EXHIBIT 10.5
NOTE PURCHASE AGREEMENT
-----------------------
NOTE PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April 6, 1998 by
and among ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), with
headquarters located at ▇▇ ▇▇▇▇, ▇▇ ▇▇, ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and each
of the purchasers (collectively, the "PURCHASERS") set forth on the execution
pages hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. The Purchasers desire to purchase, upon the terms and conditions stated
in this Agreement, up to Four Hundred Ten Thousand Dollars ($410,000) in
aggregate principal amount of promissory notes of the Company, in the form
attached hereto as Exhibit A (the "NOTES"). All interest which may become due
and payable by the Company in accordance with the terms of the Notes shall be
paid, at the Company's option, either (i) in cash or (ii) through the issuance
of shares of the Company's Class A Common Stock, par value $.01 per share (the
"COMMON STOCK"). The shares of Common Stock issuable as payment of interest due
on the Notes are referred to herein as the "NOTE SHARES." The Notes and the
Note Shares are collectively referred to herein as the "SECURITIES."
C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
a. Purchase of Notes. On the Closing Date (as defined below), subject to
the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, the Company shall issue and sell to each Purchaser, and each
Purchaser severally agrees to purchase from the Company, Note(s) in the
aggregate principal amount set forth on such Purchaser's Execution Page hereto.
Each Purchaser's obligation to purchase Notes hereunder is distinct and separate
from the other Purchasers' obligation to purchase Notes and no Purchaser shall
be required to purchase hereunder
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more than the aggregate principal amount of Notes set forth on such Purchaser's
Execution Page hereto notwithstanding any failure by the other Purchasers to
purchase Notes hereunder.
b. Form of Payment. On the Closing Date, each Purchaser shall pay the
aggregate principal amount of the Notes being purchased by such Purchaser
hereunder by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of the duly executed Notes being
purchased by such Purchaser and the Company shall deliver such Notes against
delivery of such aggregate principal amount. The Company hereby acknowledges
that in connection with the purchase of the Notes hereunder by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
an amount of $85,000 has been delivered to the Company by wire transfer on March
26, 1998 which amount shall be credited towards such Purchaser's purchase price
on the Closing Date.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Notes pursuant to this Agreement (the "CLOSING")
shall be 12:00 noon, New York City time, on April 7, 1998, or such other time as
may be mutually agreed upon by the parties (the "CLOSING DATE"). The Closing
shall occur at the offices of Klehr, Harrison, ▇▇▇▇▇▇, Branzburg & ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company as follows:
a. Investment Purpose. The Purchaser is purchasing the Securities for the
Purchaser's own account for investment purposes and not with a present view
towards the public sale or distribution thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. The Purchaser understands that the
Purchaser must bear the economic risk of this investment indefinitely, unless
the Securities are registered pursuant to the Securities Act and any applicable
state securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering any such
Securities other than as contemplated by the Registration Rights Agreement.
Notwithstanding anything in this Section 2(a) to the contrary, by making the
representations herein, the Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
b. Accredited Investor Status. The Purchaser is an "ACCREDITED INVESTOR"
as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Purchaser understands that the Securities
are being offered and sold to the Purchaser in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
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determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Securities.
d. Information. The Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
specifically requested by the Purchaser or its counsel. The Purchaser and its
counsel have been afforded the opportunity to ask questions of the Company and
have received what the Purchaser believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by the Purchaser or its counsel or any of its representatives shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. The Purchaser
understands that its investment in the Securities involves a high degree of
risk.
e. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or (b)
the Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred under an exemption from such
registration, or (c) sold under Rule 144 promulgated under the Securities Act
(or a successor rule) ("RULE 144"), or (d) sold or transferred to an affiliate
of the Purchaser; and (ii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement).
g. Legends. The Purchaser understands that the Notes and, until such time
as the Note Shares have been registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement or otherwise may be sold by the Purchaser under
Rule 144, the certificates for the Note Shares may bear a restrictive legend in
substantially the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
state of the United States. The securities represented hereby may not be
offered or sold in the absence of an effective registration statement for
the securities under applicable securities laws unless offered, sold or
transferred under an available exemption from the registration requirements
of those laws.
