EXHIBIT 10.9
EXECUTION COPY
PRECISION OPTICS CORPORATION, INC.
STOCK SUBSCRIPTION AGREEMENT
1. Special Situations Cayman Fund, L.P., a Delaware limited
partnership, hereby subscribes for 125,000 shares (the "Shares") of the Common
Stock, $0.01 par value (the "Common Stock"), of Precision Optics Corporation,
Inc., a Massachusetts corporation (the "Company"); Special Situations Fund III,
L.P., a Delaware limited partnership, hereby subscribes for 375,000 Shares;
Special Situations Private Equity Fund, L.P., a Delaware limited partnership,
hereby subscribes for 350,000 Shares; and Special Situations Technology Fund,
L.P., a Delaware limited partnership (collectively with Special Situations
Cayman Fund, L.P., Special Situations Fund III, L.P., and Special Situations
Private Equity Fund, L.P., the "Investors"), hereby subscribes for 150,000
Shares, in each case subject to and in reliance upon the Company's
representations and warranties to the Investors contained herein. In
consideration for the Shares, each Investor agrees to pay to the Company the
amount of $1.0625 per share in full payment for the Shares. In connection with
the purchase of the Shares, the Company will issue to the Investors warrants
(the "Warrants") exercisable for an additional aggregate of 1,000,000 shares of
Common Stock (the "Warrant Shares"), subject to the terms and conditions set
forth in the Warrants.
2. The Investors hereby agree that all of the Shares which they acquire
and any of their right, title or interest in such Shares shall be subject to the
terms and conditions of this Agreement, and that all of the Warrant Shares which
they acquire and any of their right, title or interest in such Warrant Shares
shall be subject to the terms and conditions of this Agreement and the terms and
conditions of the Warrants.
3. The Investors represent and warrant to the Company that they are
acquiring the Shares for their own accounts for investment only and not with a
view to any resale or distribution thereof, and the Investors agree that they
will not sell or otherwise dispose of the Shares in violation of the provisions
of the Securities Act of 1933, as amended (the "Securities Act"), or any
applicable state securities laws. The Investors understand that the Company is
selling the Shares to the Investors in a transaction that is exempt from the
Securities Act's registration requirements and from the registration
requirements of any applicable state securities laws and that the Investors must
hold the Shares indefinitely unless they are subsequently offered for sale and
sold in a transaction or transactions registered under the Securities Act or
such state laws or an exemption from registration (such as Rule 144) is
available. The Investors understand that, except as provided in the Registration
Rights Agreement dated as of August 5, 1999 by and among the Company and the
Investors, the
Company is under no obligation to register the Shares under the Securities Act
or such state laws or to file for an exemption from registration under the
Securities Act or such state laws. The Investors further understand that the
Company is under no obligation to comply with any other exemption from
registration and that such exemptions are extremely limited and may not be
available at such time or times as the Investors may wish to sell or otherwise
dispose of the Shares. The Investors understand that the certificate or
certificates representing the Shares will bear the following legend restricting
their transfer and that a notation restricting such transfer will be made on the
stock transfer books of the Company:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT OR SUCH STATE LAWS."
4. The Investors represent and warrant to the Company that (i) each
Investor is an "Accredited Investor," as that term is defined in Regulation D
under the Securities Act, (ii) each Investor possesses such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment contemplated hereby, is able to incur a
complete loss of such investment and is able to bear the economic risk of such
investment for an indefinite period of time and (iii) each Investor has
previously participated as an investor in private placement transactions exempt
from the registration requirements of the Securities Act.
5. Except as set forth in the Schedule of Exceptions attached hereto as
Exhibit A, the Company represents and warrants to the Investors as follows:
(a) ORGANIZATION AND GOOD STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of The Commonwealth of Massachusetts, and has all necessary corporate power and
authority to own or lease its assets and to carry on its business as it is now
being conducted and presently proposed to be conducted. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which its ownership or leasing of assets, or the conduct of
its business, makes such qualification necessary. The Company has no
subsidiaries and no equity interests in any corporation, partnership, joint
venture or other entity.
