EXHIBIT 4.8
ADVANCED OPTICS ELECTRONICS, INC.
SECURITIES PURCHASE AGREEMENT
August 30, 2001
TABLE OF CONTENTS
Page
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1. AGREEMENT TO SELL AND PURCHASE.............................................1
2. FEES AND WARRANTS..........................................................1
3. CLOSING, DELIVERY AND PAYMENT..............................................2
3.1 Closing...........................................................2
3.2 Delivery..........................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................2
4.1 Organization, Good Standing and Qualification.....................2
4.2 Subsidiaries......................................................2
4.3 Capitalization; Voting Rights.....................................3
4.4 Authorization; Binding Obligations................................3
4.5 Liabilities.......................................................4
4.6 Agreements; Action................................................4
4.7 Obligations to Related Parties....................................4
4.8 Changes...........................................................5
4.9 Title to Properties and Assets; Liens, Etc........................5
4.10 Intellectual Property.............................................6
4.11 Compliance with Other Instruments.................................6
4.12 Litigation........................................................6
4.13 Tax Returns and Payments..........................................6
4.14 Employees.........................................................7
4.15 Registration Rights and Voting Rights.............................7
4.16 Compliance with Laws; Permits.....................................7
4.17 Environmental and Safety Laws.....................................7
4.18 Valid Offering....................................................7
4.19 Full Disclosure...................................................8
4.20 Insurance.........................................................8
4.21 SEC Reports.......................................................8
4.22 No Market Manipulation............................................8
4.23 Listing...........................................................8
4.24 No Integrated Offering............................................8
4.25 Stop Transfer.....................................................8
4.26 Dilution..........................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...........................9
5.1 Requisite Power and Authority.....................................9
5.2 Investment Representations........................................9
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5.3 Purchaser Bears Economic Risk.....................................9
5.4 Acquisition for Own Account.......................................9
5.5 Purchaser Can Protect Its Interest................................9
5.6 Accredited Investor...............................................9
5.7 Legends...........................................................9
6. COVENANTS OF THE COMPANY..................................................10
6.1 Stop-Orders......................................................10
6.2 Listing..........................................................10
6.3 Market Regulations...............................................11
6.4 Reporting Requirements..........................................11
6.5 Use of Funds.....................................................11
6.6 Access to Facilities.............................................11
6.7 Taxes............................................................11
6.8 Insurance........................................................11
6.9 Books and Records................................................11
6.10 Intellectual Property............................................12
6.11 Properties.......................................................12
6.12 Confidentiality..................................................12
6.13 Required Approvals...............................................12
6.14 Reissuance of Securities.........................................13
6.15 Opinion..........................................................13
7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION.........13
7.1 Company Indemnification..........................................13
7.2 Purchaser's Indemnification......................................13
7.3 Procedures.......................................................13
8. CONVERSION OF CONVERTIBLE NOTES...........................................14
8.1 Mechanics of Conversion..........................................14
8.2 Mandatory Redemption.............................................14
8.3 Maximum Conversion...............................................15
8.4 Injunction - Posting of Bond.....................................15
8.5 Buy-In...........................................................15
9. REGISTRATION RIGHTS.......................................................15
9.1 Registration Rights Granted......................................15
9.2 Registration Procedures..........................................17
9.3 Provision of Documents...........................................17
9.4 Non-Registration Events..........................................18
9.5 Expenses.........................................................18
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9.6 Indemnification and Contribution.................................18
10. OFFERING RESTRICTIONS.....................................................20
11. INTENTIONALLY OMITTED.....................................................27
12. MISCELLANEOUS.............................................................20
12.1 Governing Law....................................................20
12.2 Survival.........................................................21
12.3 Successors and Assigns...........................................21
12.4 Entire Agreement.................................................21
12.5 Severability.....................................................21
12.6 Amendment and Waiver.............................................21
12.7 Delays or Omissions..............................................21
12.8 Notices..........................................................21
12.9 Attorneys' Fees..................................................22
12.10 Titles and Subtitles.............................................22
12.11 Counterparts.....................................................22
12.12 Broker's Fees....................................................22
12.13 Indemnification..................................................22
12.14 Construction.....................................................22
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ADVANCED OPTICS ELECTRONICS, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of August 30, 2001, by and among Advanced Optics Electronics, Inc., a
Nevada corporation (the "Company"), and the Purchaser listed on Exhibit A hereto
(the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale of 8% Convertible Notes in an
aggregate principal amount of $200,000 (the "Notes"), convertible into shares of
the Company's common stock, $0.001 par value per share (the "Common Stock");
WHEREAS, the Company wishes to issues warrants (the "Warrants") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Notes;
WHEREAS, Purchaser desires to purchase the Notes and Warrants on the terms
and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Notes and Warrants to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company Notes in the amount set forth next to the Purchaser's
name on Exhibit A under the column heading "Closing Date Notes," convertible in
accordance with the terms thereof into shares of the Company's Common Stock,
which amount shall be equal to $200,000. The Notes purchased on the Closing Date
shall be known as the "Offering." The form of Notes is annexed hereto as Exhibit
B. The Notes will have a Maturity Date (as defined in the Notes) two years from
the date of issuance. Collectively, the Notes and Warrants (as defined in
Section 2) and Common Stock issuable upon conversion of the Notes and exercise
of the Warrants are referred to as the "Securities."
2. FEES AND WARRANTS.
(a) The Company will issue and deliver to the persons listed on
Exhibit A under the column heading "Warrant Holders", or to such other
persons as the Purchaser shall otherwise designate (such named persons, as
they may be so otherwise designated, being referred to as the "Warrant
Recipients"), Warrants to purchase shares of Common Stock in the amounts
designated on Exhibit A hereto in connection with the Offering (the
"Warrants") pursuant to Section 1 hereof. The Warrants must be delivered on
the Closing Date. The aggregate number of shares of Common Stock
purchasable upon exercise of the Warrants granted on the Closing Date is
set forth on Exhibit A hereto. A form of Warrant is annexed hereto as
Exhibit C. The per share "Purchase Price" of Common Stock as defined in the
Warrants shall be equal to the lowest closing bid price of the Common Stock
as reported by Bloomberg Financial for the Pink Sheets, the NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market, American
Stock Exchange, or New York Stock Exchange (each of the foregoing the
"Principal Market"), or such other principal market or exchange where the
Common Stock is listed or traded, for the ten (10) trading days preceding
but not including the Closing Date. All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or
granted to or for the benefit of
Purchaser are hereby also made and granted to the holders of the Warrants
in respect of the Warrants and shares of the Company's Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares").