The legend set forth above shall be removed and the Company shall issue a
certificate without
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such legend to the holder of any Security upon which such legend is stamped, if,
unless otherwise required by state securities laws, (a) the sale of such
Security is registered under the Securities Act (including registration pursuant
to Rule 416 thereunder), or (b) such holder provides the Company with an opinion
of counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act or (c) such
holder provides the Company with reasonable assurances that such Security can be
sold under Rule 144. The Purchaser agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed,
pursuant to an effective registration statement or under an exemption from the
registration requirements of the Securities Act. In the event the above legend
is removed from any certificate(s) and thereafter the effectiveness of a
registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance notice to the Purchaser the
Company may require that the above legend be placed on any such Security and the
Purchaser shall cooperate in the prompt replacement of such legend. Such legend
shall be removed when such Security may be sold pursuant to an effective
registration statement or sold under Rule 144.
h. Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of the Purchaser and are valid and binding agreements of the Purchaser
enforceable in accordance with their terms.
i. Residency. The Purchaser is a resident of the jurisdiction set forth
under the Purchaser's name on the Execution Page hereto executed by such
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as follows:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as it is now
being conducted. The Company and each of its subsidiaries is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on (i) the Securities, (ii) the ability of the Company to perform its
obligations hereunder and under the Notes or the Registration Rights Agreement
or (iii) the business, operations, properties, prospects or financial condition
of the Company and its subsidiaries, taken as a whole.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Notes and the Registration Rights Agreement, to issue and
sell the Notes in accordance with the terms hereof and to issue the Note Shares
in accordance with the terms of the Notes; (ii) the execution, delivery and
performance of this Agreement, the Notes and the Registration Rights Agreement
by the Company
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and the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Notes and the issuance and
reservation for issuance of the Note Shares) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board or Directors or its stockholders is required (under the rules
promulgated by the National Association of Securities Dealers ("NASD") or
otherwise); (iii) this Agreement has been duly executed and delivered by the
Company; and (iv) this Agreement constitutes, and, upon execution and delivery
by the Company of the Notes and the Registration Rights Agreement, such
agreements will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities exercisable for, or convertible into or
exchangeable for any shares of capital stock and the number of shares to be
reserved for issuance pursuant hereto is set forth on Schedule 3(c). All of
such outstanding shares of capital stock have been, or upon issuance will be,
validly issued, fully paid and nonassessable. No shares of capital stock of the
Company (including the Note Shares) are subject to preemptive rights or any
other similar rights of the stockholders of the Company or any liens or
encumbrances. Except for the obligation of the Company to issue the Note Shares
in accordance with the terms of the Notes and except as disclosed in Schedule
3(c), as of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Securities Act (except the
Registration Rights Agreement). Except as set forth on Schedule 3(c), there are
no securities or instruments containing antidilution or similar provisions that
will be triggered by the issuance of the Securities in accordance with the terms
of this Agreement or the Notes. The Company has furnished to each Purchaser
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-
laws as in effect on the date hereof (the "BY-LAWS"), and all other instruments
and agreements governing securities convertible into or exercisable or
exchangeable for capital stock of the Company.
