the parties hereto contained herein, or in any writing delivered pursuant
hereto, shall survive the Initial Closing and each Additional Closing of
19
23
the transactions contemplated hereby and by the Related Documents
notwithstanding any due diligence investigation conducted by or on behalf of
Purchaser and until such time as all of the obligations of the parties hereto
have been satisfied.
Article XI - INDEMNIFICATION
11.1 Indemnification. In consideration of the Purchaser's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless, on an after-tax
basis, the Purchaser and each other holder of the Securities and each of their
respective officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities, damages, and expenses (including, without limitation, costs of
suit and attorneys' fees and expenses) in connection therewith (irrespective
of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought) (the "Indemnified Liabilities"), incurred
by the Indemnitees or any of them as a result of, or arising out of, or
relating to (a) the material breach or inaccuracy of any representation or
warranty contained in this Agreement or any Related Document or any other
instrument, agreement or document delivered to the Purchaser in accordance
herewith or therewith, (b) the execution, delivery, performance or
enforcement of this Agreement, any Related Document and any other instrument,
document or agreement executed pursuant hereto or thereto by any of
the Indemnitees, or (c) resulting from any material breach or inaccuracy of
any representation, warranty, covenant or agreement made by the Company herein
or in any Related Document. The Company shall reimburse the Indemnitees
for the Indemnified Liabilities as such Indemnified Liabilities are
incurred. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
Article XII - GENERAL PROVISIONS
12.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal substantive laws of the State of Utah
without giving effect to the laws of conflict or choice of laws of the State
of Utah of any other jurisdiction that would result in the application of any
laws other than those of the State of Utah.
12.2 Consent to Jurisdiction; Service of Process And Venue. Any legal
action or proceeding with respect to this Agreement or any related document
may be brought in the courts of the State of Utah in the County of Salt Lake
or in the United States District Court for the District of Utah, and, by
execution and delivery of this Agreement, the parties hereby irrevocably
accept in respect of their property, generally and unconditionally, the
jurisdiction of the aforesaid courts.
12.3 Entire Agreement. This Agreement and the other writings referred
to herein or delivered pursuant hereto constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all
prior oral or written arrangements or understandings.
12.4 Headings. The headings of the various sections of this Agreement
have been inserted for reference only and shall not be deemed to be a part
of this Agreement.
12.5 Amendment and Waiver. No amendment of any provision of this
Agreement shall be effective, unless the same shall be in writing and signed
by the Company and the Purchaser. Any failure of the Company to comply with
any provision hereof may only be waived in writing by the Purchaser, and any
failure of the Purchaser of the Securities, the Conversion Shares or the
Warrant Shares to comply with any provision hereof may only be waived in
writing by the Company. No such waiver shall operate as a waiver of, or
estoppel with respect to, any
20
24
subsequent or other failure. No failure by any party to take any action
against any breach of this Agreement or default by any other party shall
constitute a waiver of such party's right to enforce any provision hereof or
to take any such action.
12.6 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.
12.7 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns,
including each subsequent holder of Securities, Conversion Shares or Warrant
Shares. Except as otherwise specifically provided herein, this Agreement
shall not be assignable by the Company without the prior written consent of
the Purchaser.
12.8 No Third Party Beneficiaries. Except as specifically set forth or
referred to herein, nothing herein is intended or shall be construed to
confer upon any person or entity other than the parties hereto and their
successors or assigns, any rights or remedies under or by reason of this
Agreement.
12.9 Notices. All notices, requests, consents and other communications
provided for herein shall be in writing and shall be (i) delivered in
person, (ii) transmitted by telecopy, (iii) sent by registered or
certified mail, postage prepaid with return receipt requested, or (iv)
sent by reputable overnight courier service, fees prepaid, to the
recipient at the address or telecopy number set forth below, or such other
address or telecopy number as may hereafter be designated in writing by such
recipient. Notices shall be deemed given upon personal delivery, upon
receipt of return receipt in the case of delivery by mail, upon
acknowledgment by the receiving telecopier or one day following deposit with
an overnight courier service.
(1) If to the Company:
Flexpoint Sensor Systems, Inc.
0000 Xxxxx 000 Xxxx
Xxxxxxx, Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxx
(2) If to the Purchaser:
Aspen Capital Resources, LLC
0000 Xxxxx Xxxxxxxxx Xxxxxx
Xxxxx, Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxx
12.10 Purchaser Fees and Expenses.
(a) The Company shall pay a placement fee to Aspen Capital Resources,
LLC equal to 10% of the aggregate principal amount of Debentures issued
pursuant to this Agreement, payable upon issuance of each Debenture.
(b) The Company shall reimburse the Purchaser upon demand for (i) the
reasonable fees and expenses of counsel(s) to the Purchaser incurred in
connection with the documentation, negotiation and consummation of the
transactions contemplated by this Agreement and the Related Documents and
(ii) reasonable
21
25
due diligence expenses incurred by the Purchaser, limited to $10,000.00 in
connection with the Initial Closing. The Company shall reimburse the
Purchaser for the reasonable fees and expenses of counsel(s) to the Purchaser
incurred in connection with any Additional Closing and any future amendment or
waiver to this Agreement or any of the Related Documents, limited in the
aggregate to $10,000.00.
(c) The Company also agrees to pay or cause to be paid, on demand,
and to save the Purchaser harmless against liability for the payment of all
reasonable out-of-pocket expenses incurred by the Company from time to time
arising from or relating to: (i) the preservation and protection of any of
the Company's rights under this Agreement or the Related Documents, (ii) the
defense of any claim or action asserted or brought against the Purchaser by
any Person that arises from or relates to this Agreement, any Related
Document, the Purchaser's claims against the Company, or any and all
matters in connection therewith, (iii) the commencement or defense of, or
intervention in, any court proceeding arising from or related to this
Agreement or any Related Document, (iv) the filing of any petition,
complaint, answer, motion or other pleading by the Purchaser in connection
with this Agreement or any Related Document, (v) any attempt to collect
from the Company, or (vi) the receipt of any advice with respect to any of
the foregoing. Without limitation of the foregoing or any other provision
of any Related Document: (A) the Company agrees to pay all stamp, document,
transfer, recording or filing taxes or fees and similar impositions now or
hereafter determined by the Purchaser to be payable in connection with this
Agreement or any Related Document, and the Company agrees to save the
Purchaser harmless from and against any and all present or
future claims, liabilities or losses with respect to or resulting from
any omission to pay or delay in paying any such taxes, fees or impositions,
and (B) if the Company fails to perform any covenant or agreement contained
herein or in any Related Document, the Purchaser may itself perform or cause
performance of such covenant or agreement, and the expenses of the
Purchaser incurred in connection therewith shall be reimbursed on demand by
the Company.
