Exhibit 99.2
HIENERGY TECHNOLOGIES, INC.
DEBT CONVERSION AGREEMENT
THIS DEBT CONVERSION AGREEMENT (the "Agreement") is made and entered into as of
the 19th day of November 2004, by and between HIENERGY TECHNOLOGIES, INC., a
corporation organized and existing under the laws of the State of Delaware (the
"Company") and Xxxxxxx Family Holdings, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Lender").
RECITALS
WHEREAS, the Company is engaged in the research and development of
proprietary, neutron-based, "stoichiometric" sensor devices;
WHEREAS, the Lender has made several bridge loans to the Company to
assist it during a period of severe financial need, as evidenced by the delivery
by the Company to the Lender of seven (7) unsecured promissory notes in the
aggregate face amount of Four Hundred Sixty-Five Thousand Dollars ($465,000),
each being due on demand and bearing interest at the rate of five percent (5%)
simple interest per annum (collectively, the "Bridge Notes");
WHEREAS, inasmuch as the Company is unable to repay the indebtedness
represented by the Bridge Notes in cash at this time, the Lender has agreed to
accept in lieu thereof 1,010,870 shares of the Company's common stock having a
par value of $0.001 per share (the "Shares") and warrants to purchase additional
shares of the Company's common stock (the "Warrants"), such Warrants to be
evidenced by a Warrant Certificate in the form of Exhibit A attached hereto; and
the Company's Board of Directors has agreed to issue such securities to the
Lender in full satisfaction of such indebtedness, in each case, subject to the
terms of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and the
mutual promises and covenants contained in this Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
1. Company Obligations. On and as of the date on which both parties
execute this Agreement (the "Effective Date"), the Company will issue
to the Lender the following: (a) a stock certificate evidencing the
Lender's ownership of one million ten thousand eight hundred seventy
(1,010,870) Shares, at a purchase price of Forty-Six Cents ($0.46) per
Share in full satisfaction and discharge of all indebtedness owed
to the Lender as set forth in the Bridge Notes; and (b) Warrants to
purchase an additional five hundred five thousand four hundred
thirty-five (505,435) shares of the Company's common stock at an
exercise price of Eighty-Two Cents ($0.82) per share (the "Warrant
Shares"). The term of the Warrants is forty-two (42) months from the
date that the Company's registration statement on Form SB-2 (or other
similar form), and as further described in Section 5 hereof, is
declared effective by the Securities and Exchange Commission.
2. Lender Obligations. In consideration and payment in full for the
issuance and delivery of the Shares and the Warrants to the Lender
pursuant to Section 1 above, the Lender hereby agrees:
(a) to submit to the Company, as full and complete payment for the
Securities, the originally-executed Bridge Notes, which the
Company shall xxxx "cancelled" upon receipt; and
(b) to release and discharge the Company and its respective
successors and assigns from any and all further liability in
respect of the Bridge Notes except as otherwise set out in
this Agreement.
3. Representations and Warranties of the Subscriber. The Subscriber hereby
represents and warrants to the Company, as of the Effective Date, as
follows:
(a) the Subscriber is an "Accredited Investor" as such term is
defined in Rule 501 of Regulation D, and is familiar with the
character, integrity and business acumen of the principals of
the Company;
(b) the Subscriber: (A) has no need for liquidity in this
investment; and (B) is able to bear the economic risks of an
investment in the Shares and the Warrants (collectively, the
"Securities") for an indefinite period of time, and could
afford to lose the entire amount of such investment;
(c) the Subscriber understands and acknowledges that a purchaser of
the Securities must be prepared to bear the economic risk of such
investment for an indefinite period because of: (A) the heightened
nature of the risks associated with an investment in the Company
due to its status as a development stage company; (B) illiquidity
of the Securities due to the fact that the Securities have not
been registered under the Securities Act of 1933, as amended, or
any of the rules and regulations promulgated thereunder
(collectively, the "Act") or any state securities act (nor passed
upon by the SEC or any state securities commission), and the
Securities have not been registered or qualified by the Subscriber
under federal or state securities laws solely in reliance upon an
available exemption from such registration or qualification, and
hence such Securities cannot be sold unless they are subsequently
so registered or qualified, or are otherwise subject to any
applicable exemption from such registration requirements; and (C)
substantial restrictions on the transfer of the Securities, as set
forth in, among other documents, this Agreement and the Warrant
Certificate, and by legend on the face or reverse side of every
certificate evidencing the ownership of any Securities;
(d) the Subscriber understands and acknowledges that an investment
in the Securities is speculative in nature, and involves
certain risks;
(e) the Subscriber is not a member of the National Association of
Securities Dealers, or of any other self-regulatory agency
which would require approval prior to any purchase of the
Securities;
(f) the Subscriber is acquiring the Securities for its own
investment, and not with a view toward the subdivision,
resale, distribution, or fractionalization thereof; the
Subscriber has no contract, undertaking, arrangement or
obligation with or to any person to sell, transfer, or
otherwise dispose of the Securities (or any portion thereof
hereby subscribed for), and has no present intention to enter
into any such contract, undertaking, agreement or arrangement;
(g) the offering of Securities was made only through direct,
personal communication between the Subscriber (or a
representative thereof) and the Company; the subscription for
Securities by the Subscriber is not the result of any form of
general solicitation or general advertising including, but not
limited to, the following: (i) any advertisement, article,
notice or other communication published in any newspaper,
magazine, or other written communication, or broadcast over
television, radio or any other medium; or (ii) any seminar or
meeting to which the attendees had been invited by any general
solicitation or general advertising;
(h) the Subscriber has been advised to consult with an attorney
regarding legal matters concerning the purchase and ownership
of the Securities, and with a tax advisor regarding the tax
consequences of purchasing such Securities;
(i) the Subscriber is a corporation which was not organized for
the specific purpose of acquiring the Securities and has other
investments or business activities besides investing in the
Company; and
(j) this Agreement, once executed and delivered to the Company by
the Subscriber, constitutes the valid and legally binding
obligation of the Subscriber, enforceable against such
Subscriber in accordance with its terms.
