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EXHIBIT I
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SECURITIES PURCHASE AGREEMENT
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COMMON STOCK
AND SERIES B
CONVERTIBLE PREFERRED STOCK
OF
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
Dated as of February 5, 1999
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TABLE OF CONTENTS
Section Page
1. Definitions............................................................ 1
2. Issuance, Purchase and Sale of Securities.............................. 7
2.1 Authorization of the Securities.................................. 7
2.2 Sale and Purchase of the Securities.............................. 8
3. Closing of Sale of Securities.......................................... 8
3.1 First Closing.................................................... 8
3.2 Second Closing................................................... 8
4. Deliveries at First and Second Closings. .............................. 9
4.1 Deliveries by the Company to the Purchaser on the First Closing
Date........................................................... 9
(a) Common Stock............................................... 9
(b) Opinion of Counsel......................................... 9
(c) Registration Rights Agreement.............................. 9
4.2 Deliveries by the Purchaser to the Company on the First Closing
Date........................................................... 9
(a) Purchase Price............................................. 9
(b) Registration Rights Agreement.............................. 9
4.3 Deliveries by the Company to the Purchaser on the Second Closing
Date........................................................... 9
(a) Series B Preferred Stock................................... 9
(b) Opinion of Counsel......................................... 9
4.4 Deliveries by the Purchaser to the Company on the Second Closing
Date........................................................... 10
5. Representations and Warranties, Etc.................................... 10
5.1 Organization and Qualification; Authority........................ 10
5.2 Corporate Authorization.......................................... 10
5.3 No Conflict; Requisite Consents.................................. 10
5.4 Capitalization................................................... 11
5.5 Litigation; Defaults............................................. 11
5.6 No Material Adverse Effect....................................... 11
5.7 Employee Programs................................................ 12
5.8 Private Offerings................................................ 13
5.9 Company SEC Documents............................................ 13
5.10 Financial Statements; No Undisclosed Liabilities................. 13
5.11 Environmental Regulation, Etc.................................... 14
5.12 Properties and Assets............................................ 14
5.13 Employment Practices............................................. 15
5.14 Intellectual Property............................................ 15
5.15 Material Contracts............................................... 15
5.16 Taxes............................................................ 16
5.17 Licenses; Compliance with Laws. ................................ 17
5.18 Transactions with Affiliates..................................... 18
5.19 Confidential Information......................................... 18
5.20 Insurance........................................................ 18
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5.21 Substantial Customers and Suppliers.............................. 18
5.22 Registration Rights.............................................. 18
5.23 Distribution Rights.............................................. 18
5.24 Dividends........................................................ 19
5.25 Year 2000........................................................ 19
5.26 Disclosure....................................................... 19
6. Representations and Warranties of the Purchaser........................ 19
7. Covenants of the Company............................................... 20
7.1 Ordinary Course.................................................. 20
7.2 Issuance of Securities........................................... 20
7.5 Financial Information............................................ 21
7.6 Return and Other Tax Information................................. 21
7.7 Stamp Taxes...................................................... 21
7.8 FIRPTA........................................................... 21
7.9 Regulatory Approval.............................................. 22
7.10 Warrants and Options............................................. 22
7.11 Public Announcements............................................. 22
7.12 Co-investment Rights............................................. 22
8. Rights and Obligations of the Purchaser................................ 23
8.1 Reservation of Securities........................................ 23
8.2 No Right to Convert Preferred Stock into Common Stock............ 23
8.3 Anti-Dilution Provisions - Adjustment of Number of Shares of
Capital Stock.................................................. 23
8.5 Notice to the Holder............................................. 23
9. Conditions to Closing.................................................. 24
9.1 Conditions to the Company's Obligations to Consummate the First
Closing........................................................ 24
9.2 Conditions to the Purchaser's Obligations to Consummate the First
Closing........................................................ 25
9.3 Conditions to the Company's Obligations.......................... 25
9.4 Conditions to the Purchaser's Obligations to Consummate the Second
Closing........................................................ 26
10. Restrictions on Transfer............................................... 27
10.1 Restrictive Legends.............................................. 27
10.2 Notice of the Proposed Transfer; Opinion of Counsel............. 28
11. Miscellaneous.......................................................... 28
11.1 Indemnification; Expenses, Etc................................... 28
11.2 Survival of Representations, Warranties, Covenants and
Indemnification................................................ 30
11.3 Amendment and Waiver............................................. 30
11.4 Notices, Etc..................................................... 30
11.5 Expenses......................................................... 31
11.6 Entire Agreement................................................. 31
11.7 Successors and Assigns........................................... 31
11.8 Termination...................................................... 31
11.9 Descriptive Headings............................................. 32
11.10 Governing Law.................................................... 32
11.11 Consent to Jurisdiction; Waiver of Immunities.................... 32
11.12 Counterparts..................................................... 33
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SCHEDULES
SCHEDULE 5.2 -- Authorization
SCHEDULE 5.3 -- Consents
SCHEDULE 5.4 -- Capitalization
SCHEDULE 5.5 -- Litigation; Defaults
SCHEDULE 5.6 -- Material Developments
SCHEDULE 5.7 -- Benefits; ERISA
SCHEDULE 5.10 -- Undisclosed Liabilities
SCHEDULE 5.11 -- Environmental
SCHEDULE 5.12 -- Properties and Assets
SCHEDULE 5.13 -- Employment Practices
SCHEDULE 5.14 -- Intellectual Property
SCHEDULE 5.15 -- Material Contracts
SCHEDULE 5.16 -- Taxes
SCHEDULE 5.17 -- Compliance with Laws
SCHEDULE 5.18 -- Transactions with Affiliates
SCHEDULE 5.20 -- Insurance
SCHEDULE 5.21 -- Customers and Suppliers
SCHEDULE 5.22 -- Registration Rights
SCHEDULE 5.23 -- Distribution Rights
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EXHIBITS
EXHIBIT A -- Form of Certificate of Designations of Series B Preferred
Stock
EXHIBIT B -- Form of Registration Rights Agreement
EXHIBIT C -- Form of Opinion of ▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇, LLP
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("Agreement"), dated as of February 5,
1999, between Semiconductor Laser International Corporation, a Delaware
corporation (the "Company") and bmp Mobility AG Venture Capital, a German stock
corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company desires to raise capital through the sale by the
Company of equity securities resulting in gross proceeds of up to two million
seven hundred fifty thousand U.S. dollars ($2,750,000)(the "Financing"); and
WHEREAS, on the First Closing Date (as defined below) the Company desires
to issue and sell to the Purchaser, and the Purchaser desires to purchase from
the Company, an aggregate of two million (2,000,000) shares of the Company's
common stock, $.01 par value per share (the "Common Stock"), for an aggregate
purchase price of seven hundred fifty thousand U.S. dollars ($750,000), on the
terms, and subject to conditions, set forth in this Agreement; and
WHEREAS, on the Second Closing Date (as defined below) the Company desires
to issue and sell to the Purchaser, and the Purchaser desires to purchase from
the Company, an aggregate of not less than six hundred fifty thousand (650,000)
and not more than one million (1,000,000) shares of the Company's Series B
Convertible Preferred Stock, $.01 par value per share (the "Series B Preferred
Stock), for an aggregate purchase price of up to two million U.S. dollars
($2,000,000), on the terms, and subject to the conditions, set forth in this
Agreement,
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and agreements set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. For purposes hereof unless the context otherwise requires,
the following terms shall have the meanings indicated. All accounting terms not
otherwise defined herein, shall have the respective meanings accorded to them
under GAAP (as defined below). Unless the context otherwise requires, (i)
references to a "Schedule" or an "Exhibit" are to a Schedule or an Exhibit
attached to this Agreement, (ii) references to a "section" are to a section of
this Agreement and (iii) any of the following terms may be used in the singular
or the plural, depending on the reference.