12.11 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude
the assertion by any party hereto of any other rights or the seeking of any
other remedies against any other party hereto.
12.12 Timeliness. The parties agree that time is of the essence for the
performance of each and every covenant and the satisfaction of each and every
condition contained in this Debenture.
12.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one agreement.
(The remainder of this page intentionally left blank)
22
26
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement as of the date first above written.
The Company: FLEXPOINT SENSOR SYSTEMS, INC.
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------------
Xxxxxxx X. Xxxx, Chief Executive Officer
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxx, Chief Financial Officer
The Purchaser: ASPEN CAPITAL RESOURCES, LLC
By: /s/ Xxx X. Xxxxxxx
------------------------------------------
Xxx X. Xxxxxxx, Manager
23
27
Exhibit A
(Form of Debenture)
28
THE SECURITIES REPRESENTED BY THIS DEBENTURE WERE ORIGINALLY ISSUED ON MARCH
3, 2000 AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY APPLICABLE STATE SECURITIES LAW. THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS DEBENTURE IS SUBJECT TO THE CONDITIONS SET
FORTH IN THE SECURITIES PURCHASE AGREEMENT, DATED AS OF MARCH 3, 2000, BETWEEN
THE ISSUER (THE "COMPANY") AND THE PURCHASER NAMED THEREIN. THE COMPANY
RESERVES THE RIGHT TO REFUSE ANY TRANSFER OF SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH
CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN
REQUEST TO THE COMPANY.
__________________________________________
FLEXPOINT SENSOR SYSTEMS, INC.
(a Delaware corporation)
8% Convertible Debenture Due March 1, 2001
Registered Owner: Aspen Capital Resources, LLC
Principal Amount: $____________
Issue Date: _____________
DEBENTURE AGREEMENT dated as of _________, 2000, by and between
FLEXPOINT SENSOR SYSTEMS, INC. (the "Company"), a Delaware corporation with an
address at 0000 Xxxxx 000 Xxxx, Xxxxxxx, Xxxx 00000; and ASPEN CAPITAL
RESOURCES, LLC or its assigns (the "Holder"), a Utah limited liability company
with an address at 0000 Xxxxx Xxxxxxxxx Xxxxxx, Xxxxx, Xxxx 00000.
This Debenture is one of a series of Debentures, defined herein, of the
Company issued pursuant to a Securities Purchase Agreement, dated as of March
3, 2000 (as amended and modified from time to time, the "Purchase
Agreement"), between the Company and Holder, and this Debenture is one of the
"Debentures" referred to in the Purchase Agreement. The Purchase
Agreement contains terms governing the rights of the Holder of this
Debenture, and all provisions of the Purchase Agreement are hereby
incorporated herein in full by reference. Except as otherwise indicated
herein, capitalized terms used in this Debenture have the same meanings set
forth in the Purchase Agreement.
The Company has duly authorized the execution and delivery of its 8%
Convertible Debentures due March 1, 2001 in aggregate principal amount not to
exceed U.S. $5,000,000 (the "Debentures"). It is covenanted and agreed as
follows:
1. Payment. The Company, for value received, hereby promises to pay
to the order of the Holder the Principal Amount, set forth above, of this
Debenture on or before March 1, 2001 (the "Due Date"), and to pay interest
quarterly on March 1, June 1, September 1 and December 1 of each year, at the
rate of 8% per annum, until the earlier of an Event of Default, as defined
herein, or the due date of the Debentures. After the earlier of an Event of
Default or the due date of the Debentures and before and after judgment, the
Company, for value received, hereby promises to pay to the order of the Holder
interest monthly on the first day of each calendar month, at the rate of 2.5%
per month (30 calendar day period or portion thereof) (the "Default Rate"),
until all principal and accrued interest are paid in full.
Interest on the Debentures will accrue from the most recent date to
which interest has been paid, or if no interest has been paid, from the Issue
Date of this Debenture. The Holder at its option may elect to receive
-1-
29
payment of interest in cash or in Common Stock at the Conversion Price, as
defined below. The Debentures may not be prepaid except as specifically
provided for in the Debenture or with the prior written consent of the Holder.
2. Debentures - Transfer, Exchange. When Debentures are presented to
the Company with a request to register a transfer of such Debentures or to
exchange such Debentures for an equal aggregate principal amount of Debentures
of other denominations, the Company shall register such transfer or exchange
without cost to the Holder.
3. Redemption.
(a) Optional Redemption. At any time after the Issue Date of this
Debenture but not after the date which is 180 days after the date of the
Purchase Agreement, the Company may, at the option of the Company, redeem
all of the outstanding aggregate principal amount of this Debenture at a
redemption price (plus accrued and unpaid interest and penalties thereon)
equal to 125% of the aggregate principal amount of this Debenture (the
"Redemption Price"). The Company may not redeem any Debentures pursuant to
this paragraph (a), unless all interest accrued on all of the outstanding
Debentures through the immediately preceding Interest Payment Date has been
paid in full. The Company may not redeem any Debenture which has been
converted or for which a Notice of Conversion has been delivered to the
Company.
(b) Mandatory Redemption. If at any time after the Issue Date of
this Debenture (i) an Event of Default occurs, or (ii) the average of the
closing bid prices for the Company's Common Stock for five (5) consecutive
trading days, as quoted in the NASDAQ Stock Market System or reported on the
NASD's OTC Bulletin Board, is less than or equal to $1.00, the Company shall
redeem, at the option of the Holder of this Debenture, the outstanding
principal amount of this Debenture at the Redemption Price (plus accrued and
unpaid interest and penalties thereon).