4. Execution of Agreement. At such time as the Company has executed this
Agreement, this Agreement shall be the valid and legally binding
obligation of the Company, enforceable against the Company in
accordance with its terms.
5. Registration Rights. The Company shall use its reasonable best efforts
to cause a Registration Statement on Form SB-2 (or other similar form)
which includes the Shares and the Warrant Shares, and remains effective
to December 31, 2005 or any earlier date when all the Shares and the
shares of Common Stock issuable upon conversion of the Warrant are or
may be sold under Rule 144. If the Company has not caused the shares to
become registered by February 15, 2005 and the Holder continues to hold
the Shares and the Warrant, the Company will pay a penalty representing
a number of securities equal to one percent (1%) of the number of
Shares and Warrant Shares registrable hereunder. Thereafter, the Holder
shall be entitled to receive a penalty in such same amount on the last
day for each calendar month the Company has not caused the Shares and
Warrant Shares to become registered. In addition, no such payment is
due to the extent such payment causes the total amount payable for
failure to obtain an effective registration statement to exceed the
amount permitted by applicable law. It is the express intention of the
parties that at all times they shall comply with all applicable laws,
including usury laws. This Agreement shall automatically be modified to
the extent necessary to achieve that purpose.
6. Miscellaneous.
(a) The Subscriber agrees that, once executed by it, the Lender
may not cancel, terminate or revoke this Agreement, or any
Agreement in respect of the Securities which it may make
hereunder or pursuant hereto, and that this Agreement shall
survive the death, permanent or temporary disability,
dissolution, winding up or liquidation (as applicable) of the
Subscriber, and that this Agreement shall be binding upon, and
inure to the benefit of such Subscriber's heirs, executors,
administrators, successors in interest and permitted assigns.
(b) All notices, requests, demands and other communications to be
given shall be in writing and shall be deemed to have been
duly given on the date of personal service or transmission by
fax if such transmission is received during the normal
business hours of the addressee, or on the first business day
after sending the same by overnight courier service or by
telegram, or on the third business day after mailing the same
by first class mail, or on the day of receipt if sent by
certified or registered mail, addressed as set forth following
the signature of such party at the end of this document, or at
such other address as any party may hereafter indicate by
notice delivered as set forth in this Section 6(b).
(c) This Agreement shall constitute the binding agreement of the
parties, enforceable against each of them in accordance with
its terms. This Agreement may not be assigned by the
Subscriber, whether by contract or by operation of law,
without the prior written consent of the Company, which
consent may be given or denied as the Company, in its sole and
exclusive discretion, may deem appropriate.
(d) This Agreement, together with its exhibits, constitute the
entire and final agreement and understanding between the
Subscriber and the Company with respect to the agreement of
the Lender to accept the Securities in full and complete
satisfaction of the Bridge Notes, and the issuance and
cancellation, as applicable, thereof, and supersedes any and
all prior oral or written agreements, statements,
representations, warranties or understandings by any party,
all of which are merged herein and superseded by this
Agreement.
(e) The headings provided are for convenience only and shall have
no force or effect upon the construction or interpretation of
any provision of the Agreement. Furthermore, in interpreting
this Agreement, the reader shall adopt the plural form of any
word written in the singular, and the feminine form of any
word written in the masculine, whenever the context or
circumstances of such provision so require.
(f) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
(g) Each party agrees to execute such other and further documents
and to perform such other and further acts as may be
reasonably necessary to carry out the purposes and provisions
of this Agreement.
(h) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of California applicable to
the performance and enforcement of contracts made within such
state, without giving effect to the law of conflicts of laws
applied thereby. In the event that any dispute shall occur between
the parties arising out of or resulting from the construction,
interpretation, enforcement or any other aspect of this Agreement,
the parties hereby agree to accept the exclusive jurisdiction of
the Courts of the State of California sitting in and for the
County of Orange. In the event either party shall be forced to
bring any legal action to protect or defend its rights hereunder,
then the prevailing party in such proceeding shall be entitled to
reimbursement from the non-prevailing party of all fees, costs and
other expenses (including, without limitation, the reasonable
expenses of its attorneys) in bringing or defending against such
action.