"Affiliate" means any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with another Person (ii) which beneficially owns or holds 20% or
more of any class of the outstanding Voting Stock of such other Person, or (iii)
which is a relative or spouse of such person, or any relative of such spouse,
who has the same home as such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of Voting Stock,
by Contract or otherwise.
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"Agreement" means this Agreement, as amended, modified or
supplemented from time to time, in accordance with the terms hereof, together
with any exhibits, schedules or other attachments thereto.
"Benefit Plans" has the meaning ascribed thereto in Section 5.7
hereof.
"BSB" has the meaning ascribed thereto in Section 7.2 hereof.
"Business Day" means any day that is not a Saturday, a Sunday or a
day on which banking institutions in New York, New York or Berlin, Germany are
authorized or obligated by Law, executive order or government decree to be
closed.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated and whether voting or non-voting) of such Person's capital stock,
whether outstanding on the Closing Date or issued after the Closing Date and any
and all rights, warrants or options exercisable or exchangeable for or
convertible into such capital stock.
"Certificate of Designations" means the Certificate of Designations
of the Series B Preferred Stock, substantially in the form of Exhibit A hereto.
"Charter Documents" has the meaning ascribed thereto in Section 5.1
hereof.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations promulgated thereunder, as amended from time to time.
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Common Stock" has the meaning ascribed thereto in the introduction
hereof.
"Company" has the meaning ascribed thereto in the introduction
hereof.
"Company Financial Statements" has the meaning ascribed thereto in
Section 5.10 hereof.
"Company Properties" has the meaning ascribed thereto in Section
5.11 hereof.
"Company SEC Documents" has the meaning ascribed thereto in Section
5.9 hereof.
"Contracts" has the meaning ascribed thereto in Section 5.15 hereof.
"Environmental Law" means (i) any federal, state and local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, (x)
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relating to the protection, preservation or restoration of the environment,
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource), or to human health or safety, or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as now or hereafter in effect. The term
Environmental Law includes, without limitation, the United States federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
United States Superfund Amendments and Reauthorization Act, the United States
federal Water Pollution Control Act of 1972, the United States federal Clean Air
Act, the United States federal Clean Water Act, the United States federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the United State federal Solid Waste Disposal
and the United States federal Toxic Substances Control Act, the United States
federal Insecticide, Fungicide and Rodenticide Act, the United States federal
Occupational Safety and Health Act of 1970, each as amended and as now or
hereafter in effect, and (ii) any common law or equitable doctrine (including,
without limitation, injunctive relief and tort doctrines such as negligence,
nuisance, trespass and strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974,
and the rules and regulations promulgated thereunder, as amended.
"ERISA Affiliate" means any trade or business (whether incorporated
or unincorporated) which is a member of a group described in Section 414(b),
(c), (m) or (o) of the Code, of which the Company also is a member.
"ERISA Affiliate Title IV Plan" has the meaning ascribed thereto in
Section 5.7 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, and the
rules and regulations of the Commission promulgated thereunder, as amended.
"Fair Market Value" means, with respect to the grant of options
under the 1995 Plan for the purchase of shares of Common Stock, the higher of
(a) the Market Price on the date of issuance of the options for the purchase of
shares of Common Stock or (b) the average closing sales price per share of
Common Stock for the ten (10) trading days immediately preceding the date of
issuance of options for the purchase of Common Stock.
"Financing" has the meaning ascribed thereto in the introduction
hereof.
"First Closing" has the meaning ascribed thereto in Section 3.1
hereof.
"First Closing Date" has the meaning ascribed thereto in Section 3.1
hereof.
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"First Closing Purchase Price" has the meaning ascribed thereto in
Section 2.2(a) hereof.
"GAAP" means generally accepted accounting principles and practices
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be adopted by a significant segment of
the accounting profession that are applicable to the circumstances as of the
date of determination.
"Governmental Authority" means any governmental or
quasi-governmental authority including, without limitation, any federal, state,
territorial, county, municipal or other governmental or quasi-governmental
agency, board, branch, bureau, commission, court, arbitration panel, department,
authority, body or other instrumentality or political unit or subdivision or
official thereof, whether domestic or foreign.
"Hazardous Substance" means any substance presently or hereafter
listed, defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law, whether by type
or by quantity, including any substance containing any such substances as a
component. Hazardous Substance includes, without limitation, any toxic waste,
pollutant, contaminant, hazardous substance, toxic substance, hazardous waste,
special waste, industrial substance or petroleum or any derivative or by-product
thereof, radon, radioactive material, asbestos, asbestos containing material,
urea formaldehyde foam insulation, lead and polychlorinated biphenyl.
"Holder" means any Person who now holds or shall hereafter acquire
and hold the Securities.
"Indemnified Party" or "Indemnified Parties" has the meaning
ascribed thereto in Section 11.1(a) hereof.
"Intellectual Property" means patents, patent applications, patented
or unpatented inventions, design rights (including, without limitation,
trademarks and service marks), copyrights, know-how and trade secrets, and all
other intellectual property rights and forms of protection of a similar nature
having equivalent or similar effect as any of the foregoing rights, which may
subsist anywhere in the world.
"Law" means any statute, ordinance, code, rule, regulation or order
enacted, adopted, promulgated, applied or followed by any Governmental
Authority.
"License" or "Licenses" has the meaning ascribed thereto in Section
5.18 hereof.
"Lien" means any security agreement, financing statement (whether or
not filed) mortgage, lien (statutory or otherwise), charge, pledge,
hypothecation, conditional sales agreement, adverse claim, title retention
agreement or other security interest, encumbrance, lien,
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charge, restrictive agreement, mortgage, deed of trust, indenture, pledge,
option, limitation, exception to or other title defect in or on any interest or
title of any vendor, lessor, lender or other secured party under any conditional
sale, lease, consignment, or bailment given for security purposes, trust receipt
or other title retention agreement with respect to any Property or asset of such
Person, whether direct, indirect, accrued or contingent.
"Line of Credit" has the meaning ascribed thereto in Section 7.2
hereof.
"Losses" has the meaning ascribed thereto in Section 11.1(a) hereof.
"Market Price" means, with respect to the shares of Common Stock
issuable upon the exercise of options granted under the 1995 Plan, (a) if the
shares are listed or admitted for trading on any national securities exchange or
included in The Nasdaq National Market or Nasdaq SmallCap Market, the last
reported sales price as reported on such exchange or market; (b) if the shares
are not listed or admitted for trading on any national securities exchange or
included in The Nasdaq National Market or Nasdaq SmallCap Market, the average of
the last reported bid and asked quotation for the shares as reported on NASDAQ
or a similar service if NASDAQ is not reporting such information; (c) if the
shares are not listed or admitted for trading on any national securities
exchange or included in The Nasdaq National Market or Nasdaq SmallCap Market or
quoted by NASDAQ or a similar service, the average of the last reported bid and
asked quotation for the shares as quoted by a market maker in the shares (or if
there is more than one market maker, the bid and asked quotation shall be
obtained from two market makers and shall be the average of the lowest bid and
highest asked quotation). In the absence of any available public quotations for
the Common Stock, the Board of Directors of the Company shall determine in good
faith the fair value of the Common Stock, which determination shall be set forth
in a certificate by the Secretary of the Company.