(b) REQUISITE POWER AND AUTHORIZATION. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder, including without limitation the
issuance and delivery of the Shares and the Warrants, all corporate action of
the Company required for the execution and delivery of this Agreement and the
issuance and delivery of the Shares and the Warrants have been duly and
effectively taken and no further actions, authorizations or consents, including
without
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limitation by any of the shareholders of the Company, are required. Each of this
Agreement and the Warrants constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditor's rights
and (ii) as limited by general principles of equity that restrict the
availability of equitable remedies. The Shares, when issued and delivered in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and non-assessable, free and clear of any and all liens, charges, claims or
encumbrances. The Warrant Shares, if and when issued and delivered in compliance
with the provisions of this Agreement and the Warrants, as the case may be, will
be validly issued, fully paid and non-assessable, free and clear of any and all
liens, charges, claims or encumbrances. Assuming the truth and accuracy of the
representations and warranties of the Investors contained in this Agreement, at
the time of each respective issuance, each of the Shares and the Warrant Shares
will be issued in compliance with Federal and state securities laws. The Company
has reserved a sufficient number of shares of Common Stock necessary for
issuance of the Warrant Shares.
(c) SEC DOCUMENTS. Since June 30, 1998, the Company has timely
filed with the Securities and Exchange Commission (the "SEC") all reports,
statements, schedules and other documents (collectively, the "SEC Documents")
required to be filed by it pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements included in the SEC Documents (the
"Financial Statements") complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Except (i) as may be indicated in the notes to the
Financial Statements or (ii) in the case of the unaudited interim statements, as
permitted by Form 10-QSB under the Exchange Act, the Financial Statements have
been prepared in accordance with U.S. generally accepted accounting principles
consistently applied and fairly present in all material respects the financial
position of the Company as of the dates thereof and the consolidated results of
operations and consolidated cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal recurring year-end adjustments).
Other than liabilities incurred in the ordinary course of business subsequent to
the date of such Financial Statements, there are no liabilities of the Company,
whether absolute, contingent or otherwise, which have not been reflected in the
Financial Statements, which liabilities, individually or in the aggregate, are
material to the financial condition or operating results of the Company.
(d) CAPITALIZATION. The capitalization of the Company as of
the date hereof is as reflected on the Company's Form 10-QSB for the fiscal
quarter ended March 31, 1999 (except for changes resulting from the exercise of
options or warrants since such date).
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(e) NO CONFLICTS. Neither the execution, delivery or
performance by the Company of this Agreement nor the consummation of the
transactions contemplated hereby has constituted or resulted in, or will
constitute or result in, a default under or breach or violation of any term or
provision of the Articles of Organization or bylaws of the Company or material
contracts to which the Company is a party or Federal or state laws, rules or
regulations, writs, orders, judgments or decrees which are applicable to the
Company or its respective assets.
(f) CONSENTS. No approval, consent, order, authorization or
other action by, or notice to or filing with, any governmental authority or
regulatory or self-regulatory agency, or any other person or entity, and no
lapse of a waiting period, is required in connection with the execution,
delivery or performance by the Company, or enforcement against the Company, of
this Agreement, the issuance and delivery of the Shares or the Warrant Shares or
any other transactions contemplated hereby.
(g) NO MATERIAL ADVERSE CHANGE. Since March 31, 1999, the
business of the Company has been operated in the ordinary course and
substantially consistent with past practice, and there has not been any material
adverse change in the business, assets, financial condition, results of
operations, affairs or prospects of the Company (a "Material Adverse Change").
Since March 31, 1999, the Company has not (i) paid any obligation or liability
other than, or discharged or satisfied any liens or encumbrances other than
those securing, current liabilities, in each case in the ordinary course of
business; (ii) declared or made any payment or distribution to its stockholders
as such, or purchased or redeemed any of its shares of capital stock or other
securities, or obligated itself to do so; (iii) mortgaged, pledged or subjected
to any lien, charge, security interest or other encumbrance any of its assets,
tangible or intangible, except in the ordinary course of business; (iv) sold,
transferred or leased any of its assets except for fair value in the ordinary
course of business; (v) increased the compensation payable to any of its
officers or other employees, consultants or representatives by greater than
$50,000; (vi) canceled or compromised any debt or claim, or waived or released
any right of material value; (vii) entered into any transaction other than in
the ordinary course of business; (viii) issued or sold any shares of capital
stock or other securities (other than in connection with the exercise of options
or warrants) or granted any options, warrants or other purchase rights with
respect thereto; or (ix) agreed to do any of the foregoing (other than pursuant
this to Agreement).