(i) The provisions of this Agreement are severable, and if any one
or more provisions is determined to be illegal, indefinite,
invalid or otherwise unenforceable, in whole or in part, by
any court of competent jurisdiction, then the remaining
provisions of this Agreement and any partially unenforceable
provisions to the extent enforceable in the pertinent
jurisdiction shall continue in full force and effect and shall
be binding and enforceable on the parties.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
THE CORPORATION:
HIENERGY TECHNOLOGIES, INC. ATTEST:
By: ______________________________ By: ________________________
______________________________ Acting Corporate Secretary
THE INVESTOR:
XXXXXXX FAMILY HOLDINGS, INC. WITNESS:
By: ______________________________ By: ________________________
______________________________ Secretary
EXHIBIT A
TO DEBT CONVERSION AGREEMENT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR HIENERGY TECHNOLOGIES, INC. SHALL HAVE
RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
HIENERGY TECHNOLOGIES, INC.
Expires: forty-two (42) months from the Effectiveness Date,
as such term is hereinafter defined.
Holder: _________________
Warrant No.: W-___
Number of Warrant Shares: __________
Exercise Price: $0.82 per Warrant Share
Original Issue Date__________, 2004
FOR VALUE RECEIVED, and subject to the provisions hereinafter set forth, the
undersigned, HiEnergy Technologies, Inc., a Delaware corporation (together with
its successors and assigns, the "Issuer"), hereby certifies that the Holder or
its registered assign or assigns (individually and collectively referred to as
the "Holder") is entitled to subscribe for and purchase, during the Term (as
defined below), the number of Shares indicated above (subject to adjustment as
hereinafter provided) of the duly authorized, validly issued, fully paid and
non-assessable shares (the "Warrant Shares") of the Issuer's Common Stock (as
defined below), at an exercise price per share equal to the Warrant Price (as
defined below) then in effect, subject, however, to the provisions and upon the
terms and conditions hereinafter set forth.
1. Definitions. For the purposes of this Warrant, the following terms have the
following meanings:
"Board" means the Board of Directors of the Issuer.
"Business Day" means any day except a Saturday, Sunday or any day on which
commercial banks in Irvine, California are authorized or required by law or
other government action to close.
"Call Notice" means written notice provided by the Issuer to the Holder pursuant
to Section 8 of this Warrant Certificate, such notice being provided in
accordance with Section 13 of this Warrant Certificate.
"Call Notice Period" means the five (5) consecutive Trading Days immediately
prior to the date of delivery of the Call Notice (as defined above).
"Called Warrant Shares" means the Warrant Shares subject to the Call Notice.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or limited) in
any Person which is a partnership, (iii) all membership interests in any limited
liability company, and (iv) all equity or ownership interests in any Person of
any other type.
"Certificate of Incorporation" means the Certificate of Incorporation of the
Issuer as in effect on the Original Issue Date, and as hereafter from time to
time amended, modified, supplemented or restated in accordance with the terms
hereof and thereof and pursuant to applicable law.
"Common Stock" means the capital common stock, par value $0.001 per share, of
the Issuer and any other Capital Stock into which such stock may hereafter be
changed.
"Commission" means the United States Securities and Exchange Commission.
"Conversion Agreement" means the Debt Conversion Agreement, dated as of November
19, 2004, between the Issuer and Xxxxxxx Family Holdings, Inc.
"Early Termination Date" means the twentieth (20th) day after the Holder
receives the Call Notice.
"Effectiveness Date" means the date that the Registration Statement as
referenced in Section 4 of the Conversion Agreement is declared to be effective
by the Commission.
"Exercise Date" means the date that either (i) the amount payable to the Issuer
upon exercise of the Warrants in whole or in part pursuant to Section 3(b)
hereof is received in full by the Issuer in immediately available U.S.
dollar-denominated funds in the account of the Issuer at a financial institution
designated from time to time by the Issuer pursuant to the Conversion Agreement;
or (ii) the Holder executes the cashless exercise provision provided for in, and
pursuant to the conditions of Section 3 (c) hereof.
"Expiration Date" means the date which is forty-two (42) months from the
Effectiveness Date, on which date the rights and privileges of the Holders set
forth herein shall all expire.
"Governmental Authority" means any governmental, regulatory or self-regulatory
entity, department, body, official, authority, commission, board, agency or
instrumentality, whether federal, state local or foreign.
"Holders" means the Persons who shall from time to time own any Warrant. The
term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally-recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Issuer) that is regularly engaged in the business of
appraising the Capital Stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Issuer or any
Holder.
"Issuer" means HiEnergy Technologies, Inc., a Delaware corporation, and its
successors.
"Majority Holders" means, at any time, the Holders of Warrants exercisable for a
majority of the Warrant Shares issuable under the Warrants at the time
outstanding.
"Original Issue Date" means the Effective Date of and as defined in, the
Conversion Agreement.
"OTC Bulletin Board" means the over-the-counter electronic bulletin board.
"Other Common" means any other Capital Stock of the Issuer of any class which
shall be authorized at any time after the date of this Warrant (other than
Common Stock) and which has the right to participate in the distribution of
earnings and assets of the Issuer without limitation as to amount.