(c) Notice of Redemption. The Company shall deliver written
notice of each redemption, pursuant to paragraph (a) above, of this Debenture
to the Holder hereof not less than thirty (30) days prior to the date
specified in the notice on which such redemption is to be made (the
"Redemption Date"). A Holder of a Debenture may submit written notice of a
redemption, pursuant to paragraph (b) above, to the Company not less than ten
(10) days prior to the date specified in the notice on which such redemption
is to be made (the "Redemption Date"). In case less than all of the aggregate
principal amount of this Debenture is redeemed, a new Debenture representing
the aggregate principal amount of the unredeemed Debenture shall be issued to
the Holder thereof without cost to such Holder within two (2) business days
after surrender of this Debenture.
(d) Redemption Payments. For each Debenture which is to be
redeemed hereunder, the Company shall be obligated on the applicable
Redemption Date to pay to the Holder thereof (upon surrender by such Holder
at the Company's principal office of the Debenture) the Redemption Price (plus
accrued and unpaid interest and penalties thereon) in cash or in immediately
available funds. If the Company does not make the payment when due, interest
will accrue on all outstanding Debentures from and after the Redemption Date
at the Default Rate and the Conversion Price calculated pursuant to Section 4
in connection with any subsequent conversion of this Debenture will be reduced
by $.50 per share.
(e) Interest After Redemption Date. If the Redemption Price
(plus accrued and unpaid interest and penalties thereon) of such Debenture is
paid in full to the Holder of such Debenture on the Redemption Date, this
Debenture shall not be entitled to any interest accruing after such date and
on such date, all rights of the holder of the Debenture shall cease, and
such Debenture shall no longer be deemed to be issued and outstanding.
4. Conversion. Subject to and upon compliance with the provisions of
the Debentures, at the option of the Holder thereof, the Debentures or any
portion thereof and any accrued and unpaid interest thereon may be converted
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest number of whole shares) of the common stock, $.001 par value, of
the Company (the "Common Stock") at the Conversion Price, as defined
-2-
30
herein, subject to adjustment as provided herein. "Conversion Price" means
80% of the lesser of (i) the average of the three lowest closing bid prices
for the Common Stock quoted on the NASDAQ Stock Market System or reported on
the NASD's OTC Bulletin Board during the 15 trading days preceding the date of
the Purchase Agreement, or (ii) the average of the three lowest closing bid
prices for the Common Stock quoted on the NASDAQ Stock Market System or
reported on the NASD's OTC Bulletin Board during the 15 trading days preceding
the conversion date, subject to a maximum Conversion Price of $3.00 per share
and a minimum Conversion Price of $1.00 per share.
Such conversion right may be exercised on or after the date of the
Purchase Agreement with respect to up to 33% of the aggregate principal amount
of this Debenture and accrued interest thereon; on or after the 30th day
following the date of the Purchase Agreement with respect to up to 67% of the
aggregate principal amount of this Debenture and accrued interest thereon; and
on or after the 60th day following the date of the Purchase Agreement with
respect to all or any portion of the aggregate principal amount of this
Debenture and accrued interest thereon and such conversion right shall expire
when all of the Debentures have been paid in full, including accrued interest
and costs of collection. Upon the occurrence of an Event of Default, all of
the Debentures shall be immediately convertible notwithstanding any timing
restrictions imposed herein and the conversion price shall not be subject to
any limitations on the minimum imposed herein.
If on the due date of the Debentures, the Fair Market Value of a share
of the Common Stock of the Company is greater than $2.00, the Holder shall
convert all of the outstanding Debentures as provided herein.
In the case of any Debenture which is surrendered for conversion,
accrued and unpaid interest will be payable on such Debenture with respect to
the period ending on the conversion date. The Holder at its option may elect
to receive payment of interest in cash or in Common Stock at the Conversion
Price.
A. Exercise of Conversion Privilege. To exercise the conversion
privilege, the Holder of the Debentures shall surrender to the Company such
Debentures, duly endorsed or assigned to the Company or in blank, accompanied
by written Notice of Conversion to the Company in the form provided in this
Debenture that the Holder elects to convert such Debenture or, if less than
the entire principal amount thereof is to be converted, the specified portion.
Debentures shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Debentures for
conversion in accordance with the foregoing provisions, and at such time the
rights of the Holders of such Debentures as Holders shall cease, and the
person or persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders
of such Common Stock as and after such time.
Within two (2) business days after the conversion date, the Company,
without cost to the Holder, shall issue and shall deliver to the Holder of
the converted Debenture or the person specified by such Holder a certificate
or certificates for the number of full shares of Common Stock issuable upon
conversion registered in the name of such Holder or such other person as shall
have been specified by such Holder and all accrued and unpaid interest on the
converted Debenture or portion thereof upon which the Holder does not elect to
receive payment in Common Stock.
Upon conversion of this Debenture, the Company shall take all such
actions as are necessary in order to insure that the Common Stock issuable
with respect to such conversion shall be validly issued, fully paid and
nonassessable.
The Company shall not close its books against the transfer of Common
Stock issued or issuable upon conversion of this Debenture in any manner which
interferes with the timely conversion of this Debenture. The Company shall
assist and cooperate with any Holder of this Debenture required to make any
governmental filings or obtain any governmental approval prior to or in
connection with the conversion of this Debenture (including, without
limitation, making any filings required to be made by the Company).
-3-
31
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of this Debenture, such number of shares of
Common Stock issuable upon the conversion of all outstanding Debentures. All
shares of Common Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes,
liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or
any requirements of any domestic securities exchange upon which shares of
Common Stock may be listed (except for official notice of issuance which
shall be immediately delivered by the Company upon each such issuance).
The conversion rights of any Debenture subject to redemption hereunder
shall terminate on the Redemption Date for such Debenture unless the Company
has failed to pay to the Holder thereof the Redemption Price of such
Debenture or portion thereof (plus all accrued and unpaid interest and
penalties thereon and any premium payable with respect thereto).
B. Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever, on or after the date of the
Purchase Agreement, the Company issues or sells (or in accordance with
Section 4.C is deemed to have issued or sold) (specifically excluding those
shares of Common Stock issued and sold upon the exercise of options and
warrants granted prior to the date of the Purchase Agreement), other than (i)
as described in Section 4.D or (ii) pursuant to the Purchase Rights
covered by Section 4.I, any shares of Common Stock for a consideration per
share less than the Fair Market Value per share of the Common Stock determined
as of the earlier of (x) the announcement of such issuance or sale, or (y) the
date of such issuance or sale, then immediately upon such issuance or sale the
Conversion Price shall be reduced to equal the amount determined by
multiplying the Conversion Price in effect immediately prior to such issuance
or sale by a fraction, the numerator of which will be the sum of (1) the
number of shares of Common Stock deemed outstanding (including Shares deemed
outstanding pursuant to Section 4.C.(i)) immediately prior to such issuance
or sale multiplied by the Fair Market Value per share of the Common Stock
determined as of the date of such issuance or sale, plus (2) the
consideration, if any, received by the Company upon such issuance or sale,
and the denominator of which will be the product derived by multiplying such
Fair Market Value per share of the Common Stock by the number of shares of
Common Stock deemed outstanding (including Shares deemed outstanding pursuant
to Section 4.C.(i)) immediately after such issuance or sale. Upon each such
adjustment of the Conversion Price hereunder, the number of Conversion Shares
issuable upon exercise of this Debenture shall be adjusted to equal the number
of shares determined by multiplying the Conversion Price in effect
immediately prior to such adjustment by the number of Conversion Shares
issuable upon exercise of this Debenture immediately prior to such adjustment
and dividing the product thereof by the Conversion Price resulting from such
adjustment. For the purposes of this Section 4, the calculation of the number
of shares of Common Stock deemed outstanding shall exclude the Conversion
Shares.
C. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Conversion Price under Section 3.B, the following
shall be applicable:
(i) Issuance of Rights or Options or Convertible Securities. If the
Company in any manner grants any rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or any
stock or other securities convertible into or exchangeable for Common Stock
(including without limitation convertible common stock) (such rights or
options being herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities") or if the
Company in any manner issues or sells any Convertible Securities, whether or
not immediately convertible or exchangeable, and the Fair Market Value per
share for which Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of such Convertible Securities is less than the
Fair Market Value per share of the Common Stock in effect on the earlier of
(x) the announcement of such grant or issuance or sale and (y) the date of
such grant or issuance or sale, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options of upon
conversion or exchange of such Convertible Securities shall be
-4-
32
deemed to be outstanding and to have been issued and sold by the Company for
such Fair Market Value per share. For purposes of this paragraph, the
"Fair Market Value per share for which Common Stock is issuable upon exercise
of such Options or upon conversion or exchange of such Convertible Securities"
is determined by dividing (A) the total amount, if any, received or
receivable by the Company as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon
the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of
such Options. No further adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of
such Common Stock upon conversion or exchange of such Convertible Securities.
(ii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible
into or exchangeable for Common Stock shall change at any time to an amount
which is less than the Fair Market Value, then the Conversion Price in effect
at the time of such change shall be adjusted to the Conversion Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold and the number of Conversion
Shares shall be correspondingly readjusted.
D. Subdivision or Combination of Shares. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization, or
otherwise) the outstanding shares of Common Stock into a greater number of
shares of Common Stock, or pays a dividend or makes a distribution to holders
of outstanding shares of Common Stock in the form of shares of Common Stock,
or combines (by reverse stock split or otherwise) the outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price of the
Debentures in effect immediately prior to such event and the number of shares
of Common Stock issuable upon conversion of the Debentures shall be
proportionately adjusted so that the holder of the Debentures thereafter
surrendered for conversion shall be entitled to receive after the occurrence
of any of the events described the proportionate number of shares of Common
Stock to which the holder would have been entitled had such Debenture been
exercised immediately prior to the occurrence of such event, such adjustment
to become effective immediately after the opening of business on the day
following the date upon which such subdivision or combination or
reclassification, as the case may be, becomes effective.
E. Liquidation of the Company. In the event of the liquidation,
dissolution, or winding up of the Company, a notice thereof shall be sent to
the Holder at least 15 days before the record date specified for determining
holders of the shares of Common Stock entitled to receive any distribution
upon such liquidation, dissolution, or winding up.
F. Consolidation of Company. In the case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of outstanding shares
of the class issuable upon conversion of the Debentures), or in case of any
sale or transfer to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Holder of each Debenture then
outstanding shall have the right to exercise such Debenture for the purchase
of the kind and amount of shares of Common Stock and other securities and
property receivable upon such consolidation, merger, sale, or transfer by a
holder of the number of shares of Common Stock which would have been issuable
if the conversion of the Debentures had occurred immediately prior to such
consolidation, merger, sale, or transfer.
-5-
33
G. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 4 but not expressly provided
for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors shall exercise their
reasonable judgment consistent with the fundamental intent of such provisions
in making an appropriate adjustment in the Conversion Price and the number of
shares of Common Stock issuable upon conversion of the Debentures so as to
protect the rights of the Holder of the Debentures.
H. Notices.
(i) Immediately upon any adjustment of the Conversion Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Holder at
least 30 days prior to the date on which the Company closes its books or takes
a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock, or (C) for determining rights to vote with respect to any
recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets, dissolution or
liquidation.
(iii) The Company shall also give written notice to the Holder at
least 30 days prior to the date on which any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company's assets, dissolution or liquidation shall
take place.
I. Purchase Rights. If at any time the Company grants, issues or
sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of
the Common Stock (the "Purchase Rights"), then the Company shall grant,
issue or sell (as the case may be) to the Holder the aggregate Purchase Rights
which such Holder would have acquired if such Holder had held the maximum
number of shares of Common Stock issuable upon conversion of all the
Debentures immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
5. Representations, Warranties and Covenants. The Company hereby
represents, warrants and covenants as follows:
A. Reservation of Common Stock. The Company shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
but unissued Common Stock or out of the Common Stock held in treasury, the
full number of shares of Common Stock as shall from time to time be issuable
upon the conversion of all issued and outstanding Debentures.
B. Covenant as to Common Stock. The Company covenants that all
shares of Common Stock which may be issued upon conversion of Debentures,
including interest, additional shares of Common Stock and penalties, will upon
issue be fully paid and nonassessable and the Company will pay all taxes,
liens and charges that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of Debentures pursuant hereto.