"Material Adverse Effect" means a material adverse effect on the
condition (financial or otherwise), assets, liabilities, business, liquidity,
capital resources, results of operations or prospects of the Company, provided,
however, that facts which are disclosed in the Company SEC Documents filed prior
to the date of this Agreement or which affect the industry generally, or failure
to meet financial projections, or delisting of the Common Stock from the Nasdaq
SmallCap Market shall not be deemed a material adverse effect within the meaning
of this definition.
"NASDAQ" means The Nasdaq Stock Market, Inc.
"1995 Plan" has the meaning ascribed thereto in Section 7.2 hereof.
"Notice" has the meaning ascribed thereto in Section 7.12 hereof.
"Person" means any individual, entity or group, including, without
limitation, any corporation, limited liability company, limited or general
partnership, joint venture, association,
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joint stock company, trust, unincorporated organization, or government or any
agency or political subdivision thereof.
"Preferred Stock" means the preferred stock, par value $.01 per
share, of the Company.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Purchaser" has the meaning ascribed thereto in the introduction
hereof.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof, by and among the Company and the
Purchaser, substantially in the form of Exhibit B hereto, as amended, modified
or supplemented from time to time in accordance with the terms thereof, together
with any exhibits, schedules or other attachments thereto.
"Regulation D" means Regulation D under the Securities Act.
"Regulation S" means Regulation S under the Securities Act.
"Restricted Security" has the meaning ascribed thereto in Section
10.2 hereof.
"Returns" means all returns, declarations, reports, estimates,
information returns and settlements of any nature regarding Taxes required to be
filed by any Person and relating to the Company.
"Reverse Stock Split" has the meaning ascribed thereto in Section
7.4 hereof.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission under
the Securities Act, and any successor rule or regulation thereto.
"Second Closing" has the meaning ascribed thereto in Section 3.2
hereof.
"Second Closing Date" has the meaning ascribed thereto in Section
3.2 hereof.
"Second Closing Purchase Price" has the meaning ascribed thereto in
Section 2.2(b) hereof.
"Securities" means all of or any portion of the Common Stock and the
Series B Preferred Stock.
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"Securities Act" means the Securities Act of 1933, and the rules and
regulations of the Commission promulgated thereunder, as amended.
"Series A Preferred Stock" has the meaning ascribed thereto in
Section 5.4(a).
"Series B Preferred Stock" has the meaning ascribed thereto in the
introduction hereof.
"Subsidiary" means with respect to any Person, any corporation,
association or other business entity of which securities representing more than
50% of the combined voting power of the total Voting Stock (or in the case of an
association or other business entity which is not a corporation, more than 50%
of the equity interest) is at the time owned or controlled, directly or
indirectly, by that Person or one or more Subsidiaries of that Person or a
combination thereof. When used herein without reference to any Person,
"Subsidiary" means a Subsidiary of the Company.
"Taxes" means any federal, state, local, foreign or other taxes,
fees and charges of any nature whatsoever imposed by any jurisdiction or
governmental or taxing authority thereof or therein (including, without
limitation, income (net or gross), gross receipts, profits, alternative or
add-on minimum, franchise, license, capital, capital stock, intangible,
services, premium, mining, transfer, sales, use, ad valorem, payroll, wage,
severance, windfall profits, import, excise, custom, stamp, withholding or
estimated taxes), fees, duties, assessments, withholding or governmental charges
of any kind whatsoever (including interest, penalties, additions to tax or
additional amounts with respect to such items).
"Transaction Documents" means, collectively, this Agreement, the
Certificate of Designations, the Registration Rights Agreement and any and all
agreements, exhibits, schedules, certificates, instruments and other documents
delivered pursuant hereto and thereto.
"U.S. Person" has the meaning ascribed thereto in Section 6(a)
hereof.
"Voting Stock" means any class or classes of capital stock pursuant
to which the holders thereof have the general voting power under ordinary
circumstances to vote for the election of directors, managers or trustees of any
Persons (irrespective of whether or not at the time, capital stock of any class
or classes will have, or might have, voting power by the reason of the happening
of any contingency).
2. Issuance, Purchase and Sale of Securities.
2.1 Authorization of the Securities. The Company has authorized the
issuance and sale of the Securities in the aggregate amount of up to two million
seven hundred fifty thousand U.S. dollars ($2,750,000) to be acquired by the
Purchaser in accordance with the terms of this Agreement. The Series B Preferred
Stock shall have the voting powers, dividend rights, liquidation rights,
designations, preferences and relative, participating, optional or other special
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rights, and the qualifications, limitations and restrictions thereof, set forth
in the Certificate of Designations, which shall be filed with the Secretary of
State of the State of Delaware prior to the Second Closing Date (as defined
below).
2.2 Sale and Purchase of the Securities. Subject to the terms and
conditions of this Agreement:
(a) On the First Closing Date (as defined below), the Company
will issue, sell and deliver to the Purchaser and the Purchaser will purchase
from the Company, two million (2,000,000) shares of Common Stock. At the First
Closing (as defined below), subject to the terms and conditions of this
Agreement, the Purchaser shall be obligated to purchase such shares and shall
pay a purchase price in the amount of thirty seven and one half cents ($0.375)
per share or an aggregate of seven hundred fifty thousand U.S. dollars
($750,000) (the "First Closing Purchase Price") to the Company by certified
check or wire transfer of immediately available funds.
(b) On the Second Closing Date (as defined below), subject to
the conditions set forth in this Agreement, the Company will issue, sell and
deliver to the Purchaser and the Purchaser will purchase from the Company, not
less than six hundred fifty thousand (650,000) and not more than one million
(1,000,000) shares of Series B Preferred Stock, each such share convertible into
five shares of Common Stock. The number of shares of Series B Preferred Stock
which the Purchaser shall purchase on the Second Closing Date between six
hundred fifty thousand (650,000) and one million (1,000,000) shall be determined
by the Purchaser. At the Second Closing (as defined below), a purchase price
(the "Second Closing Purchase Price") in the amount of two U.S. dollars ($2.00)
per share or an aggregate of not less than one million three hundred thousand
U.S. dollars ($1,300,000) and not more than two million U.S. dollars
($2,000,000) shall be payable by the Purchaser to the Company in cash by wire
transfer of immediately available funds.
3. Closing of Sale of Securities.
3.1 First Closing. The closing of the purchase and sale of the
Common Stock pursuant to Section 2.2(a) hereof (the "First Closing") shall take
place at the offices of ▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ on February 5, 1999 or at such other place and date as
the parties may agree (such date on which the First Closing shall have actually
occurred, the "First Closing Date"). At the First Closing, the Company will
deliver or cause to be delivered to the Purchaser two million (2,000,000) shares
of Common Stock against payment of the First Closing Purchase Price.
3.2 Second Closing. The closing of the purchase and sale of the
Series B Preferred Stock pursuant to Section 2.2(b) hereof (the "Second
Closing") shall take place at the offices of ▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇
LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ following the satisfaction of
the conditions set forth in this Agreement or at such other place and date as
the parties may agree, but not earlier than March 31, 1999 (such date on which
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the Second Closing shall have actually occurred, the "Second Closing Date"). At
the Second Closing, the Company will deliver or cause to be delivered to the
Purchaser, not less than six hundred fifty thousand (650,000) and not more than
one million (1,000,000) shares of Series B Preferred Stock against payment of
the Second Closing Purchase Price.
4. Deliveries at First and Second Closings.
4.1 Deliveries by the Company to the Purchaser on the First Closing
Date. At the First Closing, the Company will deliver or cause to be delivered to
the Purchaser, against payment of the First Closing Purchase Price as provided
herein:
(a) Common Stock. The Common Stock, as provided in Section 3.1
hereof;
(b) Opinion of Counsel. An opinion of ▇▇▇▇▇▇▇ Berlin Shereff
▇▇▇▇▇▇▇▇, LLP, counsel for the Company, substantially in the form set forth in
Exhibit C, addressed to the Purchaser, dated the First Closing Date; and
(c) Registration Rights Agreement. The Registration Rights
Agreement, duly executed by the Company.