"Person" means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint
venture, Governmental Authority or other entity of any kind or description.
"Per Share Market Value" means on any particular date (a) the closing sale price
for a share of Common Stock in the over-the-counter market, as reported by the
OTC Bulletin Board or The Pink Sheets, LLC (or similar organization or agency
succeeding to its functions of reporting prices), or as reported by such other
senior United States trading facility as the Issuer may elect, at the close of
business on such date, or (b) if the Common Stock is not then reported by the
OTC Bulletin Board or the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices) or by
such other senior United States trading facility as the Issuer may elect, then
the average of the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the Board, or (c) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by the Board in good faith; provided, however, that the Majority Holders, within
twenty (20) days after receipt of the determination by the Board, shall have the
right to select, jointly with the Issuer, an Independent Appraiser, in which
case, the fair market value shall be the determination by such Independent
Appraiser; and provided, further that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period. The determination of fair market
value shall be based upon the fair market value of the Issuer determined on a
going concern basis as between a willing buyer and a willing seller and taking
into account all relevant factors determinative of value, and shall be final and
binding on all parties. In determining the fair market value of any shares of
Common Stock, no consideration shall be given to any restrictions on transfer of
the Common Stock imposed by agreement or by federal or state securities laws, or
to the existence or absence of, or any limitations on, voting rights.
"Registration Statement" means the registration statement on Form SB-2, or other
similar form, registering the Warrant Shares as described in Section 4 of the
Conversion Agreement.
"Securities" means any debt or equity securities of the Issuer, whether now or
hereafter authorized or issued, any instrument convertible into or exchangeable
for one or more Securities, and any option, warrant or other right to purchase
or acquire any Security. "Security" means one of the Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any similar
federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose outstanding Voting
Stock shall at the time be owned directly or indirectly by the Issuer or by one
or more of its Subsidiaries, or by the Issuer and one or more of its
Subsidiaries.
"Term" has the meaning specified in Section 2 hereof.
"Trading Day" means (a) a day on which the Common Stock is traded on the OTC
Bulletin Board, or (b) if the Common Stock is not traded on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
as reported by The Pink Sheets, LLC (or any similar organization or agency
succeeding its functions of reporting prices) or such other senior United States
trading facility as in the issuer may elect; provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a) or (b)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of California are authorized or required by law or other government action
to close.
"Triggering Event" means the occurrence of any one or more of the
events described in Section 5(a)(i) of this Warrant Certificate.
"Voting Stock" means, as applied to the Capital Stock of any corporation,
Capital Stock of any class or classes (however designated) having ordinary
voting power for the election of a majority of the members of the Board of
Directors (or other governing body) of such corporation, other than Capital
Stock having such power only by reason of the happening of a contingency.
"Warrants" means the Common Stock purchase warrants evidenced by this Warrant
Certificate, and any other purchase warrants of like tenor issued in
substitution or exchange for any thereof pursuant to the provisions of Sections
3(c), 3(d), 3(e) or 3(f) hereof or of any of such other Warrants.
"Warrant Certificate" means this certificate evidencing the Holders' ownership
of the Warrants evidenced hereby, as the same may be amended or modified in
accordance with the provisions hereof.
"Warrant Price" means Eighty-Two cents $0.82, as such price may be adjusted from
time to time as shall result from the adjustments specified in this Warrant,
including Section 5 hereof.
"Warrant Share Number" means at any time the aggregate number of Warrant Shares
which may at such time be purchased upon exercise of this Warrant, after giving
effect to all prior adjustments to such number made or required to be made under
the terms hereof.
"Warrant Shares" means shares of Common Stock issuable upon exercise of any
Warrant or Warrants or otherwise issuable pursuant to any Warrant or Warrants.
2. Term. The right to subscribe for and purchase Warrant Shares represented
hereby shall commence on November 19, 2004 and shall expire at 5:00 pm, Pacific
Time, on the Expiration Date (such period sometimes herein called the "Term").
3. Method of Exercise and Payment; Issuance of New Warrant Certificates;
Transfer and Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may be
exercised in whole or in part at any time and from time to time during the Term,
and this Warrant shall be considered exercised on the date (the "Exercise Date")
that (i) the amount payable under Section 3(b) is received in full by the Issuer
in immediately available U.S. dollar-denominated funds in the account of the
Issuer at a financial institution designated from time to time by the Issuer
pursuant to the Conversion Agreement, or (ii) the Holder executes the cashless
exercise right provided for in, and pursuant to the conditions of, Section 3(c)
below.
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in whole or
in part, by (1) a facsimile transmission executed and sent to the attention of
the Secretary of the Issuer, and (2) the physical surrender on the next Trading
Day of this Warrant (with the exercise form attached hereto duly executed) at
the principal office of the Issuer, and (2) by the payment in full to the order
of the Issuer on the next Trading Day of an amount of cash equal to the Warrant
Price in effect on the Exercise Date multiplied by the number of Warrant Shares
with respect to which this Warrant is then being exercised, payable in
immediately available U.S. dollar-denominated funds, by check or federal wire
transfer in to the account of the Issuer at a financial institution designated
from time to time by the Issuer.