(b) The Company shall reimburse Purchaser for its reasonable legal
fees of $6,000 for services rendered to Purchaser in preparation of this
Agreement and the Related Agreements. Amounts required to be paid hereunder
will be paid at the Closing.
(c) The Company will pay (x) a cash fee in the amount of ten percent
(10%) of the aggregate gross purchase price to be paid to the Company from
the sale of Notes in the Offering and (y) a cash fee in the amount of ten
percent (10%) of the aggregate gross proceeds received by the Company upon
exercise of the Warrants (the "Warrant Exercise Compensation" and,
collectively with the fees referred to in subsection (x) above, the "Fund
Manager's Fee") to the persons listed on Exhibit A under the column heading
"Fund Manager's Fee Recipient." The Fund Manager's Fee must be paid on the
Closing Date. The Warrant Exercise Compensation must be paid by the Company
within ten (10) days of the exercise of a Warrant by the holder thereof.
The aforementioned Fund Manager's Fee and legal fees will be payable at the
Closing out of funds held pursuant to a Funds Escrow Agreement to be
entered into by the Company, Purchaser and an Escrow Agent. Failure to
timely deliver the Fund Manager's Fee, Warrant Exercise Compensation or the
Warrants shall be deemed an Event of Default as defined in Article III of
the Notes.
3. CLOSING, DELIVERY AND PAYMENT.
3.1 Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), which closing is comprised of
Purchaser's purchase of Notes in the aggregate principal amount of $200,000,
shall take place on the date hereof, at the offices of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other
time or place as the Company and Purchaser may mutually agree (such date is
hereinafter referred to as the "Closing Date").
3.2 Delivery. At the Closing, subject to the terms and conditions hereof,
the Company will deliver to the Purchaser an applicable Note representing the
aggregate principal amount borrowed by the Company at the Closing from the
Purchaser and a warrant certificate registered in the Purchaser's name
representing the number of Warrant Shares as to which the Warrant is exercisable
pursuant to this Agreement, against payment of the purchase price therefor by
certified funds or wire transfer made payable to the order of the Company,
cancellation of indebtedness or any combination of the foregoing.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of the date
of this Agreement as set forth below.
4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, the Warrants to be issued in connection with this Agreement, the
Funds Escrow Agreement, the Security Agreement and all other agreements referred
to herein (collectively, the "Related Agreements"), to issue and sell the Notes
and the shares of Common Stock issuable upon conversion of the Notes (the
"Conversion Shares"), to issue and sell the Warrants and the Warrant Shares, and
to carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted and as presently proposed to be
conducted. The Company is duly qualified and is authorized to do business and is
in good standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so would not have a material adverse effect on the Company or its business.
4.2 Subsidiaries. Except as disclosed on Schedule 4.2, the Company does not
own or control any equity security or other interest of any other corporation,
limited partnership or other business entity. If
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any entity is listed on Schedule 4.2. and the Company owns a controlling
interest in such entity, each of the representations and warranties set forth in
this Section 4 are being hereby restated with respect to such entity (modified
as appropriate to the nature of such entity.)
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, immediately prior to
the Closing, consists of (i) 150,000,000 shares of Common Stock, par value
$0.001 per share, 65,819,285 shares of which are issued and outstanding,
and (ii) 10,000,000 shares of Preferred Stock, par value $0.001 per share,
no shares of which are issued and outstanding.
(b) Other than (i) the shares reserved for issuance under the
Company's Stock Option Plan; and (iii) shares which may be granted pursuant
to this Agreement and the Related Agreements, there are no outstanding
options, warrants, rights (including conversion or preemptive rights and
rights of first refusal), proxy or stockholder agreements, or arrangements
or agreements of any kind for the purchase or acquisition from the Company
of any of its securities. Neither the offer, issuance or sale of any of the
Notes or Warrants, or the issuance of any of the Conversion Shares or
Warrant Shares, nor the consummation of any transaction contemplated hereby
will result in a change in the price or number of any securities of the
Company outstanding, under anti-dilution or other similar provisions
contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common Stock
and Preferred Stock (to the extent Preferred Stock has been issued) (i)
have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) were issued in compliance with all applicable state
and federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares
of Series A Preferred Stock and the Common Stock are as stated in the
Amended Articles of Incorporation (the "Amended Charter"). The Conversion
Shares and Warrant Shares have been duly and validly reserved for issuance.
When issued in compliance with the provisions of this Agreement and the
Company's Amended Charter, the Notes, Warrants, Conversion Shares and
Warrant Shares (sometimes collectively referred to herein as the
"Securities") will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; provided, however, that the
Securities may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
(e) No stock plan, stock purchase, stock option or other agreement or
understanding between the Company and any holder of any equity securities
or rights to purchase equity securities provides for acceleration or other
changes in the vesting provisions or other terms of such agreement or
understanding as the result of any merger, consolidated sale of stock or
assets, change in control or any other transaction(s) by the Company,
including the transactions contemplated hereunder.
(f) The provisions of NSR 78.378 to 78.3793, inclusive, of the Nevada
Revised Statutes, do not apply to the purchase of any Securities by the
Purchasers, or to, or as a result of, any of the matters or actions
contemplated in this Agreement or in any of the Related Agreements. The
Company is not an "issuing corporation" as such term is defined in NRS
78.3788 of the Nevada Revised Statutes.
4.4 Authorization; Binding Obligations. All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder at each Closing and the authorization,
sale, issuance and delivery of the Securities pursuant hereto and the Related
Agreements has been taken or will be taken prior to the Closing. The Agreement
and the Related Agreements, when executed and delivered, will be valid and
binding obligations of the Company enforceable in accordance with their terms,
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights, and (b) general principles of equity that restrict the
availability of equitable remedies. The sale of the Notes and the subsequent
conversion of the Notes into Conversion Shares are not and will
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not be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with. The sale of the Warrants and the
subsequent exercise of the Warrants for Warrant Shares are not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with. The Notes and the Warrants, when executed and
delivered in accordance with the terms of this Agreement, will be valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.