C. Payment of Debentures. The Company shall pay the principal of,
and interest on, the Debentures on the dates and in manner provided herein and
in the Debentures.
D. Stay, Extension and Usury Laws. The Company covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Debenture; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that
it will not, by resort to any such law, hinder, delay or impede the execution
of any right herein granted to the Holder.
-6-
34
E. Continued Existence. The Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence
as a corporation and will refrain from taking any action that would cause its
existence as a corporation to cease, including without limitation any action
that would result in the liquidation, winding up or dissolution of the
Company.
F. Further Assurances. From time to time the Company will make,
execute and deliver to the Holder, or cause to be made, executed and delivered
to the Holder, any and all such further and other instruments and assurances
as may be reasonably necessary or proper to carry out the intention of, or to
facilitate the performance of, the terms of this Debenture or to secure the
rights and remedies hereunder of Holders.
G. Restricted Payments. The Company shall not declare and pay any
dividends on its capital stock or redeem, acquire or otherwise retire for
value any securities issued by it (other than the Debentures) unless, at the
time of the taking of such action, no Event of Default or event which with
notice or lapse of time or both would become an Event of Default has occurred
and is continuing.
H. Successors. The Company shall not, whether in a single
transaction or through a series of related transactions, consolidate or merge
with or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets to, any person unless such person agrees in
writing to assume all obligations of the Company under the Debentures.
I. Authorization. The Company has full authority to make and perform
its obligations under the Debentures, and the Debentures when executed and
delivered by the Company were or will be the legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
J. Litigation. Except as disclosed in Schedule 4.7 of the Purchase
Agreement, there is no claim, litigation or governmental proceeding against
the Company now pending or, to the knowledge of the Company, threatened, which
is substantial in amount or which, if adversely determined would have a
material adverse effect on the financial condition of the Company or the
ability of the Company to perform its obligations under the Debentures.
6. Defaults And Remedies
A. Events of Default. An "Event of Default" shall occur if:
(i) the Company defaults in the payment of principal or
interest on any Debenture when the same becomes due and payable, whether at
maturity or upon acceleration or redemption or otherwise;
(ii) the Company fails to perform or observe any material
provision contained in this Debenture, the Purchase Agreement or in the
Related Documents, and in the case of Section 8.2 of the Purchase Agreement,
excluding Section 8.2(g), (h), and (j) thereof, such failure continues for
thirty (30) days.
(iii) any representation or warranty contained in the Purchase
Agreement or required to be furnished to any holder of the Debentures
pursuant to the Purchase Agreement, or any information contained in
writing required to be furnished by the Company or any Subsidiary to any
holder of the Debentures, is false or misleading in any material respect
on the date made or furnished;
(iv) the Company pursuant to or within the meaning of any
Bankruptcy Law becomes a party to any bankruptcy or insolvency proceedings and
such proceeding is not dismissed within 30 days;
(v) any material provision of the Purchase Agreement, the
Debentures or any Related Document shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall
be contested by any party thereto, or a proceeding shall be commenced by
the Company seeking to establish the
-7-
35
invalidity or enforceability thereof, or the Company shall deny in writing
that it has any liability or obligation purported to be created under the
Purchase Agreement or any Related Document;
(vi) the occurrence of a Material Adverse Change (as defined
in the Purchase Agreement);
(vii) the Company fails to pay the Redemption Price (plus
accrued and unpaid interest and penalties thereon) on the Redemption Date as
provided in Section 3(d);
(viii) the registration required by Article IX, Section 9.1 of
the Purchase Agreement has not been declared effective by the SEC and has not
remained effective at June 15, 2000; and
(ix) the Company sells all or substantially all of its assets.
B. Other Remedies. If an Event of Default occurs and is continuing,
the Holder may pursue any available remedy to collect the payment of principal
or interest on the Debentures or to enforce the performance of any provision
of the Debentures.
C. Collection. If an Event of Default occurs and is continuing, the
Holder may recover judgment against the Company for the whole amount of
principal and interest remaining unpaid on the Debentures and interest on
overdue principal and interest and such further amount as shall be sufficient
to cover the costs and, to the extent lawful, reasonable expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Holder, its agents and counsel.
D. If any Event of Default occurs, this Debenture shall become
immediately convertible, notwithstanding any other restrictions on conversion
contained herein.
7. General Provisions:
A. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Utah without regard to principles
of conflicts of law. The Parties hereby consent to the jurisdiction of any
court of competent jurisdiction in the state of Utah, and consent to venue in
Salt Lake County, Utah.
B. Notices. Any notice or demand required by this Agreement to be
given or made shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed as set forth in this Debenture
(until another address is provided in writing).
C. Enforcement. If either party takes any action to enforce any
provision of this Debenture, whether with or without suit, the prevailing
party shall be entitled to its costs of such action, including reasonable
attorney's fees.
D. Amendments and Waivers. This Debenture may be amended only with
the written consent of the Holder, and any existing Event of Default may be
waived only with the written consent of the Holder.
E. Descriptive Headings. The descriptive headings of the several
Sections and paragraphs of this Debenture are inserted for convenience only
and do not constitute a part of this Debenture.
F. Timeliness. The parties agree that time is of the essence for
the performance of each and every covenant and the satisfaction of each and
every condition contained in this Debenture.
G. Execution. A facsimile copy of this Debenture shall be deemed an
original, all with the same full force and effect as though it were an
original. The parties understand and agree that counterparts of this
Debenture may be separately executed by the parties, each of which shall be
deemed an original, all with the same full force and effect as though the same
counterpart had been executed simultaneously by all parties.
-8-
36
(The remainder of this page intentionally left blank)
-9-
32
IN WITNESS WHEREOF, the Company has caused its duly authorized
officers to execute this Debenture as of the date first above written.
The Company: FLEXPOINT SENSOR SYSTEMS, INC.
By: ________________________________
Xxxxxxx X. Xxxx, Chief Executive Officer
By:_________________________________
Xxxxxx X. Xxxxxx, Chief Financial Officer
The Holder: ASPEN CAPITAL RESOURCES, LLC
By _________________________________
Xxx X. Xxxxxxx, Manager
-10-
37
NOTICE OF CONVERSION
To:Flexpoint Sensor Systems, Inc.