(c) Cashless Exercise. Notwithstanding any provisions herein to the contrary, if
the underlying Warrant Shares are not registered by November 19, 2005, and if
the closing bid price for one share of Common Stock at the close of business on
the date of exercise in the over-the-counter market as reported by the OTC
Bulletin Board, or as reported by The Pink Sheets, LLC or similar organization
or agency succeeding to its functions of reporting prices, or as reported by
such other senior United States trading facility as the Issuer may elect (the
"Per Share Market Price"), is greater than the Exercise Price on the date of
exercise, then the Holder may exercise this Warrant by a cashless exercise, in
lieu of exercising this Warrant by payment of cash, and shall receive the number
of shares of Common Stock equal to the amount determined below by surrender of
this Warrant at the principal office of the Issuer together with a properly
endorsed Notice of Exercise, in which event the Issuer shall issue to the Holder
a number of shares of Common Stock computed using the following formula:
X = (Y) (B)-(A)
-------
B
Where:
X = the number of shares of Common Stock to be issued to the Holder;
Y = the number of shares of Common Stock purchasable upon exercise of all of
the Warrant or, if the Holder makes only a partial exercise, the number of
Warrant Shares underlying the portion hereof being exercised at such time;
A = the Exercise Price;
B = the Per Share Market Value of one share of Common Stock.
(d) Issuance of Stock Certificates. In the event of any exercise of the rights
represented by this Warrant in accordance with and subject to the terms and
conditions hereof, (i) certificates for the Warrant Shares so purchased shall be
dated as of the Exercise Date and delivered to the Holder hereof within a
reasonable time, not exceeding three (3) Trading Days after the Exercise Date,
and the Holder hereof shall be deemed for all purposes to be the Holder of the
Warrant Shares so purchased as of the Exercise Date and (ii) unless this Warrant
has expired, a new Warrant representing the number of Warrant Shares, if any,
with respect to which this Warrant shall not then have been exercised (less any
amount thereof which shall have been canceled in payment or partial payment of
the Warrant Price as hereinabove provided) shall also be issued to the Holder
hereof at the Issuer's expense within such time.
(e) Transferability of Warrant. Subject to Section 3(g) below, this Warrant may
be transferred by a Holder without the consent of the Issuer. If transferred
pursuant to this Section 3(e), and subject to the provisions of said Section
3(g), this Warrant may be transferred on the books of the Issuer by the Holder
hereof in person or by duly authorized attorney, upon surrender of this Warrant
at the principal office of the Issuer, properly endorsed (by the Holder
executing an assignment in the form attached hereto) and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
This Warrant is exchangeable at the principal office of the Issuer for Warrants
for the purchase of the same aggregate number of Warrant Shares, each new
Warrant to represent the right to purchase such number of Warrant Shares as the
Holder hereof shall designate at the time of such exchange. All Warrants issued
on transfers or exchanges shall be dated the Original Issue Date and shall be
identical to this Warrant except as to the number of Warrant Shares issuable
pursuant hereto.
(f) Continuing Rights of Holder. The Issuer will, at the time of or at any time
after each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing the extent, if any, of its continuing obligation to
afford to such Holder all rights to which such Holder shall continue to be
entitled after such exercise in accordance with the terms of this Warrant,
provided that if any such Holder shall fail to make any such request, the
failure shall not affect the continuing obligation of the Issuer to afford such
rights to such Holder.
(g) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges that
this Warrant and the Warrant Shares to be issued upon exercise hereof are being
acquired solely for such Holder's own account, and not as a nominee for any
other party, and solely for purposes of investment, and that such Holder will
not offer, sell or otherwise dispose of this Warrant or any Warrant Shares to be
issued upon exercise hereof except pursuant to an effective registration
statement, or an exemption from registration, under the Securities Act and any
applicable state securities laws.
(ii) Except as provided in clause (iii) below, this Warrant Certificate
and all certificates representing Warrant Shares issued upon exercise hereof,
shall be stamped or imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR HIENERGY TECHNOLOGIES, INC. SHALL HAVE
RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED.
(iii) The restrictions imposed by this Section 3(f) upon the transfer
of this Warrant and the Warrant Shares to be purchased upon exercise hereof
shall terminate (A) when such securities shall have been resold pursuant to an
effective registration statement under the Securities Act, (B) upon the Issuer's
receipt of an opinion of counsel, in form and substance reasonably satisfactory
to the Issuer, addressed to the Issuer, to the effect that such restrictions are
no longer required to ensure compliance with the Securities Act and state
securities laws or (C) upon the Issuer's receipt of other evidence reasonably
satisfactory to the Issuer that such registration and qualification under the
Securities Act and state securities laws are not required. Whenever such
restrictions shall cease and terminate as to any such securities, the Holder
thereof shall be entitled to receive from the Issuer (or its transfer agent and
registrar), without expense (other than applicable transfer taxes, if any), a
new Warrant Certificate (or, in the case of Warrant Shares, new stock
certificates) of like tenor not bearing the applicable legend required by clause
(ii) above.