4.5 Liabilities. The Company has no material liabilities and, to the best
of its knowledge, knows of no material contingent liabilities, except current
liabilities incurred in the ordinary course of business which have not been,
either in any individual case or in the aggregate, materially adverse.
4.6 Agreements; Action.
(a) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $50,000 (other than obligations of, or payments to,
the Company arising from purchase or sale agreements entered into in the
ordinary course of business), or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from the
Company (other than licenses arising from the purchase of "off the shelf"
or other standard products), or (iii) provisions restricting the
development, manufacture or distribution of the Company's products or
services, or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000 or, in
the case of indebtedness and/or liabilities individually less than $50,000,
in excess of $100,000 in the aggregate, (iii) made any loans or advances to
any person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than
the sale of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
(d) The Company has not engaged in the past two years in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company, or a transaction or series of related transactions in which more
than 50% of the voting power of the Company is disposed of or (iii)
regarding any other form of acquisition, liquidation, dissolution or
winding up of the Company.
4.7 Obligations to Related Parties. There are no obligations of the Company
to officers, directors, stockholders or employees of the Company other than (a)
for payment of salary for services rendered, (b) reimbursement for reasonable
expenses incurred on behalf of the Company and (c) for other standard employee
benefits made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of the Company). None of the officers, directors or stockholders of
the Company, or any members of their immediate families, are indebted to the
Company. None of the officers, directors or, to the best of the Company's
knowledge, key employees or stockholders of the Company or any members of their
immediate families, are indebted to the Company or have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company. No officer, director or stockholder, or any member of
their immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are
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contemplated between the Company and any such person. The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.8 Changes. Since June 30, 2001, there has not been:
(a) Any change in the assets, liabilities, financial condition,
prospects or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had
or is reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer, key employee or
group of employees of the Company;
(c) Any material change, except in the ordinary course of business, in
the contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material
debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other distribution
of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or guaranteed
by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is a
party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects
of the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect
the business, assets, liabilities, financial condition, prospects or
operations of the Company; or
(n) Any arrangement or commitment by the Company to do any of the acts
described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc. The Company has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than (a) those resulting from taxes which have not yet become
delinquent, (b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or
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materially impair the operations of the Company, and (c) those that have
otherwise arisen in the ordinary course of business. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the
Company are in good operating condition and repair and are reasonably fit and
usable for the purposes for which they are being used. The Company is in
compliance with all material terms of each lease to which it is a party or is
otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary
for its business as now conducted and to the Company's knowledge as
presently proposed to be conducted (the "Intellectual Property"), without
any known infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person
or entity other than such licenses or agreements arising from the purchase
of "off the shelf" or standard products.
(b) The Company has not received any communications alleging that the
Company has violated any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity, nor is the Company aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company.
4.11 Compliance with Other Instruments. The Company is not in violation or
default of any term of its Amended Charter or Bylaws, or of any provision of any
mortgage, indenture, contract, agreement, instrument or contract to which it is
party or by which it is bound or of any judgment, decree, order or writ. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements, and the issuance and sale of Securities pursuant hereto,
will not, with or without the passage of time or giving of notice, result in any
such material violation, or be in conflict with or constitute a default under
any such term or provision, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
or the suspension, revocation, impairment, forfeiture or nonrenewal of any
permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.
4.12 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement or the Related Agreements or the
right of the Company to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for any of the foregoing. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
4.13 Tax Returns and Payments. The Company has timely filed all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be due
and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company on or before the
Closing, have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
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4.14 Employees. The Company has no collective bargaining agreements with
any of its employees. There is no labor union organizing activity pending or, to
the Company's knowledge, threatened with respect to the Company. The Company is
not a party to or bound by any currently effective employment contract, deferred
compensation arrangement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation plan or agreement. To the
Company's knowledge, no employee of the Company, nor any consultant with whom
the Company has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company's knowledge the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. The Company is
not aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with their duties to the Company. The Company has not received
any notice alleging that any such violation has occurred. No employee of the
Company has been granted the right to continued employment by the Company or to
any material compensation following termination of employment with the Company.
The Company is not aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with the Company, nor does the
Company have a present intention to terminate the employment of any officer, key
employee or group of employees.
4.15 Registration Rights and Voting Rights. The Company is presently not
under any obligation, and has not granted any rights, to register any of the
Company's presently outstanding securities or any of its securities that may
hereafter be issued. To the Company's knowledge, no stockholder of the Company
has entered into any agreement with respect to the voting of equity securities
of the Company.
4.16 Compliance with Laws; Permits. To its knowledge, the Company is not in
violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement and the
issuance of any of the Securities, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. The Company has all franchises,
permits, licenses and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could materially and
adversely affect the business, properties, prospects or financial condition of
the Company.
4.17 Environmental and Safety Laws. The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. No Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or, to the Company's knowledge, by
any other person or entity on any property owned, leased or used by the Company.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean (a)
materials which are listed or otherwise defined as "hazardous" or "toxic" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or (b)
any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither the Company nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Securities to any person or persons so as
to bring the sale of such Securities by the Company within the registration
provisions of the Securities Act or any state securities laws.
-7-
4.19 Full Disclosure. The Company has provided the Purchaser with all
information requested by the Purchaser in connection with its decision to
purchase the Notes and Warrants, including all information the Company believes
is reasonably necessary to make such investment decision. Neither this
Agreement, the exhibits and schedules hereto, the Related Agreements nor any
other document delivered by the Company to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated hereby
or thereby, contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. To the Company's knowledge, there are no facts which
(individually or in the aggregate) materially adversely affect the business,
assets, liabilities, financial condition, prospects or operations of the Company
that have not been set forth in the Agreement, the exhibits and schedules
hereto, the Related Agreements or in other documents delivered to Purchaser or
its attorneys or agents in connection herewith.
4.20 Insurance. The Company has general commercial, product liability, fire
and casualty insurance policies with coverage customary for companies similarly
situated to the Company.