d. Issuance of Note Shares. The Note Shares are duly authorized and
reserved for issuance in accordance with the terms of the Notes, and, upon
issuance in accordance with the terms of the Notes, will be validly issued,
fully paid and non-assessable, and free from all taxes, liens, claims and
encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Notes by the Company, and
the consummation by the
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Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Notes and the issuance and reservation for
issuance of the Note Shares) will not (i) result in a violation of the
Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including U.S. federal and
state securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its subsidiaries is in default (and no event
has occurred which, with notice or lapse of time or both, would put the Company
or any of its subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for actual or possible violations, defaults or rights as would not, individually
or in the aggregate, have a Material Adverse Effect. The businesses of the
Company and its subsidiaries are not being conducted, and shall not be conducted
so long as the Notes are outstanding or any Purchaser beneficially owns any of
the Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for actual or possible violations, if any, the
sanctions for which either singly or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws, the
Company is not required to obtain any consent, approval, authorization or order
of, or make any filing or registration with, any court or governmental agency or
any regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Notes, in each case in accordance with the terms hereof or
thereof. The Company is not in violation of the listing requirements of The
Nasdaq Smallcap Market ("NASDAQ") and the Company does not reasonably anticipate
that the Common Stock will be delisted by NASDAQ for the foreseeable future.
f. SEC Documents, Financial Statements. Since December 31, 1993, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") (all of the foregoing filed prior to the date hereof and after December
31, 1993, and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
hereinafter referred to herein as the "SEC DOCUMENTS"). The Company has
delivered to the Purchaser true and complete copies of the SEC Documents, except
for the exhibits and schedules thereto and the documents incorporated therein.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a
6
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. None of the statements
made in any such SEC Documents is, or has been, required to be updated or
amended under applicable law. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to immaterial year-end
audit adjustments). Except as set forth in the financial statements of the
Company included in the SEC Documents filed prior to the date hereof, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of such
financial statements and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in such financial statements,
which liabilities and obligations referred to in clauses (i) and (ii),
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
g. Absence of Certain Changes. Since December 31, 1996, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 3(g) or in the SEC Documents
filed prior to the date hereof.
h. Absence of Litigation. Except as disclosed in the SEC Documents filed
prior to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-
regulatory organization or body pending or, to the knowledge of the Company or
any of its subsidiaries, threatened against or affecting the Company, any of its
subsidiaries, or any of their respective directors or officers in their
capacities as such which will have a Material Adverse Effect. There are no
facts which, if known by a potential claimant or governmental authority, could
give rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its subsidiaries, could have a Material
Adverse Effect.
i. Intellectual Property. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, 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 (collectively, "INTANGIBLES")
necessary for the conduct of its business as now being conducted and as
described in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. To the best knowledge of the Company, neither the Company
nor any subsidiary of the Company infringes or is in conflict with any right of
7
any other person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect. Neither the Company nor any of its subsidiaries
has received written notice of any pending conflict with or infringement upon
such third party Intangibles. Neither the Company nor any of its subsidiaries
has entered into any consent, indemnification, forbearance to ▇▇▇ or settlement
agreements with respect to the validity of the Company's or its subsidiaries'
ownership or right to use its Intangibles and, to the best knowledge of the
Company, there is no reasonable basis for any such claim to be successful. The
Intangibles are valid and enforceable and no registration relating thereto has
lapsed, expired or been abandoned or canceled or is the subject of cancellation
or other adversarial proceedings, and all applications therefor are pending and
in good standing. The Company and its subsidiaries have complied, in all
material respects, with their respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best knowledge
of the Company, no person is infringing on or violating the Intangibles owned or
used by the Company of its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
k. Disclosure. All information relating to or concerning the Company set
forth in this Agreement or provided to the Purchasers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been publicly
disclosed but, under applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed on the date hereof by
the Company under the Securities Act with respect to a primary issuance of the
Company's securities.
l. Acknowledgment Regarding the Purchasers' Purchase of the Securities.
The Company acknowledges and agrees that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, and the relationship
between the Company and each of the Purchasers is "arms length" and that any
statement made by any Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to each Purchaser's purchase
of Securities and has not been relied upon by the Company, its officers or
directors in any way. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement has been based solely on an
independent evaluation by the Company and its representatives.
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m. Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement).
n. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
o. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offerers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
p. Brokers. The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
by any Purchaser relating to this Agreement or the transactions contemplated
hereby except for dealings with The Zanett Securities Corporation, whose
commissions and fees will be paid by the Company.
q. Tax Status. Except as set forth in the SEC Documents filed prior to
the date hereof or on Schedule 3(q), the Company and each of its subsidiaries
has made or filed all federal, state and local income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to any statute of limitations
relating to the assessment or collection of any federal, state or local tax.