4.2 Deliveries by the Purchaser to the Company on the First Closing
Date. At the First Closing, the Purchaser will deliver or cause to be delivered
to the Company the following:
(a) Purchase Price. Purchaser's payment of the First Closing
Purchase Price; and
(b) Registration Rights Agreement. The Registration Rights
Agreement, duly executed by the Purchaser.
4.3 Deliveries by the Company to the Purchaser on the Second Closing
Date. At the Second Closing, the Company will deliver or cause to be delivered
to the Purchaser, against payment of the Second Closing Purchase Price as
provided herein:
(a) Series B Preferred Stock. The Series B Preferred Stock as
provided in Section 3.2 hereof; and
(b) Opinion of Counsel. An opinion of ▇▇▇▇▇▇▇ Berlin Shereff
▇▇▇▇▇▇▇▇, LLP, counsel for the Company, substantially in the form set forth in
Exhibit C, addressed to the Purchaser, dated the Second Closing Date.
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4.4 Deliveries by the Purchaser to the Company on the Second Closing
Date. At the Second Closing, the Purchaser will deliver or cause to be delivered
to the Company the Second Closing Purchase Price.
5. Representations and Warranties, Etc. In order to induce the Purchaser
to purchase the Securities, the Company represents and warrants to the Purchaser
that, except as set forth on the disclosure schedule hereto:
5.1 Organization and Qualification; Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Company has no Subsidiaries. The Company has
full corporate power and authority and all necessary government approvals to own
and lease its properties and carry on its business as presently conducted or as
intended to be conducted, is duly qualified, registered or licensed as a foreign
corporation to do business and is in good standing in each jurisdiction in which
the ownership or leasing of its properties or the character of its present
operations makes such qualification, registration or licensing necessary, except
where the failure to so qualify or be in good standing would not have a Material
Adverse Effect. The Company has heretofore delivered to the Purchaser's counsel
complete and correct copies of (i) the certificate of incorporation and (ii) the
by-laws of the Company, each as amended to date and as presently in effect
(collectively, the "Charter Documents").
5.2 Corporate Authorization. The execution, delivery and performance
by the Company of this Agreement and the other Transaction Documents are within
the Company's corporate power and authority. The execution and delivery of this
Agreement and the other Transaction Documents by the Company and the performance
by the Company of its obligations hereunder and thereunder, have been duly
authorized by all requisite corporate action and no other corporate proceedings
on the part of the Company other than those listed on Schedule 5.2 are necessary
to authorize this Agreement and the other Transaction Documents. This Agreement
and the other Transaction Documents have been duly executed and delivered by
duly authorized officers of the Company and, assuming the due authorization,
execution and delivery thereof by all parties thereto other than the Company,
constitute legal, valid and binding obligations of the Company, enforceable
against it in accordance with its terms, except as may be limited by bankruptcy,
reorganization, moratorium, fraudulent conveyance and insolvency laws and by
other laws affecting the rights of creditors generally and except as may be
limited by the availability of equitable remedies.
5.3 No Conflict; Requisite Consents. The execution, delivery and
performance by the Company of this Agreement and the other Transaction Documents
do not and will not (i) contravene or conflict with the Charter Documents, (ii)
constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of the Company under any provision of
any written agreement or other instrument binding upon the Company or require
the consent of any third party under any Law applicable to the Company or any
License held by the Company, (iii) conflict with or result in a violation or
breach of any term or provision of any Law applicable to the Company, or (iv)
result in the creation or imposition of
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any Lien on any asset of the Company, except, with respect to each of the
occurrences or results referred to in clauses (ii) and (iv) of this sentence,
the third party consents set forth in Schedule 5.3 and such items which would
not have a Material Adverse Effect.
5.4 Capitalization.
(a) As of February 5, 1999, the authorized Capital Stock of
the Company consists of 20,000,000 shares of Common Stock and 5,000,000 shares
of Preferred Stock, of which 10,150,832 shares of Common Stock and no shares of
Preferred Stock are currently issued and outstanding. Prior to December 30,
1997, the Company also had issued and outstanding 2,000,000 shares of Series A
8% Convertible Preferred Stock (the "Series A Preferred Stock"), all of which
have been converted into shares of Common Stock, and there are no shares of
Series A Preferred Stock issued and outstanding.
(b) All issued and outstanding shares of the Company's Capital
Stock are validly issued, fully paid and nonassessable. Except as set forth on
Schedule 5.4, there are no (i) outstanding subscriptions, options, warrants or
rights (including conversion rights and preemptive rights), agreements, calls,
convertible securities, arrangements or commitments of any character to which
the Company is a party relating to any unissued Capital Stock or other
securities of the Company or otherwise obligating the Company to grant, issue or
sell any such options, warrants or rights or (ii) shares of Common Stock
reserved for issuance upon the exercise of any warrants, options granted or to
be granted under any stock option plan or any options previously granted outside
of any stock option plan.
5.5 Litigation; Defaults. There is no action, suit, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company, or any properties of the Company, before or by any
Governmental Authority or any other Person, which would (i) have a Material
Adverse Effect, or (ii) impair the ability of the Company to perform any
material obligation which the Company has under any Transaction Document, except
as set forth on Schedule 5.5 or Schedule 5.11. Except as set forth on Schedule
5.5, the Company is not in violation of, or in default under (and there does not
exist any event or condition which, after notice or lapse of time or both, would
constitute such a default under), any term of its Charter Documents, or of any
term of any agreement, Contract, instrument, judgment, decree, writ,
determination, arbitration award, or Law applicable to the Company or to which
the Company is bound, or to any Properties of the Company.
5.6 No Material Adverse Effect. Except as set forth in Schedule 5.6,
since September 30, 1998, there has been (i) no event or condition which has had
or is reasonably likely to result in a Material Adverse Effect, and (ii) no
acquisition or disposition of any material assets by the Company (or any
Contract or arrangement therefor), or any other material transaction, otherwise
than for fair value in the ordinary course of business, except in any such case
as set forth in the Company SEC Documents.
5.7 Employee Programs.
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(a) Schedule 5.7 lists each material benefit arrangement,
including (i) any employment or consulting agreement, (ii) any arrangement
providing for insurance coverage or workers' compensation benefits, (iii) any
incentive bonus or deferred bonus arrangement, (iv) any arrangement providing
termination allowance, severance or similar benefits, (v) any equity
compensation plan, (vi) any deferred compensation plan and (vii) any
compensation policy and practice. The Company does not provide, and does not
have an obligation to provide, or make contributions to provide any compensation
or benefits to its current or former employees or directors of the Company,
other than any plans, programs or other arrangements which only provide for the
payment of cash compensation currently from the general assets of the Company on
a payday by payday basis as base salary or hourly wages for current services and
other than policies for vacation, sick days and holidays, medical, disability
and life insurance and except as set forth on Schedule 5.7 (individually, a
"Benefit Plan," and collectively, the "Benefit Plans").
(b) Except as disclosed on Schedule 5.7:
(i) No ERISA Affiliate (other than the Company)
provides, or has an obligation to provide, contributions,
compensation or benefits of or under any plan, program or
arrangement which is subject to Title IV of ERISA ("ERISA Affiliate
Title IV Plan").
(ii) The Company has furnished or made available to the
Purchaser a true, complete and current copy of each written Benefit
Plan and any amendments thereto, and a summary of each other Benefit
Plan.