4.21 SEC Reports. The Company has filed all proxy statements, reports and
other documents required to be filed by it under the Exchange Act. The Company
has furnished the Purchaser with copies of (i) its Annual Report on Form 10-K
for the fiscal year ended December 31, 2000 and (ii) its Quarterly Reports on
Form 10-Q for the fiscal quarter ended March 31, 2001 and June 30, 2001
(collectively, the "SEC Reports"). Each SEC Report was in substantial compliance
with the requirements of its respective form and none of the SEC Reports, nor
the financial statements (and the notes thereto) included in the SEC Reports, as
of their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
4.22 No Market Manipulation. The Company has not taken, and will not take,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.
4.23 Listing. The Company's Common Stock is listed for trading on the NASD
OTC Bulletin Board and satisfies all requirements for the continuation of such
listing. The Company has not received any notice that its Common Stock will be
delisted from the NASD OTC Bulletin Board or that the Common Stock does not meet
all requirements for the continuation of such listing.
4.24 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 offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act which would prevent the Company from
selling the Securities pursuant to Rule 506 under the 1933 Act, or any
applicable exchange-related stockholder approval provisions. Nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.25 Stop Transfer. The Securities are restricted securities as of the date
of this Agreement. The Company will not issue any stop transfer order or other
order impeding the sale and delivery of any of the Securities at such time as
the Securities are registered for public sale or an exemption from registration
is available, except as required by federal securities laws.
4.26 Dilution. The number of shares of Common Stock issuable upon
conversion of the Notes and exercise of the Warrants may increase substantially
in certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to
conversion or exercise of such securities. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The Board
of Directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the shares of
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Common Stock upon conversion of the Notes and exercise of the Warrants is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company with respect to
itself or himself as follows (such representations and warranties do not lessen
or obviate the representations and warranties of the Company set forth in this
Agreement):
5.1 Requisite Power and Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (b) as limited by
general principles of equity that restrict the availability of equitable
remedies.
5.2 Investment Representations. Purchaser understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Purchaser's representations contained
in the Agreement.
5.3 Purchaser Bears Economic Risk. Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. Purchaser must bear the economic risk of this investment until
the Securities are registered pursuant to the Securities Act, or an exemption
from registration is available.
5.4 Acquisition for Own Account. Purchaser is acquiring the Notes for
Purchaser's own account for investment only, and not with a view towards their
distribution.
5.5 Purchaser Can Protect Its Interest. Purchaser represents that by reason
of its, or of its management's, business or financial experience, Purchaser has
the capacity to protect its own interests in connection with the transactions
contemplated in this Agreement, and the Related Agreements. Further, Purchaser
is aware of no publication of any advertisement in connection with the
transactions contemplated in the Agreement.
5.6 Accredited Investor. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.7 Legends.
(a) The Notes shall bear the following legend until the Notes and
Conversion Shares are covered by an effective registration statement filed
with the SEC:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR, IF APPLICABLE, STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ADVANCED OPTICS ELECTRONICS, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
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(b) The Conversion Shares and the Warrant Shares shall bear a legend
which shall be in substantially the following form until such shares are
covered by an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ADVANCED OPTICS ELECTRONICS, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrants shall bear the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ADVANCED OPTICS ELECTRONICS, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the shares of
Common Stock issuable upon conversion of the Notes and upon the exercise of the
Warrants upon the Principal Market upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain such listing
so long as any other shares of Common Stock shall be so listed. The Company will
maintain the listing of its Common Stock on a Principal Market, and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable. The Company will provide the Purchaser copies
of all notices it receives notifying the Company of the threatened and actual
delisting of the Common Stock from any Principal Market.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
-10-
6.4 Reporting Requirements. (a) Until at least four (4) years after the
effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 9.1(d) hereof, the Company will (i)
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all respects with its reporting and
filing obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the Exchange Act, and (iv) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will not take any action or file any document (whether or
not permitted by the Securities Act or the Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Acts until the later of (y) four (4)
years after the effective date of the Registration Statement on Form SB-2 or
such other Registration Statement described in Section 9.1(d) hereof, or (z) the
sale by the Purchaser of all the Securities issuable by the Company pursuant to
this Agreement. Until at least four (4) years after the Warrants have been
exercised, the Company will use its commercial best efforts to continue the
listing of the Common Stock on the NASD OTC Bulletin Board and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and NASDAQ.
6.5 Use of Funds. The Company undertakes to use the proceeds of the
Purchaser's funds for the purposes set forth on Schedule 6.5 attached hereto. A
deviation form the use of proceeds set forth on Schedule 6.5 of more than 10%
per item or more than 20% in the aggregate shall be deemed a material breach of
the Company's obligations hereunder.
6.6 Access to Facilities. The Company will permit any representatives
designated by the Purchaser (or any transferee of the Purchaser), so long as
such person holds any Securities upon reasonable notice and during normal
business hours, at such person's expense and accompanied by a representative of
the Company, to (a) visit and inspect any of the properties of the Company, (b)
examine the corporate and financial records of the Company (unless such
examination is not permitted by federal, state or local law or by contract) and
make copies thereof or extracts therefrom and (c) discuss the affairs, finances
and accounts of any such corporations with the directors, officers and
independent accountants of the Company.
6.7 Taxes. The Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 Insurance. The Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than 100% of
the insurable value of the property insured; and the Company will maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated and to the
extent available on commercially reasonable terms.
6.9 Books and Records. The Company will keep true records and books of
account in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
6.10 Intellectual Property. The Company shall maintain in full force and
effect its corporate existence, rights and franchises and all licenses and other
rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.
-11-
6.11 Properties. The Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
material adverse effect.