The undersigned registered owner of this Debenture hereby exercises the
option to convert this Debenture, or the portion hereof designated below, and
the accrued interest thereon designated below into shares of Common Stock in
accordance with the terms of the Debenture, and directs that the shares
issuable and deliverable upon this conversion, together with a new Debenture
representing any unconverted principal amount hereof, be issued and delivered
to the registered owner hereof, unless a different name has been provided
below.
Principal amount to be converted (if less than all): $______________________
Accrued interest to be converted $______________________
Number of shares of Common Stock ______________________
Dated: __________________ _______________________
Signature(s)
Complete the following for registration of shares of Common Stock if they are
to be delivered, or Debentures if they are to be issued, other than to and in
the name of the registered owner:
____________________________________
Name
____________________________________
____________________________________
Address
____________________________________
Soc. Sec. or Tax I.D. No.
38
Exhibit B
(Form of Series 2000-A Warrants)
39
THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE WERE ORIGINALLY ISSUED
ON MARCH 3, 2000 AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW. THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE IS SUBJECT TO THE
CONDITIONS SET FORTH IN THE SECURITIES PURCHASE AGREEMENT, DATED AS OF MARCH
3, 2000, BETWEEN THE ISSUER (THE "COMPANY") AND THE PURCHASER NAMED THEREIN.
THE COMPANY RESERVES THE RIGHT TO REFUSE ANY TRANSFER OF SUCH SECURITIES UNTIL
SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF
SUCH CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON
WRITTEN REQUEST TO THE COMPANY.
__________________________________________
FLEXPOINT SENSOR SYSTEMS, INC.
(a Delaware corporation)
Warrant Certificate
for the Purchase of Common Stock
Dated: ___________ Number of Series 2000-A Warrants: _________
This certifies that, for value received, the sufficiency of which is
hereby acknowledged, ASPEN CAPITAL RESOURCES, LLC or its assigns (the
"Holder"), a Utah limited liability company with an address at 0000 Xxxxx
Xxxxxxxxx Xxxxxx, Xxxxx, Xxxx 00000, is the owner of the number of Series
2000-A Warrants (the "Warrants") set forth above, each of which represents the
right to purchase one fully paid and nonassessable share of the common stock,
$.001 par value, (the "Shares") of FLEXPOINT SENSOR SYSTEMS, INC. (the
"Company"), a Delaware corporation with an address at 0000 Xxxxx 000 Xxxx,
Xxxxxxx, Xxxx 00000, at the initial exercise price which is equal to 105% of
the lesser of (i) the average of the three lowest closing bid prices for the
Shares quoted on the NASDAQ Stock Market System or reported on the NASD's OTC
Bulletin Board during the 15 trading days preceding the date of the Purchase
Agreement (the "Initial Exercise Price"), or (ii) the average of the three
lowest closing bid prices for the Shares quoted on the NASDAQ Stock Market
System or reported on the NASD's OTC Bulletin Board during the 15 trading days
preceding the date of this Warrant (the "Initial Exercise Price"), subject to
a maximum Initial Exercise Price of $3.00 per share and a minimum Initial
Exercise Price of $1.00 per share The Initial Exercise Price and number of
Shares (and the amount and kind of other securities) for which this Warrant
is exercisable shall be subject to adjustment as provided herein.
This Warrant Certificate relates to Warrants of the Company issued
pursuant to a Securities Purchase Agreement, dated as of March 3, 2000 (as
amended and modified from time to time, the "Purchase Agreement"), between the
Company and the Holder, and the Warrants are those Warrants referred to in the
Purchase Agreement. The Purchase Agreement contains terms governing the
rights of the Holder of this Warrant Certificate, and all provisions of the
Purchase Agreement are hereby incorporated herein in full by reference.
1. Duration. Warrants may be exercised at any time and from time to time
on or after November 15, 2000 (the "Exercise Commencement"), but not after
March 3, 2004 (the "Exercise Deadline").
2. Exercise.
A. All or any number of the Warrants may be exercised by surrendering
the Warrant Certificate(s) representing the Warrants to be exercised to the
Company, together with (i) an Election to Exercise (in the form attached
hereto and incorporated herein by reference) completed and signed by the
person exercising the Warrants, (ii) if the person exercising the Warrants is
not the registered Holder, an Assignment (in the form attached hereto and
incorporated herein by reference) evidencing assignment of the Warrants to the
person exercising them, and (iii) payment in full of the Exercise Price of the
Warrants to be exercised, either by (x) a check payable to the Company, (y)
the surrender to the Company of securities of the Company having a value equal
to the Exercise
-1-
40
Price of the Warrants to be exercised (which value in the case of debt
securities shall be the principal amount thereof and accrued and unpaid
interest thereon and in the case Shares shall be the Fair Market Value
thereof), or (z) the delivery of a notice to the Company that the Company is
authorized to reduce the number of Shares issuable upon exercise of the
Warrants by the number of Shares having an aggregate Fair Market Value (as
defined herein) equal to the Exercise Price of the Warrants to be exercised.
"Fair Market Value" means the closing bid price of a Share quoted on the
NASDAQ Stock Market System or reported on the NASD's OTC Bulletin Board. A
Warrant shall be deemed exercised when all of the foregoing have been
delivered to the Company (the "Exercise Date").
B. Upon the exercise of less than all of the Warrants evidenced by
this Warrant Certificate, there shall be issued to the Holder a new Warrant
Certificate in respect of the Warrants not exercised. No fractional Shares
will be issued upon the exercise of Warrants. As to any final fraction of a
share which the Holder of one or more Warrant Certificates, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, the Company shall pay the cash value. Within two
(2) business days after the Exercise Date, the Company shall issue and shall
deliver to the Holder of the exercised Warrants or the person specified by
such Holder a certificate or certificates for the number of full Shares
issuable upon exercise registered in the name of such Holder or such other
person as shall have been specified by such Holder.
C. The Shares issuable upon the exercise of Warrants shall be deemed
to have been issued to the Holder on the Exercise Date, and the Holder shall
be deemed for all purposes to have become the owner of such Shares on the
Exercise Date.