4. Stock Fully Paid; Reservation and Listing of Shares; Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and agrees that
all Warrant Shares which may be issued upon the exercise of this Warrant, and
any shares of capital stock otherwise issuable hereunder will, upon issuance, be
duly authorized, validly issued, fully paid and non-assessable and free from all
taxes, liens and charges created by, through or under the Issuer.
(b) Reservation. The Issuer covenants and agrees that during the period within
which this Warrant may be exercised, the Issuer will at all times have
authorized and reserved for the purpose of the issue upon exercise of this
Warrant a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant in full. If any shares of Common Stock required to be
reserved for issuance upon exercise of this Warrant or as otherwise provided
hereunder require registration or qualification with any governmental authority
under any federal or state law before such shares may be so issued, the Issuer
will, upon notice from the Holder of such requirement, in good faith use its
best efforts as expeditiously as possible at its expense to cause such shares to
be duly registered or qualified. If the Issuer shall list any shares of Common
Stock on any securities exchange or market it will, at its expense, list
thereon, maintain and increase when necessary such listing of all Warrant Shares
from time to time issued upon exercise of this Warrant or as otherwise provided
hereunder and, to the extent permissible under the applicable securities
exchange rules, all unissued Warrant Shares which are at any time issuable
hereunder, so long as any shares of Common Stock shall be so listed. The Issuer
will also so list on each securities exchange or market, and will maintain such
listing of any other securities which the Holder of this Warrant shall be
entitled to receive upon the exercise of this Warrant if at the time any
securities of the same class shall be listed on such securities exchange or
market by the Issuer.
(c) Covenants. The Issuer shall not by any action, including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect the rights of the Holders of
the Warrants, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this Warrant,
and (iv) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
reasonably necessary to enable the Issuer to perform its obligations under this
Warrant.
(d) Loss, Theft or Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant Certificate and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security satisfactory to the
Issuer or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant Certificate, the Issuer will make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant Certificate, a new Warrant
Certificate of like tenor and representing the right to purchase the same number
of shares of Common Stock.
5. Adjustment of Warrant Price and Warrant Share Number. The number of shares of
Common Stock for which this Warrant is exercisable, and the price at which such
shares may be purchased upon exercise of this Warrant, shall be subject to
adjustment from time to time as set forth in this Section 5. The Issuer shall
give the Holder notice of any event described below which requires an adjustment
pursuant to this Section 5 in accordance with Section 6 hereof.
(a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or
Sale.
(i) In case the Issuer after the Original Issue Date shall do any of
the following (each, a "Triggering Event"): (a) consolidate with or merge into
any other Person if the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) permit any other Person to
consolidate with or merge into the Issuer and the Issuer shall be the continuing
or surviving Person but, in connection with such consolidation or merger, any
Capital Stock of the Issuer shall be changed into or exchanged for Securities of
any other Person or cash or any other property, or (c) transfer all or
substantially all of its properties or assets to any other Person, or (d) effect
a capital reorganization or reclassification of its Capital Stock, then, and in
the case of each such Triggering Event, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this Warrant, the
Holder of this Warrant shall be entitled upon the exercise hereof at any time
after the consummation of such Triggering Event, to the extent this Warrant is
not exercised prior to such Triggering Event, to receive at the Warrant Price in
effect at the time immediately prior to the consummation of such Triggering
Event in lieu of the Common Stock issuable upon such exercise of this Warrant
prior to such Triggering Event, the Securities, cash and property to which such
Holder would have been entitled upon the consummation of such Triggering Event
if such Holder had exercised the rights represented by this Warrant immediately
prior thereto, subject to adjustments (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for elsewhere in this
Section 5.
(ii) Notwithstanding anything contained in this Warrant Certificate to
the contrary, the Issuer will not effect any Triggering Event if, prior to the
consummation thereof, each Person (other than the Issuer) which may be required
to deliver any Securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer
under this Warrant (and if the Issuer shall survive the consummation of such
Triggering Event, such assumption shall be in addition to, and shall not release
the Issuer from, any continuing obligations of the Issuer under this Warrant)
and (B) the obligation to deliver to such Holder such amount of securities, cash
or property as, in accordance with the foregoing provisions of this Section
5(a), such Holder shall be entitled to receive, and such Person shall have
similarly delivered to such Holder an opinion of counsel for such Person, which
counsel shall be reasonably satisfactory to such Holder, stating that this
Warrant shall thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of this Section 5(a))
shall be applicable to the securities, cash or property which such Person may be
required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.
(b) Stock Dividends, Subdivisions and Combinations. If at any time the Issuer
shall:
(i) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then (1) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (2) the Warrant Price then in
effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment.
(c) Form of Warrant after Adjustments. The form of this Warrant need not be
changed because of any adjustments in the Warrant Price or the number and kind
of Securities purchasable upon the exercise of this Warrant.
(d) Escrow of Warrant Shares. If after any property becomes distributable
pursuant to this Section 5 by reason of the taking of any record of the holders
of Common Stock, but prior to the occurrence of the event for which such record
is taken, and the Holder exercises this Warrant, any shares of Common Stock
issuable upon exercise by reason of such adjustment shall be deemed the last
shares of Common Stock for which this Warrant is exercised (notwithstanding any
other provision to the contrary herein) and such shares or other property shall
be held in escrow for the Holder by the Issuer to be issued to the Holder upon
and to the extent that the event actually takes place, upon payment of the
current Warrant Price. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur or is
rescinded, then such escrowed shares shall be cancelled by the Issuer and
escrowed property returned.