6.12 Confidentiality. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
6.13 Required Approvals. For so long as at least 20% of the principal
amount of the Notes are outstanding, the Company, without the prior written
consent of the Purchaser, shall not:
(a) enter into any transaction or series of transactions with any
stockholder director, officer or employee which would require disclosure
pursuant to Rule 404 of the Regulation S-K under the Securities Act;
(b) authorize, create or issue any securities (or any rights or
securities directly or indirectly convertible into or exercisable or
exchangeable for securities) having rights, preferences or privileges
superior the Conversion Shares;
(c) directly or indirectly declare or pay any dividends or make any
distributions upon any of its capital stock or other equity securities (or
any securities directly or indirectly convertible into or exercisable or
exchangeable for equity securities);
(d) directly or indirectly redeem, purchase or otherwise acquire any
of the Corporation's capital stock or other equity securities (including,
without limitation, the Securities or any warrants, options and other
rights to acquire such capital stock or other equity securities) or
directly or indirectly redeem, purchase or make any payments with respect
to any stock appreciation rights, phantom stock plans or similar rights or
plans;
(e) merge or consolidate with any entity or enter into an agreement to
do so;
(f) sell, lease or otherwise dispose of more than 10% of the assets of
the Company (computed on the basis of book value, determined in accordance
with GAAP consistently applied, or fair market value, determined by the
Board of Directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales of
inventory in the ordinary course of business) or sell or permanently
dispose of any of its intellectual property;
(g) liquidate, dissolve or effect a recapitalization, reclassification
or reorganization in any form of transaction (including, without
limitation, any reorganization into a limited liability company, a
partnership or any other non-corporate entity which is treated as a
partnership for federal income tax purposes or a stock split or "reverse"
stock split of the Common Stock);
(h) acquire any interest in any company or business (whether by a
purchase of assets, purchase of stock, merger or otherwise), enter into any
joint venture or make any investments in any other entity;
(i) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's right to
perform the provisions of this Agreement or any of the agreements
contemplated thereby;
(j) create, incur, assume or suffer to exist indebtedness exceeding an
aggregate principal amount of $375,000 outstanding at any time;
-12-
(k) amend, alter or repeal the Company's Bylaws or Restated
Certificate as to increase the number of authorized shares of the Common
Stock or any series of preferred stock, or materially affect the rights or
other powers of the Conversion Shares, or otherwise take any action which
is designed to, or could have the effect of, adversely affecting the rights
or other powers of the Conversion Shares; or
(l) materially alter or change the business of the Company.
6.14 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.7 above
at such time as (a) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the Act, or (b) upon resale subject to
an effective registration statement after such Securities are registered under
the Act. The Company agrees to cooperate with the Purchaser in connection with
all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.15 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel in the form annexed hereto as Exhibit D. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Notes and exercise of the Warrants.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company at all times against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal fees)
of any nature, incurred by or imposed upon the Company which results, arises out
of or is based upon (a) any misrepresentation by Purchaser in this Agreement or
in any exhibits or schedules attached hereto or any Related Agreement; or (b)
any breach or default in performance by Purchaser of any covenant or undertaking
to be performed by Purchaser hereunder, or any other agreement entered into by
the Company and Purchaser relating hereto.
7.3 Procedures. The procedures and limitations set forth in Section 9.6
shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above.
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8. CONVERSION OF CONVERTIBLE NOTES.
8.1 Mechanics of Conversion.
(a) Upon the conversion of the Notes or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates in the name of the Purchaser
(or its nominee) or such other persons as designated by the Purchaser and
in such denominations to be specified representing the number of Conversion
Shares issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to
the transfer agent of the Company's Common Stock and that the Conversion
Shares issued will be unlegended, free-trading, and freely transferable,
and will not contain a legend restricting the resale or transferability of
the Conversion Shares, provided the Purchaser has notified the Company of
the Purchaser's intention to sell the Conversion Shares and the Conversion
Shares are included in an effective registration statement or are otherwise
exempt from registration when sold.
(b) Purchaser will give notice of its decision to exercise its right
to convert the Notes or part thereof by telecopying or otherwise delivering
an executed and completed notice of the number of shares to be converted to
the Company (the "Notice of Conversion"). The Purchaser will not be
required to surrender the Notes until the Purchaser receives a certificate
or certificates, as the case may be, representing the Conversion Shares or
until the Note has been fully satisfied. Each date on which a Notice of
Conversion is telecopied or delivered to the Company in accordance with the
provisions hereof shall be deemed a "Conversion Date." The Company will or
will cause the transfer agent to transmit the Company's Common Stock
certificates representing the shares issuable upon conversion of the Notes
(and a certificate representing the balance of the Notes not so converted,
if requested by Purchaser) to the Purchaser via express courier for receipt
by such Purchaser within three business days after receipt by the Company
of the Notice of Conversion (the "Delivery Date").
(c) The Company understands that a delay in the delivery of the
Conversion Shares in the form required pursuant to Section 8 hereof, or the
Mandatory Redemption Payment described in Section 8.2 hereof, beyond the
Delivery Date or Mandatory Redemption Payment Date (as defined in Section
8.2) could result in economic loss to the Purchaser. As compensation to the
Purchaser for such loss, the Company agrees to pay late payments to the
Purchaser for late issuance of the Conversion Shares in the form required
pursuant to Section 8 hereof upon conversion of the Notes or late payment
of the Mandatory Redemption Payment, in the amount of $100 per business day
after the Delivery Date or Mandatory Redemption Payment Date, as the case
may be, for each $10,000 Note principal being converted or redeemed. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Purchaser, in the event that the Company
fails for any reason to effect delivery of the Conversion Shares by the
Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Purchaser will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company
and the Purchaser shall each be restored to their respective positions
immediately prior to the delivery of such notice, except that late payment
charges described above shall be payable through the date notice of
revocation or rescission is given to the Company.
(d) Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require
the payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall
be credited against amounts owed by the Company to a Purchaser and thus
refunded to the Company.
8.2 Mandatory Redemption. In the event the Company is unable to issue
Conversion Shares on a Delivery Date or at any time when a Note is convertible,
for any reason, then at the Purchaser's election, the Company must pay to the
Purchaser five (5) business days after request by the Purchaser or on the
Delivery Date (if requested by the Purchaser) a sum of money determined by
multiplying the principal of the Note required to be
-14-
converted and not so converted (or otherwise not convertible, as applicable) by
130%, together with accrued but unpaid interest thereon ("Mandatory Redemption
Payment"). The Mandatory Redemption Payment must be received by the Purchaser on
the same date as the Conversion Shares are otherwise deliverable or within five
(5) business days after request, whichever is sooner ("Mandatory Redemption
Payment Date"). Upon receipt of the Mandatory Redemption Payment, the
corresponding Note principal and interest will be deemed paid and no longer
outstanding.