D. The Company covenants that all Shares which may be issued upon
exercise of Warrants will, upon payment of the Exercise Price therefor, be
fully paid and nonassessable and the Company will pay all taxes, liens and
charges and any other costs incurred by the Company in connection with the
exercise of the Warrants and the issuance and delivery of Shares pursuant
thereto.
E. The Company shall not close its books against the transfer of
Warrants or of any Shares issued or issuable upon the exercise of Warrants in
any manner which interferes with the timely exercise of Warrants.
F. The Company shall assist and cooperate with any reasonable request
by the Holder which is required to make any governmental filings or obtain
any governmental approvals prior to
or in connection with any exercise of Warrants.
G. The Company shall at all times reserve and keep available out of
its authorized but unissued Shares solely for the purpose of issuance upon
the exercise of Warrants, the maximum number of Shares issuable upon the
exercise of all Warrants. All Shares which are so issuable shall, when issued
and upon the payment of the applicable Exercise Price, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Company shall take all such actions as may be necessary to
ensure that all such Shares may be so issued without violation by the Company
of any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which Shares or other securities
constituting Shares may be listed (except for official notice of issuance
which shall be immediately delivered by the Company upon each such
issuance). The Company will use its best efforts to cause the Shares issuable
upon exercise, immediately upon such exercise, to be listed on any domestic
securities exchange upon which Shares are listed at the time of such exercise.
H. The Company shall not, and shall not permit its subsidiaries to,
directly or indirectly, by any action (including, without limitation,
reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any issuance 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 Certificate or impair or
diminish its value (except for any action which ratably affects all Shares),
but shall at all times in good faith assist in the carrying out of all such
terms of this Warrant Certificate. Without limiting the generality of the
foregoing, the Company shall (a) obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof
-2-
41
as may be necessary to enable the Company to perform its obligations under
this Warrant Certificate and (b) not undertake any reverse stock split,
combination, reorganization or other reclassification of its capital stock
which would have the effect of making Warrants exercisable for less than one
Share for each Holder.
3. Adjustment of Exercise Price and Number of Shares. In order to
prevent dilution of the rights granted under this Warrant Certificate, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 3 (the "Exercise Price"), and the number of Shares
issuable upon exercise of Warrants shall be subject to adjustment from time
to time, each as provided in this Section 3.
A. Adjustment of Exercise Price and Number of Shares upon Issuance
of Shares. If and whenever, on or after the first date upon which a Warrant
is granted by the Company to a Holder, the Company issues or sells (or in
accordance with Section 3B is deemed to have issued or sold) (specifically
excluding those shares of Common Stock issued and sold upon the exercise of
options and warrants granted prior to the date of the Purchase Agreement),
other than (i) as described in Section 3C or (ii) pursuant to the Purchase
Rights covered by Section 4, any Shares for a consideration per share less
than the Fair Market Value per Share determined as of the earlier of (x) the
announcement of such issuance or sale, or (y) the date of such issuance or
sale, then immediately upon such issuance or sale the Exercise Price shall be
reduced to equal the amount determined by multiplying the Exercise Price
in effect immediately prior to such issuance or sale by a fraction, the
numerator of which will be the sum of (1) the number of Shares deemed
outstanding (including Shares deemed outstanding pursuant to Section 3.B.(i))
immediately prior to such issuance or sale multiplied by the Fair Market Value
per Share determined as of the date of such issuance or sale, plus (2) the
consideration, if any, received by the Company upon such issuance or sale, and
the denominator of which will be the product derived by multiplying such
Fair Market Value per Share by the number of Shares deemed outstanding
(including Shares deemed outstanding pursuant to Section 3.B.(i)) immediately
after such issuance or sale. Upon each such adjustment of the Exercise Price
hereunder, the number of Shares acquirable upon exercise of this Warrant shall
be adjusted to equal the number of shares determined by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number
of Shares acquirable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 3A, the following shall
be applicable:
(i) Issuance of Rights or Options or Convertible Securities. If the
Company in any manner grants any rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Shares or any stock
or other securities convertible into or exchangeable for Shares (including
without limitation convertible common stock) (such rights or options
being herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") or if the Company in
any manner issues or sells any Convertible Securities, whether or not
immediately convertible or exchangeable, and the price per share for which
Shares are issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Fair Market Value
per Share in effect on the earlier of (x) the announcement of such grant or
issuance or sale and (y) the date of such grant or issuance or sale, then the
total maximum number of Shares issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such Options of
upon conversion or exchange of such Convertible Securities shall be deemed to
be outstanding and to have been issued and sold by the Company for such
price per share. For purposes of this paragraph, the "price per share for
which Shares are issuable upon exercise of such Options or upon conversion
or exchange of such Convertible Securities" is determined by dividing (A) the
total amount, if any, received or receivable by the Company as consideration
for the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of all such
Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (B) the total maximum
number of Shares issuable upon exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options. No further adjustment of the Exercise Price shall be made upon
the actual issuance of such Shares or of such Convertible
-3-
42
Securities upon the exercise of such Options or upon the actual issuance of
such Shares upon conversion or exchange of such Convertible Securities.
(ii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible
into or exchangeable for Shares shall change at any time to an amount which is
less than the Fair Market Value, then the Exercise Price in effect at the
time of such change shall be adjusted to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of Shares issuable upon
exercise of the Warrants shall be correspondingly readjusted.
C. Subdivision or Combination of Shares. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization, or
otherwise) the outstanding Shares into a greater number of Shares, or pays a
dividend or makes a distribution to holders of outstanding Shares in the form
of Shares, or combines (by reverse stock split or otherwise) the outstanding
Shares into a smaller number of shares, the Exercise Price of the Warrants in
effect immediately prior to such event and the number of Shares obtainable
upon exercise of Warrants shall be proportionately adjusted so that the Holder
of the Warrants thereafter surrendered for exercise shall be entitled to
receive after the occurrence of any of the events described the proportionate
number of Shares to which the Holder would have been entitled had such Warrant
been exercised immediately prior to the occurrence of such event, such
adjustment to become effective immediately after the opening of business on
the day following the date upon which such subdivision or combination or
reclassification, as the case may be, becomes effective.