(iii) No assets have been set aside in a trust or other
separate account to pay directly or indirectly any benefits under
any Benefit Plan or to the extent assets have been set aside, all
assets are shown on the books and records of such trust or separate
account at their fair market value as of the date of any report last
provided with respect to such trust.
(iv) Each Benefit Plan and each ERISA Affiliate Title IV
Plan has been established, maintained and administered in compliance
in all material respects with all applicable Laws.
(v) The Company has not incurred any material liability
for any tax or penalty with respect to any Benefit Plan, ERISA
Affiliate Title IV Plan or any group health plan (as described in
Section 5000 of the Code) of an ERISA Affiliate including, without
limitation, any tax or penalty under ERISA or under the Code.
(vi) The Company has not terminated or withdrawn from,
or sought a funding waiver with respect to, any Benefit Plan which
is subject to Title IV of ERISA.
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(vii) To the knowledge of the Company, there is no
proposed or actual material audit or investigation by any
Governmental Authority with respect to any Benefit Plan or ERISA
Affiliate Title IV Plan.
(viii)The Company has no obligation to make, or
reimburse another employer, directly or indirectly, for making,
contributions to a multi employer plan as described in Title IV of
ERISA.
5.8 Private Offerings. Neither the Company nor any Person acting on
its behalf (other than the Purchaser, as to whom the Company makes no
representations) has offered or sold the Securities by means of any general
solicitation or general advertising within the meaning of Rule 502(c) under the
Securities Act. No securities of the same class or series as the Series B
Preferred Stock have been issued and sold by the Company prior to the date
hereof. The Securities shall bear substantially the same legend set forth in
Section 10.1 hereof for so long as required by the Securities Act. Assuming the
truth of the Purchaser's representations and acknowledgments contained in
Section 6 hereof, the offer and sale of the Securities are and will be exempt
from the registration and prospectus delivery requirements of the Securities
Act.
5.9 Company SEC Documents. The Company has filed with the
Commission, and has heretofore made available to the Purchaser, true and
complete copies of its Annual Report on Form 10-KSB for the year ended December
31, 1997, its quarterly report on Form 10- QSB for the quarter ended September
30, 1998, Amendment No. 2 to its Registration Statement on Form S-3, dated
December 23, 1998 and its definitive proxy statement dated July 28, 1998,
(collectively, the "Company SEC Documents"). As of their respective dates, the
Company SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
5.10 Financial Statements; No Undisclosed Liabilities. The financial
statements of the Company included or incorporated by reference in the Company
SEC Documents (the "Company Financial Statements") have been prepared in
accordance with GAAP applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present in all material respects the
financial position of the Company as at the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
any unaudited interim financial statements, to normal year-end adjustments and
any other adjustments described therein). Since September 30, 1998, the Company
has not incurred any liabilities or obligations of any nature, whether or not
accrued, absolute, contingent or otherwise, that would have a Material Adverse
Effect, other than liabilities (i) disclosed on Schedule 5.10, or in the Company
SEC Documents, (ii) adequately provided for in the Company Financial Statements
or disclosed in any related notes thereto, (iii) not required under GAAP to be
reflected in the Company Financial Statements, or disclosed in any related notes
thereto or (iv) incurred in connection with this Agreement or the other
Transaction Documents.
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5.11 Environmental Regulation, Etc. Except as set forth on Schedule
5.11, (i) the business as presently or formerly engaged in by the Company is and
has been conducted in compliance with all applicable Environmental Law,
including, without limitation, having all permits, licenses and other approvals
and authorizations, during the time the Company engaged in such business, (ii)
the Properties presently or formerly owned or operated by the Company
(including, without limitation, soil, groundwater or surface water on, under or
adjacent to the properties, and buildings thereon) (the "Company Properties") do
not contain any Hazardous Substance other than as permitted under applicable
Environmental Law (provided, however, that with respect to Company Properties
formerly opened or operated by the Company, such representation is limited to
the period the Company owned or operated such Company Properties), (iii) the
Company has not received any notices, demand letters or request for information
from any federal, state, local or foreign governmental entity or any third party
indicating that the Company may be in violation or, liable under, any
Environmental Law in connection with the ownership of operation of the Company's
business, (iv) there are no civil, criminal or administrative actions, suits,
demands, claims, hearings, investigations or proceedings pending or to the
knowledge of the Company threatened against the Company with respect to the
Company or the Company Properties relating to any violation, or alleged
violation, of any Environmental Law, (v) no reports have been filed, or are
required to be filed, by the Company concerning the release of any Hazardous
Substance or the threatened or actual violation of any Environmental Law on or
at the Company Properties, (vi) no Hazardous Substance has been disposed of,
transferred, released or transported from any of the Company Properties during
the time such Company Property was owned or operated by the Company, other than
as permitted under applicable Environmental Law, (vii) there have been no
environmental investigations, studies, audits, tests, reviews or other analyses
conducted by or which are in the possession of the Company relating to the
Company or the Company Properties which have not been delivered to the Purchaser
prior to the date hereof, (viii) to the knowledge of the Company there are no
underground storage tanks, on, in or under any of the Company Properties and no
underground storage tanks have been closed or removed from any Company
Properties which are or have been in the ownership of the Company (provided,
however, that with respect to Company Properties formerly owned or operated by
the Company, the representations in this subsection (viii) are limited to the
period the Company owned or operated such Company Properties), (ix) there is no
asbestos present in any Company Property presently owned or operated by the
Company, (x) to the knowledge of the Company none of the Company Properties has
been used at any time by the Company as a sanitary landfill or hazardous waste
disposal site and (xi) the Company has not incurred, and none of the Company
Properties are presently subject to, any material liabilities (fixed or
contingent) relating to any suit, settlement, court order, administrative order,
judgment or claim asserted or arising under any Environmental Law.
5.12 Properties and Assets. The Company has good record and
marketable fee title to all real Property and all other Property, whether
tangible or intangible, owned by it, except defects in title which would not
have a Material Adverse Effect or as otherwise disclosed on Schedule 5.12. The
Company has complied with all commitments and obligations on its part
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to be performed or observed under each of the leases listed on Schedule 5.12,
except for such noncompliance as would not have a Material Adverse Effect.
5.13 Employment Practices. The Company is not a party to, or bound
by, any collective bargaining agreement, Contract or other agreement or
understanding with a labor union organization except as set forth on Schedule
5.13. Except as set forth on Schedule 5.13, there (i) is no unfair labor
practice or material labor arbitration proceeding pending or threatened against
the Company, (ii) are no organizational efforts with respect to the formation of
a collective bargaining unit presently being made or, to the Company's
knowledge, threatened involving employees of the Company, and (iii) is no labor
controversy in existence with respect to the Company's business and operations,
except as would not in any such case have a Material Adverse Effect.
5.14 Intellectual Property. The Company owns or, except as to
Intellectual Property with respect to which the United States Air Force or
Northwestern University has a paid-up, non-exclusive license, otherwise has the
exclusive right or license to use the Intellectual Property listed on Schedule
5.14 attached hereto and all other Intellectual Property used by the Company.