8.3 Maximum Conversion. The Purchaser shall not be entitled to convert on a
Conversion Date that amount of a Note or Notes in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Purchaser on a Conversion Date,
and (ii) the number of shares of Common Stock issuable upon the conversion of
the Notes with respect to which the determination of this proviso is being made
on a Conversion Date, which would result in beneficial ownership by the
Purchaser of more than 4.99% of the outstanding shares of Common Stock of the
Company on such Conversion Date. For the purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. Subject to the foregoing, a Purchaser shall not be limited to
aggregate conversions of only 4.99%. A Purchaser may void the conversion
limitation described in this Section 8.3 upon 75 days prior notice to the
Company or upon an Event of Default under the Note. A Purchaser may allocate
which of the equity of the Company deemed beneficially owned by such Purchaser
shall be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
8.4 Injunction - Posting of Bond. In the event a Purchaser shall elect to
convert a Note or part thereof, the Company may not refuse conversion for any
reason, unless an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of such Purchaser
in the amount of 130% of the amount of the Note, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Purchaser to the extent it obtains judgment.
8.5 Buy-In. In addition to any other rights available to the Purchaser, if
the Company fails to deliver to the Purchaser Conversion Shares by the Delivery
Date and if after the Delivery Date the Purchaser purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by such Purchaser of the Common Stock which the Purchaser anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash
to the Purchaser (in addition to any remedies available to or elected by such
Purchaser) the amount by which (A) the Purchaser's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the
Note, for which such conversion was not timely honored, together with interest
thereon at a rate of 15% per annum, accruing until such amount and any accrued
interest thereon is paid in full (which amount shall be paid as liquidated
damages and not as a penalty). For example, if the Purchaser purchases shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of $10,000 of Note principal and/or interest,
the Company shall be required to pay the Purchaser $1,000, plus interest. The
Purchaser shall provide the Company written notice indicating the amounts
payable to the Purchaser in respect of the Buy-In.
9. REGISTRATION RIGHTS.
9.1 Registration Rights Granted. The Company hereby grants the following
registration rights to holders of the securities purchased hereby.
(a) On two occasions, for a period commencing 60 days after the
Closing Date, but not later than four (4) years after the Closing Date (the
"Request Date"), the Company, upon a written request therefor from holders
of more than 50% of the aggregate of the Company's Securities then
outstanding, on an as converted basis (the Conversion Shares and Warrant
Shares issued or issuable with respect to all Notes or Warrants issued or
to be issued hereunder, being, the "Registrable Securities"), shall prepare
and file with the SEC a registration statement under the Securities Act
covering the Registrable Securities which are the subject of such request,
unless such Registrable Securities are the subject of an effective
registration statement. In addition, upon the receipt of such request, the
Company shall promptly give written notice to all other record holders of
the Registrable Securities
-15-
that such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received
written requests within 10 days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have
exercised their demand registration right under this Section 9.1. As a
condition precedent to the inclusion of Registrable Securities, the holder
thereof shall provide the Company with such information as the Company
reasonably requests. The obligation of the Company under this Section 9.1
shall be limited to two registration statements.
(b) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms ▇-▇, ▇-▇ or another form not
available for registering the Registrable Securities for sale to the
public, provided the Registrable Securities are not otherwise registered
for resale by the Purchaser or subsequent holder pursuant to an effective
registration statement, each such time it will give at least 30 days' prior
written notice to the record holder of any Securities of its intention so
to do. Upon the written request of the holder, received by the Company
within 30 days after the giving of any such notice by the Company, to
register any of the Registrable Securities, the Company will cause such
Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the
extent required to permit the sale or other disposition of the Registrable
Securities so registered by the holder of such Registrable Securities (the
"Seller"). In the event that any registration pursuant to this Section
9.1(b) shall be, in whole or in part, an underwritten public offering of
Common Stock of the Company, the number of shares of Registrable Securities
to be included in such an underwriting may be reduced by the managing
underwriter if and to the extent that the Company and the underwriter shall
reasonably be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein; provided,
however, that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the forgoing provisions, or Section 9.1(a)
hereof, the Company may withdraw or delay or suffer a delay of any
registration statement referred to in this Section 9.1(b) without thereby
incurring any liability to the Seller.
(c) If, at the time any written request for registration is received
by the Company pursuant to Section 9.1(a), the Company has determined to
proceed with the actual preparation and filing of a registration statement
under the Securities Act in connection with the proposed offer and sale for
cash of any of its securities for the Company's own account, such written
request shall be deemed to have been given pursuant to Section 9.1(b)
rather than Section 9.1(a), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section
9.1(b) except that the Company or underwriter, if any, may not withdraw
such registration or limit the amount of Registrable Securities included in
such registration.
(d) The Company shall file with the SEC within 20 days of the
effectiveness of the Company's registration statement, File No. 333-63672
(the "Filing Date"), and use its reasonable commercial efforts to cause to
be declared effective a Form SB-2 registration statement (or such other
form that it is eligible to use) within 45 days of the Filing Date in order
to register the Registrable Securities for resale and distribution under
the Securities Act. The registration statement described in this paragraph
must be declared effective by the SEC within 45 days of the Filing Date (as
defined herein) ("Effective Date"). The Company will register not less than
a number of shares of Common Stock in the aforedescribed registration
statement that is equal to 300% of the Warrant Shares and Conversion Shares
issuable at the Conversion Prices set forth in the Warrants and Notes,
respectively, that would be in effect on the Closing Date or the date of
filing of such registration statement (employing the conversion price which
would result in the greater number of Shares), assuming the conversion of
100% of the Notes which are then outstanding or issuable hereunder, and at
least one share of common stock for each common share issuable upon
exercise of the Warrants which are then outstanding or issuable hereunder
(employing the Conversion Price that would result in the greater number of
shares). The Registrable Securities shall be reserved and set aside
exclusively for the benefit of the Purchaser and the holders of the
Warrants, as the case may be, and not issued, employed or reserved for
anyone other than the Purchaser and the holders of the Warrants. Such
registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No
securities of the Company other than the Registrable Securities will be
included in the registration statement described in this Section 9.1(d).
-16-
9.2 Registration Procedures. If and whenever the Company is required by the
provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and
promptly provide to the holders of Registrable Securities copies of all
filings and SEC letters of comment;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective until the
later of: (i) six months after the latest exercise period of the Warrants;
(ii) twelve months after the Maturity Date of the last maturing Notes or
(iii) four years after the Closing Date, and comply with the provisions of
the Securities Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with the Seller's intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Seller, and to each underwriter if any, such number
of copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may
request to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in
the case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the
Company is then listed;
(f) immediately notify the Seller and each underwriter under such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing; and
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement,
and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all
publicly available, non-confidential information reasonably requested by
the seller, underwriter, attorney, accountant or agent in connection with
such registration statement.