D. Liquidation of the Company. In the event of the liquidation,
dissolution, or winding up of the Company, a notice thereof shall be sent to
the Holder at least 15 days before the record date specified for determining
holders of the Shares entitled to receive any distribution upon such
liquidation, dissolution, or winding up.
E. Consolidation of Company. In the case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of outstanding shares
of the class issuable upon exercise of the Warrants), or in case of any sale
or transfer to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Holder of each Warrant then
outstanding shall have the right to exercise such Warrant for the purchase of
the kind and amount of Shares and other securities and property receivable
upon such consolidation, merger, sale, or transfer by a holder of the number
of Shares which would have been issuable if the conversion of the Warrants had
occurred immediately prior to such consolidation, merger, sale, or transfer.
F. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 3 but not expressly provided
for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors shall exercise their
reasonable judgment consistent with the fundamental intent of such provisions
in making an appropriate adjustment in the Exercise Price and the number of
Shares issuable upon exercise of Warrants so as to protect the rights of the
Holder of Warrants.
G. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Holder at least
30 days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the
-4-
43
Shares, (B) with respect to any pro rata subscription offer to holders of
Shares, or (C) for determining rights to vote with respect to any
recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets, dissolution or
liquidation.
(iii) The Company shall also give written notice to the Holder at
least 30 days prior to the date on which any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company's assets, dissolution or liquidation shall
take place.
4. Purchase Rights. If at any time the Company grants, issues or sells
any options, convertible securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of the Shares
(the "Purchase Rights"), then the Company shall grant, issue or sell (as
the case may be) to the Holder the aggregate Purchase Rights which such Holder
would have acquired if such Holder had held the maximum number of Shares
issuable upon complete exercise of all Warrants immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase
Rights or, if no such record is taken, the date as of which the record holders
of the Shares are to be determined for the grant, issue or sale of such
Purchase Rights.
5. Exchange. Prior to the Exercise Deadline the Holder shall be
entitled to exchange this Warrant Certificate with or without other Warrant
Certificates for another Warrant Certificate or Warrant Certificates for the
same aggregate number of Warrants, without charge to the Holder, upon
surrender of this Warrant Certificate at the office of the Company; provided
that such certificates may be redistributed to other Holders only in
compliance with applicable federal and state securities laws. The date the
Company initially issues this Warrant Certificate shall be deemed to be the
date of issuance hereof regardless of the number of times new certificates
representing the unexpired and unexercised rights formerly represented by
this Warrant Certificate shall be issued.
6. Transfer. Prior to the Exercise Deadline the Holder shall be entitled
to transfer this Warrant Certificate and all rights hereunder, in whole or in
part, without charge to the Holder, upon surrender of this Warrant
Certificate, together with an Assignment (in the form attached hereto and
incorporated herein by reference) duly executed, at the office of the Company;
provided that such transfer is in compliance with applicable federal and state
securities laws and the Holder provides documentation of such compliance to
the reasonable satisfaction of the Company. Upon any such transfer, a new
Warrant Certificate or Warrant Certificates representing the same aggregate
number of Warrants will be issued in accordance with instructions in the
assignment.
7. Replacement Certificates. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing Warrants, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company (provided that if the Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the
case of any such mutilation upon surrender of such certificate, the Company
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of
such lost, stolen, destroyed or mutilated certificate.
8. General Provisions:
A. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Utah without regard to principles
of conflicts of law. The parties hereby consent to the jurisdiction of any
court of competent jurisdiction in the state of Utah, and consent to venue in
Salt Lake County, Utah.
B. Notices. Any notice or demand required by this Warrant
Certificate to be given or made shall be sufficiently given or made if in
writing and (i) delivered in person, (ii) transmitted by telecopy, (iii) sent
by registered or certified mail, postage prepaid with return receipt
requested, or (iv) sent by reputable overnight courier service, fees
prepaid, to the parties at their addresses as they appear in this Warrant
Certificate. Notices shall be
-5-
44
deemed given upon personal delivery, upon receipt of return receipt in the
case of delivery by mail, upon acknowledgment by the receiving telecopier
or one day following deposit with an overnight courier service.
C. Enforcement. If either party takes any action to enforce any
provision of this Warrant Certificate, whether with or without suit, the
prevailing party shall be entitled to its costs of such action, including
reasonable attorney's fees.
D. Amendments and Waivers. This Warrant Certificate may be amended
only with the written consent of the Holder. No change or modification of
this Warrant Certificate shall be valid unless with the written consent of the
Holder.
E. Descriptive Headings. The descriptive headings of the several
Sections and paragraphs of this Warrant Certificate are inserted for
convenience only and do not constitute a part of this Warrant Certificate.
F. Timeliness. The parties agree that time is of the essence for the
performance of each and every covenant and the satisfaction of each and every
condition contained in this Warrant Certificate.
G. Execution. A facsimile copy of this Warrant Certificate shall be
deemed an original, all with the same full force and effect as though it were
an original.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly authorized and executed as of the day and year first above written.
FLEXPOINT SENSOR SYSTEMS, INC.
By: _________________________________
Xxxxxxx X. Xxxx, , Chief Executive Officer
By _________________________________
Xxxxxx X. Xxxxxx, Chief Financial Officer
-6-
45
ELECTION TO EXERCISE
The undersigned hereby elects to exercise __________ of the Warrants
represented by the Warrant Certificate attached and to purchase the Shares
issuable upon the exercise of such Warrants, and requests that certificates
for such Shares be issued and delivered to the undersigned as follows:
_____________________________________________________________________________
Name
_____________________________________________________________________________
address, including zip code
_____________________________________________________________________________
social security or other tax identifying number
If the number of Warrants hereby exercised is less than all of the
Warrants represented by this Warrant Certificate, the undersigned directs that
a new Warrant Certificate representing the number of full Warrants not
exercised be issued and delivered to the undersigned.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment
of $ _______ by certified check or money order payable in United States
currency to the order of the Company.
Dated: __________________ ____________________________________
Signature
____________________________________
Name
____________________________________
Address
-7-
46
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the
attached Warrant Certificate with respect to the number of the Warrants
covered thereby set forth below, unto:
Name of Assignee ___________________________
Address ___________________________________
No. of Warrants _____________________________
Dated: _____________
____________________________________
Signature
____________________________________
Witness
-8-
47