(h) LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company, or any of their respective directors or officers in their
capacities as such, that questions the validity of this Agreement or the
issuance of the Shares, or the right of the Company to enter into this Agreement
or to consummate the transactions contemplated hereby, or that might result,
either individually or in the aggregate, in any Material Adverse Change or in
any change in the current equity ownership of the Company. The Company is not a
party to and has not had entered against it any order, writ, injunction,
judgment, stipulation or decree of any court,
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administrative agency, commission, regulatory authority, other government agency
or instrumentality or self-regulatory agency.
(i) NO DEFAULT. The Company is not in violation of or default
under any provision of its Articles of Organization or by-laws or in default
under (and no event has occurred which, with notice or lapse of time or both,
would put the Company in default under), nor has there occurred any event giving
others (with notice or lapse of time of both) any rights of termination,
amendment, acceleration or cancellation of, any contract, commitment, indenture
or instrument to which the Company is a party or by which it or its properties
or assets is bound or affected except for possible defaults or rights which
would not, individually or in the aggregate, result in a Material Adverse
Change. To the best of the Company's knowledge, no other party is in material
default under or in material breach or violation of any material contact,
commitment or instrument to which the Company is a party or by which any of its
properties or assets are bound or affected.
(j) COMPLIANCE WITH LAWS. The Company is in compliance and has
conducted its business and operations so as to comply with all applicable laws
(including, without limitation, environmental laws), ordinances, rules and
regulations, judgments, decrees or orders of any court, administrative agency,
commission, regulatory authority or other governmental or administrative body or
instrumentality, whether domestic or foreign. The Company has not during the
past three years received any notice relating to any violation or potential
violation of any applicable laws or regulations.
(k) TITLE. The Company has good and marketable title to all
real and personal property owned by it which is material to the business of the
Company free and clear of all liens, encumbrances and defects. Any property,
real or personal, held under lease by the Company is held by it under valid and
enforceable leases.
(l) INTELLECTUAL PROPERTY. The Company owns, or possesses
adequate and enforceable rights to use, all trademarks, trademark applications,
trade names, service marks, copyrights, copyright applications, licenses,
permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge and, to its knowledge, all
patents and patent applications (collectively, "Intangibles") necessary for the
conduct of its business. To the knowledge of the Company, the Company has not
infringed or currently infringes or is in conflict with any right of any other
person with respect to any Intangibles that are material to the conduct of the
business of such person.
(m) REGISTRATION RIGHTS. The Company has not granted or agreed
to grant any registration rights, including piggyback rights, to any person or
entity other than the Investors.
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(n) NASDAQ REQUIREMENTS. The Common Stock has been designated
for inclusion in the Nasdaq Small Cap Market upon prior application and meets
all applicable requirements of the Nasdaq Stock Market ("Nasdaq") Marketplace
Rule 4300 Series or any other applicable requirements for such listing. The
issuance and sale of the Shares will not, when issued and sold in accordance
with this Agreement, violate any applicable rule of Nasdaq. The Company has not
received notification, written or oral, that (i) the termination of the
inclusion of the Common Stock on the Nasdaq SmallCap Market is pending or under
consideration or (ii) the Company has failed to satisfy any requirement of
Nasdaq. The Company does not reasonably anticipate that the Common Stock will be
delisted from Nasdaq in the foreseeable future.
(o) REGISTRATION STATEMENT. The Company is currently eligible
to register the resale of its Common Stock under the Securities Act under a
registration statement on Form S- 3. To the best of the Company's knowledge,
there exist no facts or circumstances that would inhibit or delay the
preparation and filing of a registration statement on Form S-3 with respect to
the Shares or the Warrant Shares.
(p) NO MISREPRESENTATION. No representation or warranty by the
Company in this Agreement and no statements of the Company contained in any
document (including without limitation any SEC Document), certificate, schedule
or other information furnished or to be furnished by or on behalf of the Company
pursuant to this Agreement or in connection with the transactions contemplated
hereby contains or shall contain any untrue statement of material fact or omits
or shall omit to state a material fact required to be stated therein or
necessary in order to make such statements, in light of the circumstances under
which they were made, not misleading. The Company has delivered true and
complete copies of all documents requested by the Investor.
6. The Investors acknowledge receipt from the Company of the following
documents, which they have carefully considered:
(a) The Company's Form 10-KSB for the fiscal year ended June
30, 1998.
(b) The Company's Forms 10-QSB for the fiscal quarters ended
September 30, 1998, December 31, 1998 and March 31, 1999.