9.3 Provision of Documents.
(a) At the request of the Seller, provided a demand for registration
has been made pursuant to Section 9.1(a) or a request for registration has
been made pursuant to Section 9.1(b), the Registrable Securities will be
included in a registration statement filed pursuant to this Section 9.
(b) In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information and representation
letters with respect to itself and the proposed distribution
-17-
by it as reasonably shall be necessary in order to assure compliance with
federal and applicable state securities laws. In connection with each
registration pursuant to Section 9 covering an underwritten public
offering, the Company and the Seller agree to enter into a written
agreement with the managing underwriter in such form and containing such
provisions as are customary in the securities business for such an
arrangement between such underwriter and companies of the Company's size
and investment stature.
9.4 Non-Registration Events. The Company and the Purchaser agree that the
Seller will suffer damages if any registration statement required under Section
9.1(a) above is not filed within 30 days after written request by the holder and
not declared effective by the SEC within 90 days after such request, and
maintained in the manner and within the time periods contemplated by Section 9
hereof, and it would not be feasible to ascertain the extent of such damages
with precision. Accordingly, if (i) the Registration Statement described in
Section 9.1(a) is not filed within 30 days of such written request, or is not
declared effective by the SEC on or prior to the date that is 90 days after such
request, or (ii) the registration statement on Form SB-2 or such other form as
described in Section 9.1(d) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or within five
days of receipt by the Company of a communication from the SEC that the
registration statement described in Section 9.1(d) will not be reviewed, or
(iii) any registration statement described in Section 9.1(a) or (d) is filed and
declared effective but shall thereafter cease to be effective (without being
succeeded immediately by an additional registration statement filed and declared
effective) for a period of time which shall exceed 30 days in the aggregate per
year but not more than 20 consecutive calendar days (defined as a period of 365
days commencing on the date the Registration Statement is declared effective)
(each such event referred to in this Section 9.4 is referred to herein as a
"Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, (i) the Company shall pay in cash as Liquidated Damages to each
holder of any Registrable Securities an amount equal to two percent (2%) per
month or part thereof during the pendency of such Non-Registration Event of the
principal of the Notes issued in connection with the Offering, whether or not
converted, then owned of record by such holder or issuable as of or subsequent
to the occurrence of such Non-Registration Event and (ii) the Conversion Price
as defined in Section 2.1 of the Notes shall be reduced by 10% for each 30-day
period following the Effective Date that the Registration Statement is not
declared effective by the SEC. Payments to be made pursuant to this Section
shall be due and payable immediately upon demand in immediately available funds.
In the event a Mandatory Redemption Payment is demanded from the Company by the
holder pursuant to Section 8.2 of this Agreement, then the Liquidated Damages
described in this Section 9.4 shall no longer accrue on the portion of the
purchase price underlying the Mandatory Redemption Payment, from and after the
date the holder receives the Mandatory Redemption Payment. It shall be deemed a
Non-Registration Event to the extent that all the Common Stock included in the
Registrable Securities and underlying the Securities is not included in an
effective registration statement as of and after the Effective Date at the
conversion prices in effect from and after the Effective Date.
9.5 Expenses. All expenses incurred by the Company in complying with
Section 9, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars,
fees of, and disbursements incurred by, one counsel for the Seller, and costs of
insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller beyond those
included in Registration Expenses, are called "Selling Expenses."
The Company will pay all Registration Expenses in connection with the
registration statement under Section 9. All Selling Expenses in connection with
each registration statement under Section 9 shall be borne by the Seller and may
be apportioned among the Sellers in proportion to the number of shares sold by
the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
9.6 Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities under
the Securities Act pursuant to Section 9, the Company will indemnify and
hold harmless each Seller, each officer of each Seller, each
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director of each Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls any such Seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which the Seller, or
such underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable
Securities was registered under the Act pursuant to Section 9, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not
be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter
or any such controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 9, the Seller will indemnify
and hold harmless the Company, and each person, if any, who controls the
Company within the meaning of the Securities Act, each officer of the
Company who signs the registration statement and each director of the
Company, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer or director may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such
Registrable Securities were registered under the Securities Act pursuant to
Section 9, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and each such
officer or director for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action, provided, however, that the Seller will be
liable hereunder in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in reliance upon and in conformity with information pertaining to such
Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and
provided, further, however, that the liability of the Seller hereunder
shall be limited to the proportion of any such loss, claim, damage,
liability or expense which is equal to the proportion that the public
offering price of the Registrable Securities sold by the Seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the net proceeds
received by the Seller from the sale of Registrable Securities covered by
such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to
notify the indemnifying party shall not relieve it from any liability which
it may have to such indemnified party other than under this Section 9.6(c)
and shall only relieve it from any liability which it may have to such
indemnified party under this Section 9.6(c) if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9.6(c) for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof
other than reasonable costs of investigation and of liaison with counsel so
selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate
-19-
counsel and to assume such legal defenses and otherwise to participate in
the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the Act in any case in which either (i) the
Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 9.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced
in such case notwithstanding the fact that this Section 9.6 provides for
indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of the Seller or controlling person of the
Seller in circumstances for which indemnification is provided under this
Section 9.6; then, and in each such case, the Company and the Seller will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that the Seller is responsible only for the portion represented by the
percentage that the public offering price of its securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, provided, however, that, in any
such case, (A) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (B) no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 10(f) of the
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or stock or stock options granted to employees or directors of the
Company; or equity or debt issued in connection with an acquisition of a
business or assets by the Company; or the issuance by the Company of stock in
connection with the establishment of a joint venture partnership or licensing
arrangement (these exceptions hereinafter referred to as the "Excepted
Issuances"), the Company will not issue any equity, convertible debt or other
securities which are or could be (by conversion or registration) free-trading
securities prior to the expiration of 12 months from the actual effective date
of the registration statement described in Section 9.1(d) above (the "Exclusion
Period"). This restriction shall not prohibit the Company from issuing any
equity, convertible debt or other securities prior to the expiration of the
Exclusion Period, provided that such equity, convertible debt or other
securities are restricted securities when issued and remain restricted until the
expiration of the Exclusion Period. Notwithstanding the above, if the Purchaser
elects not to further fund the Company following the transaction contemplated
hereby, the Purchaser shall waive the provisions of this Section 10.