Schedule 5.14 attached hereto contains an accurate and complete list of all
patents, trademarks, trade names and copyrights included in the Intellectual
Property owned or used by the Company, all pending applications therefor and all
licenses and other agreements relating thereto or to any other item of
Intellectual Property, whether as licensor or licensee or otherwise. Schedule
5.14 contains an accurate and complete list of the Intellectual Property of the
Company, excluding know-how and trade secrets. Except as set forth in Schedule
5.14, the complete right, title and interest in and to the inventions described
in the patent applications filed by the Company, and the applications
themselves, have been properly recorded in the United States Patent and
Trademark Office for U.S. applications. Except as set forth on Schedule 5.14,
the patent applications identified by the Company in Schedule 5.14 as currently
pending are currently pending in the appropriate patent offices and are not
abandoned. Except as set forth on Schedule 5.14 attached hereto, the Company
owns the Intellectual Property it uses free and clear of all Liens. Except as
set forth on Schedule 5.14 attached hereto, and in the Company SEC Documents no
claims are currently being asserted by any Person involving the Company's sole
right to use any of the Intellectual Property owned or used by the Company or
challenging or questioning the validity or effectiveness of any license or
similar agreement with respect thereto. To the best of the Company's knowledge,
the Company's use of the Intellectual Property owned or used by it does not
infringe the rights of any Person.
5.15 Material Contracts. The Company has previously furnished or
made available to the Purchaser all contracts, agreements, commitments,
obligations and licenses to which the Company is a party that are material
("Contracts"); provided, however, purchase agreements involving payments in the
aggregate of $50,000 per annum or less shall not be deemed to be material unless
such purchase agreement is by and between the Company and any Affiliate. All of
the Contracts are valid and binding and are in full force and effect; and,
except as set forth on Schedule 5.15 hereto, there are no existing defaults (or
events which, with notice or lapse of time or both, would constitute a material
default) by the Company or its Subsidiaries,
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or, to the Company's knowledge, any other party thereunder, except as would not
have a Material Adverse Effect.
5.16 Taxes. (a) Except as set forth in Schedule 5.16:
(i) all Returns have been or will be timely filed when
due in accordance with all applicable Laws:
(ii) all Taxes shown on the Returns have been timely
paid, except those which are being contested (as described on
Schedule 5.16) ;
(iii) the Returns completely, accurately and correctly
reflect the facts regarding the income, properties, operations and
status of any entity required to be shown thereon;
(iv) the Company has adequate reserves on its financial
statements for Taxes accrued but not yet due, relating to the
income, property or operations of the Company;
(v) there are no agreements or consents currently in
effect for the extension or waiver of the time (A) to file any
Return or (B) for assessment or collection of any Taxes relating to
the Company, and no Person has been requested to enter into any such
agreement or consent;
(vi) none of the Returns have been examined or closed;
(vii) all Taxes which the Company is required by Law to
withhold or collect have been duly withheld or collected, and have
been timely paid over to the appropriate governmental authorities to
the extent due and payable;
(viii)there is no action, suit, proceeding,
investigation, audit or claim currently pending, or, to the
Company's best knowledge, threatened, regarding any Taxes relating
to the Company or any group of which the Company is now or was
formerly a member;
(ix) all Tax deficiencies which have been claimed,
proposed or asserted against the Company or any group of which the
Company is now or was formerly a member, have been fully paid or
finally settled;
(x) no Person has executed or entered into a closing
agreement pursuant to Section 7121 of the Code (or any comparable
provision of State, local or foreign Law) that is currently in force
and determines the Tax liabilities of the Company;
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(xi) there are no liens for any Tax on the assets of the
Company other than liens in the ordinary course of business which
arise as a matter of law;
(xii) there are no tax allocation or other agreements
with or relating to any income or other Taxes with any other person
to which the Company is now or ever has been a party;
(xiii)the Company is not a party to any agreement,
contract, arrangement or plan that would result, separately or in
the aggregate, in the payment of any "excess parachute payments"
within the meaning of Code Section 280G (or any comparable provision
of state, local or foreign Law);
(xiv) the Company has not agreed, and is not required,
to make any adjustment under Code Section 481(a) (or any comparable
provision of state, local, or foreign law) by reason of a change in
accounting method or otherwise;
(xv) no power of attorney is currently in effect, and no
Tax ruling has been requested of any governmental authority, with
respect to any Tax matter relating to the Company;
(xvi) no indebtedness of the Company consists of
"corporate acquisition indebtedness" within the meaning of Section
279 of the Code;
(xvii)the Company is not now and has never been included
in any "consolidated" or "combined" Return provided for under the
Laws of the United States, any foreign jurisdiction or any political
subdivision of the foregoing with respect to Taxes for any taxable
period for which the statute of limitations has not expired; and
(xviii) the Company is not a "United States real
property holding corporation" within the meaning of Section
897(c)(2) of the Code.
5.17 Licenses; Compliance with Laws. The Company holds all licenses,
franchises, permits, consents, registrations, certificates and other approvals
(individually, a "License" and collectively, "Licenses") and owns or licenses
all Intellectual Property required for the conduct of its business as now being
conducted, and is operating in substantial compliance therewith, except where
the failure to hold any such License or to operate in compliance therewith would
not have a Material Adverse Effect. The exclusive patent licenses obtained from
Northwestern University and the United States Air Force which are identified on
Schedule 5.17 are currently in force and have not been terminated or downgraded.
Except as set forth on Schedule 5.17, the Company is in substantial compliance
with all Laws applicable to it, except in each case where the failure so to
comply would not have a Material Adverse Effect taken as a whole.
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5.18 Transactions with Affiliates. There are no material
transactions, agreements or understandings, existing or presently contemplated,
between or among the Company and any of its officers or directors or
stockholders or any of their Affiliates or associates except as set forth on
Schedule 5.18. Except as set forth on Schedule 5.18, no officer, director or
Affiliate of the Company or any Affiliate of any such officer or director
provides or causes to be provided any assets (including Intellectual Property),
knowhow, services or facilities used or held for use by the Company in
connection with its business and the Company does not provide or cause to be
provided any assets (including Intellectual Property), knowhow, services or
facilities to any such officer, director or Affiliate. Except as set forth on
Schedule 5.18, each of the transactions listed on such Schedule is engaged in on
an arm's-length basis.
5.19 Confidential Information. The Company has taken and shall take
all reasonable steps to protect the confidentiality of the semiconductor laser
technology which the Company presently uses or reasonably expects to use in the
future conduct of its business.
5.20 Insurance. The Company maintains all liability (including
product liability), property (including Intellectual Property), workers'
compensation, fire, casualty, officers' and directors' and other insurance
policies to the extent and in the manner customary in the industry for companies
in similar businesses similarly situated. Except as set forth on Schedule 5.20,
each insurance policy is valid and binding and in full force and effect and all
premiums thereunder have been paid. Except as set forth on Schedule 5.20, the
Company has not received any notice of cancellation or termination in respect of
any such policy and is not in default thereunder. Except as set forth on
Schedule 5.20, the Company has not received any notice that any insurer under
any policy referred to in such notice is denying liability with respect to a
claim thereunder or defending under a reservation of rights clause.
5.21 Substantial Customers and Suppliers. Except as set forth on
Schedule 5.21, no material customer or supplier of the Company has ceased or
materially reduced its purchases from or sales or provisions of materials,
services or facilities to the Company since September 30, 1998 or has threatened
to cease or materially reduce such purchases or sales or provision of materials,
services or facilities. Except as set forth on Schedule 5.21, to the knowledge
of the Company, no material customer or supplier of the Company is threatened
with bankruptcy or insolvency.
5.22 Registration Rights. Except as set forth on Schedule 5.22, the
Company is not under any contractual obligation to register any of its currently
outstanding Capital Stock or any of its securities which may hereafter be
issued, except as contemplated by the Registration Rights Agreement.
5.23 Distribution Rights. Except as set forth on Schedule 5.23, the
Company has not granted rights to distribute its products outside the United
States to any Person and is not bound any agreement with respect to the
foregoing.
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5.24 Dividends. On or after September 30, 1998, the Company has not
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its Capital Stock.