None of the Company's tax returns has been or is being audited by any taxing
authority.
r. Title. The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(r) or such as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to
9
be made of such property by the Company and its subsidiaries. Any real property
and facilities held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as are
not material and do not materially interfere with the use made and proposed to
be made of such property and buildings by the Company and its subsidiaries.
s. Absence of Events of Default. No Event of Default (as defined in the
Notes) and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default, has occurred and is continuing.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchasers on or prior to the
Closing Date.
c. Reporting Status. So long as the Notes are outstanding or any
Purchaser beneficially owns any of the Securities, the Company shall timely file
all reports required to be filed with the SEC pursuant to the Exchange Act, and
the Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Notes as set forth on Schedule 4(d).
e. Financial Information. The Company agrees to send the following reports
to each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy
statements and any Current Reports on Form 8-K; and (ii) within one (1) business
day after release, copies of all press releases issued by the Company or any of
its subsidiaries.
f. Reservation of Shares. The Company shall at all times have authorized
and reserved for the purpose of issuance a sufficient number of shares of Common
Stock to provide for the issuance of the Note Shares required by the Notes.
g. Listing. The Company shall promptly secure the listing of the Note
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of Common
10
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all of the Note Shares. The Company will take all action necessary to
continue the listing and trading of its Common Stock on the NASDAQ, the Nasdaq
National Market ("NNM"), the New York Stock Exchange ("NYSE") or the American
Stock Exchange ("AMEX") and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of such
exchanges and the NASD, as applicable. In the event the Common Stock is not
eligible to be traded on any of the NASDAQ, NNM, NYSE or AMEX and the Common
Stock is not eligible for listing on any such exchange or system, the Company
shall use its best efforts to cause the Common Stock to be eligible for trading
on the over-the-counter bulletin board at the earliest practicable date and
remain eligible for trading while any Securities are outstanding. The Company
shall promptly provide to the Purchasers copies of any notices it receives
regarding the continued eligibility of the Common Stock for trading in the over-
the-counter market or, if applicable, any securities exchange (including the
NASDAQ) on which securities of the same class or series issued by the Company
are then listed or quoted, if any.
h. Corporate Existence. So long as the Notes are outstanding or any
Purchaser beneficially owns any Note Shares, the Company shall maintain its
corporate existence, except in the event of a merger, consolidation or sale of
all or substantially all of the Company's assets, as long as the surviving or
successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the Notes and the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose common stock
is listed for trading on the NASDAQ, NNM, NYSE or AMEX.
i. Redemptions and Dividends. So long as any of the Notes are
outstanding, the Company shall not, without first obtaining the written approval
of each of the holders of the Notes, redeem, or declare or pay any cash dividend
or distribution on, any shares of capital stock of the Company.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Note Shares in
such amounts as specified from time to time by such Purchaser to the Company.
To the extent and during the periods provided in Section 2(f) and Section 2(g)
of this Agreement, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement.
b. The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof in the case of the transfer of the Note Shares prior to
registration of the Note Shares under the Securities Act or without an exemption
therefrom, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the Notes and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
each Purchaser's obligations and agreement set forth in Section 2(g) hereof to
resell the Securities pursuant to an effective registration statement or under
an
11
exemption from the registration requirements of applicable securities law.
c. If a Purchaser provides the Company with an opinion of counsel, which
opinion of counsel shall be in form, substance and scope customary for opinions
of counsel in comparable transactions, to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
registration, or a Purchaser provides the Company with reasonable assurances
that such Securities may be sold under Rule 144, the Company shall permit the
transfer, and, in the case of the Note Shares, promptly instruct its transfer
agent to issue one or more certificates in such name and in such denominations
as specified by such Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Notes to a
Purchaser hereunder is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
a. The applicable Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
b. The applicable Purchaser shall have delivered the aggregate principal
amount of the Note(s) being purchased by it in accordance with Section 1(b)
above.