11. INTENTIONALLY OMITTED.
12. MISCELLANEOUS.
12.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York. Both parties and the individuals executing this Agreement and other
agreements on behalf of the Company agree to submit to the jurisdiction of such
courts and waive trial by jury. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
12.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
-20-
12.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of the Securities from time to time.
12.4 Entire Agreement. This Agreement, the exhibits and schedules hereto,
the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
12.5 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
12.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the holders of
the Securities under the Agreement may be waived only with the written
consent of such holders of Securities. The rights of the holder of a Note
may be waived only with the written consent of the holder of such Note.
12.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the Purchaser's part of any breach, default
or noncompliance under this Agreement, the Notes or the Related Agreements or
any waiver on such party's part of any provisions or conditions of the
Agreement, a Note or the Related Agreements must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the Notes or the Related Agreements, by
law or otherwise afforded to any party, shall be cumulative and not alternative.
12.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof and to the Purchaser at
the address set forth on the signature page hereto for such Purchaser, with a
copy in the case of the Purchaser to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at
such other address as the Company or the Purchaser may designate by ten days
advance written notice to the other parties hereto.
12.9 Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
12.10 Titles and Subtitles. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
-21-
12.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
12.12 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein, except as specified herein with respect to
the Purchaser. Each party hereto further agrees to indemnify each other party
for any claims, losses or expenses incurred by such other party as a result of
the representation in this Section 12.12 being untrue.
12.13 Indemnification. The Company shall indemnify the Purchaser for any
losses or expenses incurred by the Purchaser in connection with any claims
brought against the Purchaser by any third party (including any other
stockholder of the Company) as a result of the transactions contemplated by this
Agreement, other than for a breach of representation or warranty made by the
Purchaser herein.
12.14 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.
-22-
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
ADVANCED OPTICS ELECTRONICS, INC. THE KESHET FUND, L.P.
By: _________________________________
By: ______________________________ Name:
Name: Address: ____________________________
Title: ____________________________
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇ ____________________________
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
[Securities Purchase Agreement Signature Page]
LIST OF EXHIBITS
Schedule of Purchasers Exhibit A
Form of Offering Convertible Note Exhibit B
Form of Warrant Exhibit C
Form of Opinion Exhibit D
EXHIBIT A
SCHEDULE OF PURCHASERS
--------------------------------------------------------------------------------
Closing Date Notes
Purchaser
--------------------------------------------------------------------------------
The Keshet Fund, L.P. $200,000
TOTAL $200,000
--------------------------------------------------------------------------------
SCHEDULE OF WARRANT HOLDERS
--------------------------------------------------------------------------------
Name of Warrant Holder Number of Warrant Shares
--------------------------------------------------------------------------------
The Keshet Fund, L.P. 200,000
--------------------------------------------------------------------------------
SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS
--------------------------------------------------------------------------------
Fund Manager Closing Date Finder's Fees
--------------------------------------------------------------------------------
Keshet Management Limited $20,000
--------------------------------------------------------------------------------
TOTAL $ (10% of Closing)
--------------------------------------------------------------------------------
WARRANT EXERCISE COMPENSATION
--------------------------------------------------------------------------------
Warrant Holder PROPORTIONATE SHARE OF 10% CASH
COMMISSIONS PAYABLE ON WARRANT EXERCISE
--------------------------------------------------------------------------------
The Keshet Fund, L.P. 100%
--------------------------------------------------------------------------------
TOTAL 100%
--------------------------------------------------------------------------------
A-1
EXHIBIT B
FORM OF CONVERTIBLE NOTE
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EXHIBIT C
FORM OF WARRANT
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EXHIBIT D
FORM OF OPINION
1. The Company is a corporation validly existing and in good standing under
the laws of the State of Nevada and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.
2. The Company has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Agreement and Related Agreements.
All corporate action on the part of the Company, its officers, directors and
stockholders necessary for (i) the authorization of the Agreement and Related
Agreements, and the performance of all obligations of the Company thereunder at
each Closing, and (ii) the authorization, sale, issuance and delivery of the
Securities pursuant to the Agreement and the Related Agreements has been taken.
The Conversion Shares and the Warrant Shares, when issued pursuant to and in
accordance with the terms of the Agreement and upon delivery, shall be validly
issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement, the Notes or
the Related Agreements by the Company and the consummation of the transactions
contemplated by any thereof, will not, with or without the giving of notice or
the passage of time or both:
(a) Violate the provisions of the Restated Articles or bylaws of the
Company; or
(b) To the best of such counsel's knowledge, violate any judgment,
decree, order or award of any court binding upon the Company.
4. The Agreement and Related Agreements constitute and the Notes, upon
their issuance will constitute, valid and legally binding obligations of the
Company, and are enforceable against the Company in accordance with their
respective terms.
5. The sale of the Notes and the subsequent conversion of the Notes into
Conversion Shares are not and will not be subject to any preemptive rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with. The sale of the Warrants and the subsequent exercise of
the Warrants for Warrant Shares are not and will not be subject to any
preemptive rights or, to such counsel's knowledge, rights of first refusal that
have not been properly waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchasers contained in the Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act, and will have been registered or qualified (or are exempt from registration
and qualification) under the registration, permit or qualification requirements
of all applicable state securities laws. To the best of such counsel's
knowledge, 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 offers to buy and security under circumstances
that would cause the offering of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions.
7. There is no action, suit, proceeding or investigation pending or, to the
best of such counsel's knowledge, currently threatened against the Company that
questions the validity of the Agreement or the Related Agreements or the right
of the Company to enter into any of such agreements, or to consummate the
transactions contemplated thereby, or which might result, either individually or
in the aggregate, in any material adverse change in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any change in
the current equity ownership of the Company. To the best of such counsel's
knowledge, the Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government
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agency or instrumentality; nor is there any action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
8. The holding period of the Company shares deposited as security pursuant
to the Security Agreement in the hands of the Purchasers for purposes of Rule
144 of the Act will combine with and date back to the acquisition date of such
security shares by the depositing Shareholders.
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