(e) Registration Rights. The Issuer shall use its best efforts to cause a
Registration Statement that includes the Warrant Shares, and remains effective
to December 31, 2005 or any earlier date when all the shares issuable under the
Note and the Warrants are or may be sold under Rule 144.
6. Notice of Adjustments. Whenever the Warrant Price or Warrant Share Number
shall be adjusted pursuant to Section 5 hereof (for purposes of this Section 6,
each an "adjustment"), the Issuer shall cause its Chief Financial Officer to
prepare and execute a certificate setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board made any determination hereunder), and the Warrant Price and Warrant Share
Number after giving effect to such adjustment, and shall cause copies of such
certificate to be delivered to the Holder of this Warrant promptly after each
adjustment. Any dispute between the Issuer and the Holder of this Warrant with
respect to the matters set forth in such certificate may at the option of the
Holder of this Warrant be submitted to one of the nationally-recognized
accounting firms selected by the Holder, provided that the Issuer shall have ten
(10) days after receipt of notice from such Holder of its selection of such firm
to object thereto, in which case such Holder shall select another such firm and
the Issuer shall have no such right of objection. The firm selected by the
Holder of this Warrant as provided in the preceding sentence shall be instructed
to deliver a written opinion as to such matters to the Issuer and such Holder
within thirty (30) days after submission to it of such dispute. Such opinion
shall be final and binding on the parties hereto.
7. Fractional Shares. No fractional Warrant Shares will be issued in connection
with and exercise hereof, but in lieu of such fractional shares, the Issuer
shall make a cash payment therefore equal in amount to the product of the
applicable fraction multiplied by the Per Share Market Value then in effect.
8. Call. Notwithstanding anything herein to the contrary, commencing any time
during the effectiveness of the registration statement registering the Warrant
Shares, the Issuer, at its option, may call up to one hundred percent (100%) of
this Warrant if the Per Share Market Value of the Common Stock has been equal to
or greater than $2.50 per share for the Call Notice Period by providing the
Holder of this Warrant with the Call Notice. The rights and privileges granted
pursuant to this Warrant with respect to the Called Warrant Shares shall expire
on the Early Termination Date if this Warrant is not exercised with respect to
such Called Warrant Shares prior to such Early Termination Date. In the event
this Warrant is not exercised with respect to the Called Warrant Shares, the
Issuer shall remit to the Holder of this Warrant (i) $.01 per Called Warrant
Share and (ii) a new Warrant representing the number of Warrant Shares, if any,
which shall not have been subject to the Call Notice upon the Holder tendering
to the Issuer the e applicable Warrant certificate.
9. Ownership Cap and Certain Exercise Restrictions.
[INTENTIONALLY OMMITTED]
10. Other Notices. In case at any time:
(a) the Issuer shall make any distributions to the holders of Common Stock; or
(b) the Issuer shall authorize the granting to all holders of its Common Stock
or rights to subscribe for or purchase any shares of Capital Stock of any class
or other rights; or
(c) there shall be any reclassification of the Capital Stock of the Issuer; or
(d) there shall be any capital reorganization by the Issuer; or
(e) there shall be any (i) consolidation or merger involving the Issuer or (ii)
sale, transfer or other disposition of all or substantially all of the Issuer's
property, assets or business (except a merger or other reorganization in which
the Issuer shall be the surviving corporation and its shares of Capital Stock
shall continue to be outstanding and unchanged and except a consolidation,
merger, sale, transfer or other disposition involving a wholly-owned
Subsidiary); or
(f) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Issuer or any partial liquidation of the Issuer or
distribution to holders of Common Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least twenty
(20) days prior to the action in question and not less than twenty (20) days
prior to the record date or the date on which the Issuer's transfer books are
closed in respect thereto. The Holder shall have the right to send two (2)
representatives selected by it to each meeting, who shall be permitted to
attend, but not vote at, such meeting and any adjournments thereof. This Warrant
entitles the Holder to receive copies of all financial and other information
distributed or required to be distributed to the holders of the Common Stock.
11. Amendment and Waiver. Any term, covenant, agreement or condition in this
Warrant may be amended, or compliance therewith may be waived (either generally
or in a particular instance and either retroactively or prospectively), by a
written instrument or written instruments executed by the Issuer and the
Majority Holders; provided, however, that no such amendment or waiver shall
reduce the Warrant Share Number, increase the Warrant Price, shorten the period
during which this Warrant may be exercised or modify any provision of this
Section 11 except with the consent of the Holder of this Warrant or pursuant to
this Warrant Certificate.
12. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW.
13. Notices. All notices, requests, consents or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., eastern
time, on a Business Day, or if not, then on the next Business Day, (ii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service specifying next-day delivery with verification of
delivery or (iii) actual receipt by the party to whom such notice is required to
be given. The addresses for such communications shall be at the relevant
Holder's last known address or facsimile number appearing on the books of the
Issuer maintained for such purposes, or with respect to the Issuer, addressed
to:
HiEnergy Technologies, Inc.