c. The representations and warranties of the applicable Purchaser shall be
true and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and the applicable Purchaser shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
applicable Purchaser at or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Notes hereunder
is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for such Purchaser's
sole benefit and may be waived by such Purchaser at any time in the Purchaser's
sole discretion:
a. The Company shall have executed the signature page to this Agreement
and the
12
Registration Rights Agreement, and delivered the same to such Purchaser.
b. The Company shall have delivered to such Purchaser the duly executed
Note(s) being purchased by such Purchaser (in such denominations as such
Purchaser shall request) in accordance with Section 1(b) above.
c. The Common Stock shall be authorized for quotation on the NASDAQ and
trading in the Common Stock (or the NASDAQ generally) shall not have been
suspended by the SEC or the NASDAQ.
d. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. Such Purchaser shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by such Purchaser.
e. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of, any of the transactions contemplated by this Agreement.
f. Such Purchaser shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit C
attached hereto.
g. The Company shall have delivered evidence reasonably satisfactory to
the Purchasers that the Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit D.
---------
h. No material adverse change or development in the business, operations,
properties, prospects, financial condition, or results of operations of the
Company shall have occurred since the date hereof.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in the City of New York in the State of New York in any
suit or proceeding based on or arising under this Agreement and irrevocably
agrees that all claims in
13
respect of such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company further agrees that service of process upon
the Company mailed by first class mail shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
Nothing herein shall affect the right of any Purchaser to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the other agreements
and instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchasers
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived other than by an
instrument in writing signed by the party to be charged with enforcement and no
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and each Purchaser.
f. Notices. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
14
If to the Company:
Advanced Environmental Recycling
Technologies, Inc.
▇▇ ▇▇▇▇
▇▇ ▇▇, ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
With a copy to:
Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇, Esq.
If to a Purchaser, to the address set forth under such Purchaser's name on
the signature page hereto executed by the Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Except as
provided herein, neither the Company nor any Purchaser shall assign this
Agreement or any rights or obligations hereunder. Notwithstanding the
foregoing, any Purchaser may assign its rights hereunder to any of its
"affiliates," as that term is defined under the Exchange Act, without the
consent of the Company or to any other person or entity with the consent of the
Company. This provision shall not limit a Purchaser's right to transfer the
Securities pursuant to the terms of this Agreement, the Notes or the
Registration Rights Agreement or to assign such Purchaser's rights hereunder
and/or thereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of any Purchasers. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies a Purchaser may have under applicable federal or state securities laws.
15
j. Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC, NASDAQ or NASD filings, or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchasers, to make any press release or SEC, NASDAQ or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing Date shall not have
occurred on or before April 7, 1998, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
m. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Notes and
the Registration Rights Agreement. As such, the language used herein and
therein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any party to this Agreement.
n. Equitable Relief. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Purchaser by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
hereunder (including, but not limited to, its obligations pursuant to Section 5
hereof) will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement (including, but not
limited to, its obligations pursuant to Section 5 hereof), that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
o. "TRADING DAY" and "BUSINESS DAY" shall mean any day on which the New
York Stock Exchange is open for trading.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
PURCHASER:
HERIOT HOLDINGS, LTD.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
RESIDENCE:
------------------------
ADDRESS:
------------------------
------------------------
------------------------
------------------------
------------------------
Telecopy:
---------------
Attention:
--------------
with a copy to:
The Zanett Securities Corporation
Tower 49 - 31st Floor
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $100,000
17
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
PURCHASER:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
RESIDENCE: Italy
ADDRESS:
c/o The Zanett Securities Corporation
Tower 49 - 31st Floor
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $280,000
18
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
PURCHASER:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
RESIDENCE: New York
ADDRESS:
▇/▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE PRINCIPAL AMOUNT OF NOTES: $30,000
19