7. All notices hereunder shall be in writing and shall be deemed to be
delivered if in writing addressed as provided below and if either (i) actually
delivered at said address or (ii) five business days shall have elapsed after
the same shall have been deposited in the United States mails (by first class or
certified mail):
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To the Company at the following address:
Precision Optics Corporation, Inc.
00 Xxxx Xxxxxxxx
Xxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxxx, Chief Financial Officer
Fax No.: (000) 000-0000
with a copy to:
Ropes & Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Attn: Xxxxxxx X'Xxxxx, Esq.
Fax No.: (000) 000-0000
To the Investors at the following address:
Special Situations Cayman Fund, L.P.
Special Situations Fund III, L.P.
Special Situations Private Equity Fund, L.P.
Special Situations Technology Fund, L.P.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxx
Fax No.: (000) 000-0000
Any party may change the address to which notices are to be sent to
him, her or it by notifying all the other parties listed above in writing of
such address change.
8. This Agreement shall be binding on and inure to the benefit of the
Investors' successors, and permitted assigns.
9. The representations, warranties, covenants, and agreements contained
herein shall survive the execution and delivery of this Agreement, it being
understood that the representations and warranties are only being made as of the
date hereof or as of a specific date if so indicated in such representation or
warranty.
10. This Agreement shall be governed by and construed in accordance
with the domestic substantive laws of the State of New York, without giving
effect to any choice or conflict of law provision or rule that would cause the
application of the domestic substantive laws of any other jurisdiction.
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11. Each of the parties agrees that all actions, suits or proceedings
arising out of or based upon this Agreement or the subject matter hereof may be
brought and maintained in the federal and state courts of The State of New York.
Each of the parties hereto by execution hereof: (i) hereby irrevocably submits
to the jurisdiction of the federal and state courts in The State of New York for
the purpose of any action, suit or proceeding arising out of or based upon this
Agreement or the subject matter hereof and (ii) hereby waives to the extent not
prohibited by applicable law, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that he
or it is not subject personally to the jurisdiction of the above-named courts,
that he or it is immune from extraterritorial injunctive relief or other
injunctive relief, that his or its property is exempt or immune from attachment
or execution, that any such action, suit or proceeding may not be brought or
maintained in one of the above-named courts, that any such action, suit or
proceeding brought or maintained in one of the above-named courts should be
dismissed on grounds of FORUM NON CONVENIENS, should be transferred to any court
other than one of the above-named courts, should be stayed by virtue of the
pendency of any other action, suit or proceeding in any court other than one of
the above-named courts, or that this Agreement or the subject matter hereof may
not be enforced in or by any of the above-named courts. Each of the parties
hereto hereby consents to service of process in any such suit, action or
proceeding in any manner permitted by the laws of The State of New York, agrees
that service of process by registered or certified mail, return receipt
requested, at the address specified in Section 7 hereof is reasonably calculated
to give actual notice and waives and agrees not to assert by way of motion, as a
defense or otherwise, in any such action, suit or proceeding any claim that such
service of process does not constitute good and sufficient service of process.
[Remainder of this page intentionally left blank.]
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Intending to be legally bound hereby, the undersigned have duly
executed this Agreement as of August 5, 1999.
SPECIAL SITUATIONS CAYMAN FUND, L.P.
By: /S/Xxxxxx X. Xxxxx
---------------------------------
Title: Managing Director
SPECIAL SITUATIONS FUND III, L.P.
By: /S/Xxxxxx X. Xxxxx
---------------------------------
Title: Managing Director
SPECIAL SITUATIONS PRIVATE EQUITY
FUND, L.P.
By: /S/Xxxxxx X. Xxxxx
---------------------------------
Title: Managing Director
SPECIAL SITUATIONS TECHNOLOGY
FUND, L.P.
By: /S/Xxxxxx X. Xxxxx
---------------------------------
Title: Managing Director
[Stock Subscription Agreement]
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For and in consideration of the above subscription and in reliance upon
the Investors' representations and covenants to the Company contained herein,
the Company hereby accepts the subscription of the Investors to the extent of
1,000,000 Shares, and promptly upon receipt in full of the aforesaid payment,
the Company will cause certificates for the Shares and the Warrants to be issued
and delivered to the Investors, free and clear of any liens, adverse claims,
charges, or other encumbrances.
PRECISION OPTICS CORPORATION
By: /S/ Xxxxxxx X. Xxxxxx
-------------------------------
Xxxxxxx X. Xxxxxx
President
Dated as of: August 5, 1999