0000-X Xxxxx Xxxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: Corporate Secretary
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
Copies of notices to the Holder shall be sent to the attorney indicated in the
signature pages to this Warrant. Any party hereto may from time to time change
its or its attorney's address for notices by giving at least ten (10) days
written notice of such changed address to the other party hereto.
14. Warrant Transfer Agent. The Issuer may, but shall not be obligated to, by
written notice to each Holder of this Warrant, appoint an agent or more than one
agent for the purpose of being directly involved with Holder in respect to
issuing Warrant Shares upon the exercise of this Warrant pursuant to subsections
(b) and (c) of Section 3 hereof, transferring or exchanging this or any other
Warrant Certificate pursuant to subsection (e) of Section 3 hereof, or replacing
this or any other Warrant Certificate pursuant to subsection (d) of Section 4
hereof, or any of the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such agent or
agents, as designated from time to time by the Issuer.
15. Remedies. The Issuer stipulates that the Holder's remedies at law in the
event of any default or threatened default by the Issuer in the performance of
or compliance with any of the terms of this Warrant, and the Holder likewise
stipulates that the Issuer's remedies at law, are not and will not be adequate
and that, to the fullest extent permitted by law, such terms may be specifically
enforced by a decree for the specific performance of any agreement contained
herein, interim relief, or by an injunction for performance or against a
violation of any of the terms hereof. This Warrant is acquired by the Holder
pursuant to and subject to the terms of the Conversion Agreement.
16. Successors and Assigns. All respective rights, powers and privileges and
respective obligations evidenced by this Warrant Certificate shall inure to the
benefit of and be binding upon the Issuer and only the registered successors and
registered assigns of the Holder hereof and (to the extent provided herein) the
Holders of Warrant Shares issued pursuant hereto, and shall be enforceable by
any such Holder or Holder of Warrant Shares.
17. Modification and Severability. If, in any action before any court or agency
legally empowered to enforce any provision contained herein, any provision
hereof is found to be unenforceable, then such provision shall be deemed
modified to the extent necessary to make it enforceable by such court or agency.
If any such provision is not enforceable as set forth in the preceding sentence,
the unenforceability of such provision shall not affect the other provisions of
this Warrant, but this Warrant shall be construed as if such unenforceable
provision had never been contained herein.
18. Headings. The headings of the Sections of this Warrant Certificate are for
convenience of reference only and shall not, for any purpose, be deemed to
modify any other term or provision of this Agreement.
IN WITNESS WHEREOF, the Issuer has executed this Warrant to Purchase Shares of
Common Stock of HiEnergy Technologies, Inc., Warrant No. W-___, as of the date
and year first above written.
HIENERGY TECHNOLOGIES, INC.
By:
Name: Xx. Xxxxxx X. Xxxxxxx
Title: Chief Executive Officer
Schedule A
Schedule of Holders
(Accurate only as of the date first set forth above, and subject to future
changes in the registered Holder as listed above and successors and assigns
registered pursuant to the Warrant.)
Registered Holder Copy To
----------------- -------
HIENERGY TECHNOLOGIES, INC.
EXERCISE FORM
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase ___________ shares of Common Stock of
HiEnergy Technologies, Inc. covered by the within Warrant (W-___).
Dated: _________________
Signature: ___________________________
Address: ___________________________
___________________________
Tax ID. No.: ___________________________
HIENERGY TECHNOLOGIES, INC.
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _________________, attorney, to transfer the
said Warrant (W-____) on the books of the within named corporation.
Dated: ________________
Assignor Name: ______________________________
Signature: ______________________________
Address: ______________________________
______________________________
Tax ID. No.: ______________________________
Assignee Name: ______________________________
Address: ______________________________
______________________________
Tax ID. No.: ______________________________
HIENERGY TECHNOLOGIES, INC
PARTIAL ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ Warrant Shares evidenced by
the within Warrant together with all rights therein, and does irrevocably
constitute and appoint ___________________, attorney, to transfer that part of
the said Warrant (W-____) on the books of the within named corporation.
Dated: ________________
Assignor Name: ______________________________
Signature: ______________________________
Address: ______________________________
______________________________
Tax ID. No.: ______________________________
Assignee Name: ______________________________
Address: ______________________________
______________________________
Tax ID. No.: ______________________________
HIENERGY TECHNOLOGIES, INC.
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant in accordance with
the provisions of Section 3(c) thereof )
The undersigned ______________hereby irrevocably elects a cashless exercise of
the right of purchase represented by the within the Warrant for, and to purchase
thereunder, ______________ shares of Common Stock, as provided for in Section 3
(c) thereof.
If said number of shares shall not be all the shares purchasable under the
within the Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder
rounded up to the next higher number of shares.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional shares to:
NAME: ___________________________________________
(Please Print Name)
ADDRESS: ___________________________________________
___________________________________________
SOCIAL SECURITY NUMBER: ________________________________
SIGNATURE: ________________________________
NOTE: The above signature should correspond exactly with the name on the first
page of this Warrant or with the name the assignee appearing in the assignment
form on the preceding page.