5.25 Year 2000. All computer software used by the Company in the
conduct of its business is, or will be prior to December 31, 1999, capable of
accurately processing, calculating, manipulating and storing and exchanging with
other software so capable, date/time, date from, into and between the twentieth
and twenty-first centuries, including, without limitation, the years 1999 and
2000 and any leap year calculations, except where the failure of such software
to so perform will not result in a Material Adverse Effect.
5.26 Disclosure. The Company has provided the Purchaser with all the
information reasonably available to the Company without undue expense that the
Purchaser has requested for deciding whether to purchase the Securities and all
information that the Company believes is reasonably necessary to enable the
Purchaser to make such decision. None of the Schedules attached to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
6. Representations and Warranties of the Purchaser.
(a) The Purchaser represents to the Company that (i) it is an
accredited investor as defined in Regulation D under the Securities Act, and
(ii) by reason of its business and financial experience, and the business and
financial experience of those persons, if any, retained by it to advise it with
respect to its investment in the Securities, such Purchaser together with such
advisers have such knowledge, sophistication and experience in business and
financial matters as to be capable of evaluating the merits and risk of the
prospective investment, and that it is purchasing the Securities for its own
account and not with a view to the distribution thereof or with any present
intention of distributing or selling any of the Securities except in compliance
with the Securities Act. The Purchaser understands and agrees that the Company's
offer and sale of the Securities have not been registered under the Securities
Act and the Securities may be resold only if registered pursuant to the
provisions thereunder or if an exemption from registration is available.
(b) The Purchaser understands and acknowledges that if it
resells all (or any portion) of the Securities in a sale that relies on
Regulation S, that it shall comply with applicable offering restrictions
required under Regulation S.
(c) The Purchaser represents to the Company that it has full
power and authority and has taken all action necessary to authorize it to enter
into and perform its obligations under this Agreement and the other Transaction
Documents. This Agreement is the legal, valid and binding obligation of the
Purchaser, and is enforceable against the Purchaser in accordance with its
terms, except as may be limited by bankruptcy, reorganization, moratorium,
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fraudulent conveyance and insolvency laws and by other laws affecting the rights
of creditors generally and except as may be limited by the availability of
equitable remedies.
(d) The Purchaser believes that it has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Securities. The Purchaser further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
business, properties, prospects and financial condition of the Company and to
obtain additional information (to the extent the company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to the Purchaser
or to which the Purchaser had access. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 5 of this
Agreement or the right of the Purchaser to rely thereon.
7. Covenants of the Company. The Company covenants and agrees that from
the date hereof until the Second Closing Date, except with respect to Sections
7.6, 7.7 and 7.8 of this Agreement and, unless otherwise provided for in this
Agreement, or unless the Purchaser shall otherwise consent in writing, it will
do or cause the following:
7.1 Ordinary Course. The Company's business shall be conducted only
in the ordinary course of business and in a manner consistent with past practice
and the business plan(s) approved by the Company's Board of Directors. The
Company shall use commercially reasonable efforts, within the limits of its
available resources, to preserve substantially intact its business organization,
and to maintain or improve its profitability.
7.2 Issuance of Securities. The Company shall not issue, deliver,
sell, redeem, acquire, authorize or propose to issue, deliver, sell, redeem,
acquire or authorize, any shares of its Capital Stock of any class or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares or convertible securities or other ownership interest, provided that
the Company shall be permitted to (i) issue Common Stock, and Series B Preferred
Stock required to be issued to the Purchaser pursuant to this Agreement, (ii)
issue up to 500,000 Warrants exercisable for up to 500,000 shares of Common
Stock in connection with the Company's contemplated amendment to its $1,000,000
secured line of credit (the "Line of Credit") maintained by BSB Bank & Trust
Company ("BSB") upon the terms and conditions agreed to by the Company and BSB
and (iii) issue options already authorized pursuant to the Company's 1995 Stock
Option Plan, as amended (the "1995 Plan") and shares of Common Stock upon
exercise of any such options, provided, however, that such options shall be
issued at an exercise price at least equal to Fair Market Value. The Company
shall not amend (i) its Charter Documents to increase the number of authorized
shares of Common Stock or Preferred Stock thereunder or (ii) the 1995 Plan to
increase the number of authorized shares of Common Stock thereunder without the
consent of the Purchaser in either case.
7.3 Nasdaq Listing. The Company will use its best efforts to
continue the listing of the Common Stock on the Nasdaq SmallCap Market and to
ensure that the shares of Common Stock to be issued upon conversion of the
Series B Preferred Stock are listed or
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authorized to be quoted on the Nasdaq SmallCap Market or listed on any national
securities exchange on which shares of Common Stock are then listed, to the
extent that such listing is permitted at such time.
7.4 Dividends; Changes in Capital Stock. The Company shall not, nor
shall it propose to: (i) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its Capital Stock; or (ii) recapitalize or otherwise modify its Capital
Stock, except that the Company may effectuate a reverse stock split as
contemplated by its plan to reattain compliance with the minimum bid price
requirement of the Nasdaq SmallCap Market (the "Reverse Stock Split"). If such
Reverse Stock Split is consummated by the Company prior to the Second Closing
Date, then, following the record date fixed for such Reverse Stock Split, the
number of shares of Series B Preferred Stock to be acquired by the Purchaser and
the Second Closing Purchase Price shall remain the same, but the number of
shares of Common Stock into which the Series B Preferred Stock may be converted
shall be appropriately adjusted by the Company in order to maintain the
proportionate conversion ratio set forth in Section 2.2(b) hereof.
7.5 Financial Information. Immediately following the date of
execution of this Agreement, the Company shall commence providing the Purchaser
with monthly financial data to the extent that it is otherwise prepared by the
Company and that it is reasonably requested by the Purchaser.
7.6 Return and Other Tax Information. Following the First Closing
Date and for so long as Purchaser shall hold securities of the Company, and for
a reasonable time thereafter, the Company shall provide the Purchaser with such
cooperation and information as the Purchaser may reasonably request with respect
to (A) the filing of any Return, amended Return, or claim for a refund of Taxes,
(B) determining any potential or asserted Tax liability or a right to a refund
of Taxes under any Law, or (C) conducting or defending any audit or other
proceeding in respect of Taxes. Any information obtained under this Section 7.6
shall be kept confidential, except as may be otherwise necessary in connection
with filing any Return, amended Return, or claim for a refund of Taxes, or in
conducting or defending any audit or other proceeding in respect of Taxes as may
otherwise be required by any Law, rule, regulation or accounting principal or
practice.
7.7 Stamp Taxes. The Company shall be liable for, and shall pay when
due, any transfer, gains, documentary, sales, use, registration, stamp, value
added or other similar Taxes payable by reason of the transactions contemplated
by this Agreement or attributable to the initial sale to the Purchaser of the
Common Stock or the Series B Preferred Stock, and the Company shall, at its own
expense, file all necessary Returns and other documentation with respect to all
such Taxes.
7.8 FIRPTA. On or prior to the First Closing Date, the Company shall
provide the Purchaser with a copy of a statement, issued by the Company pursuant
to U.S. Treasury
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Regulation Section 1.8972(h), certifying that neither the Common Stock nor the
Series B Preferred Stock is a United States real property interest.
7.9 Regulatory Approval. The Company shall cooperate with the
Purchaser by providing information upon request of the Purchaser to the extent
the Purchaser receives any inquiry from any Governmental Authority in connection
with the transactions contemplated by this Agreement.
7.10 Warrants and Options. The Company will not take any action to
accelerate the exercisability or vesting of any outstanding warrants or options
to purchase Common Stock or modify any other terms of such warrants or options,
including the terms of the 1995 Plan, as a result of the transactions
contemplated hereby.
7.11 Public Announcements. Upon the execution of this Agreement, the
Company and the Purchaser will consult with each other with respect to the
issuance of a joint press release to be released by the Company with respect to
this Agreement and the transactions contemplated hereby. Prior to each of the
First Closing and the Second Closing, except as otherwise agreed to by the
parties, the parties shall not issue any report, statement or press release or
otherwise make any public statements with respect to this Agreement, except as
in the reasonable judgment of the party may be required by law or in connection
with the obligations of a publicly-held company. Upon each of the First Closing
and the Second Closing, the Company and the Purchaser will consult with each
other with respect to the issuance of a joint press release with respect to the
consummation of the transactions contemplated by this Agreement.
7.12 Co-investment Rights. During the time period in which the
Purchaser holds at least fifty percent (50%) of the Securities issued pursuant
to this Agreement (including the Common Stock issuable upon conversion of the
Preferred Stock), the Purchaser shall have co-investment rights with respect to
any issuances of equity securities of the Company (or securities or rights
convertible into or exercisable for equity securities of the Company), pursuant
to which the Purchaser shall have the right, at its option, to maintain up to
its percentage ownership of outstanding equity of the Company (on a fully
diluted basis, with respect to ownership and with respect to voting rights) by
participating in such issuance of securities on terms no less favorable in any
respect than the terms on which any other purchaser of such securities
participates in such issuance. The maintenance of such percentage ownership of
the Purchaser shall be only to the extent practicable, and the Purchaser shall
take into account the difficulty of achieving a precise percentage for the
Purchaser while also satisfying a prospective purchaser's objectives; provided,
however, that any shortfall in such maintenance of the Purchaser's percentage
ownership shall be de minimus.
The Company shall notify the Purchaser, in writing (the "Notice"),
of its intention to sell such securities, setting forth the terms under which it
proposes to make such sale, the persons to whom such sale is proposed to be
made, and the number of securities it proposes to sell, and advising the
Purchaser of the amount of such securities which the Purchaser is entitled to
purchase in accordance with this Section 7.12. The Purchaser shall have the
right, but not the
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obligation, to notify the Company within thirty (30) days after the Company
gives such notice that the Purchaser desires to purchase some or all of the
securities which it is entitled to purchase hereunder. Failure to give such
notice within such thirty (30) day period shall constitute a waiver of
Purchaser's right to purchase such securities under this Section 7.12. If the
Purchaser shall give the Company timely notice that it desires to purchase such
securities, it shall purchase such securities within two (2) Business Days of
its notice to the Company regarding such purchase, on the same terms, and at the
same price that the Company sells the remainder of such securities, all such
sales to be made pursuant to the terms set forth in the Notice. The provisions
of this Section 7.12 shall not apply to the issuance of (i) up to 500,000
Warrants exercisable for up to 500,000 shares of Common Stock in connection with
the Company's contemplated amendment to its Line of Credit maintained by BSB
upon the terms and conditions agreed to by the Company and BSB, (ii) employee
stock options and (iii) the shares of Common Stock issuable upon exercise of any
such options.
8. Rights and Obligations of the Purchaser.
8.1 Reservation of Securities. The Company shall reserve and set
apart and have at all times, free from preemptive rights, the number of
authorized but unissued shares of Series B Preferred Stock or Common Stock, to
conform to the Company's obligations set forth in Section 7.
8.2 No Right to Convert Preferred Stock into Common Stock. The
convertible feature of the Series B Preferred Stock into Common Stock shall not
be exercisable by the Purchaser or any Affiliate of the Purchaser, but shall be
exercisable by a transferee of the Purchaser so long as such transferee is not
an Affiliate of the Purchaser.
8.3 Anti-Dilution Provisions - Adjustment of Number of Shares of
Capital Stock. The number of shares of Common Stock into which the Series B
Preferred Stock shall be converted shall be subject to adjustment as provided in
the Certificate of Designations.
8.4 Regulatory Approval. The Purchaser shall cooperate with the
Company by providing information upon request of the Company to the extent the
Company receives any inquiry from any Governmental Authority in connection with
the transactions contemplated by this Agreement.
8.5 Notice to the Holder.
In case at any time:
(i) the Company shall pay any dividend upon its
outstanding Common Stock or Preferred Stock payable in shares of
Common Stock or Preferred Stock or make any distribution (other than
cash dividends out of earned surplus) to the holders of its shares
of Common Stock or Preferred Stock; or
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(ii) the Company shall offer for subscription pro rata
to the holders of its Common Stock or Preferred Stock any additional
shares of Common Stock or Preferred Stock or other rights to acquire
such Common Stock or Preferred Stock; or
(iii) there shall be effected any recapitalization of
the Company or reclassification of the shares of Common Stock or
Preferred Stock of the Company, or any merger or consolidation of
the Company into or with any other corporation or business entity
and as a result of which the Company is not the surviving
corporation, or the sale or transfer of all or substantially all of
the assets of the Company to any other corporation or business
entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice to
the Purchaser of the date which is the record date for such dividend,
distribution or subscription rights, or on which such recapitalization,
reclassification, merger, consolidation, sale, transfer, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of record of the Company's
Common Stock or Preferred Stock shall participate in such dividend, distribution
or subscription rights, or shall be entitled to exchange its Common Stock or
Preferred Stock for securities or other property deliverable upon such
recapitalization, reclassification, merger, consolidation, sale, transfer,
dissolution, liquidation or winding up, as the case may be. Such written notice
shall be given at least thirty (30) days prior to the action in question and not
less than ten (10) days prior to the record date.
9. Conditions to Closing.
9.1 Conditions to the Company's Obligations to Consummate the First
Closing.
The obligations of the Company to effect the sale and issuance of
the Common Stock shall be subject to the satisfaction of the conditions set
forth below, at or before the First Closing Date (which conditions may be waived
by the Company in writing).
(a) The representations and warranties of the Purchaser set
forth in Section 6 of this Agreement shall be true and correct as of the date
hereof and as of the First Closing Date.
(b) The Purchaser shall have performed, satisfied and complied
in all material respects with all covenants, agreements and conditions required
by this Agreement.
(c) The Purchaser shall have delivered to the Company at the
First Closing the items set forth in Section 4.2.
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9.2 Conditions to the Purchaser's Obligations to Consummate the
First Closing.
The obligations of the Purchaser to effect the purchase of the
Common Stock shall be subject to the satisfaction of the conditions set forth
below, at or before the First Closing Date (which conditions may be waived by
the Purchaser in writing).
(a) The representations and warranties of the Company set
forth in Section 5 of this Agreement shall be true and correct as of the date
hereof and as of the First Closing Date (except to the extent specified by the
Company to be true and correct as of an earlier date) and the Purchaser shall
have received a certificate to such effect signed by the Chief Executive Officer
of the Company dated as of the First Closing Date.
(b) The Company shall have performed, satisfied and complied
in all material respects with all covenants, agreements and conditions required
by this Agreement, and the Purchaser shall have received a certificate to such
effect signed by the Chief Executive Officer of the Company dated as of the
First Closing Date.
(c) BSB shall (i) release to the Company simultaneously with
the purchase of the Common Stock by the Purchaser pursuant to Section 2.2(a) of
this Agreement, $450,000 available under its Line of Credit, and (ii) extend the
maturity date of the Line of Credit until May 31, 1999, and the Company shall
have received a letter from BSB indicating its intent upon completion of the
purchase by the Purchaser of the Series B Preferred Stock pursuant to Section
2.2(b) hereto, to further extend the maturity date of the Line of Credit until
May 31, 2000 (subject to the absence of any material adverse change as
determined by BSB).
(d) The Company shall deliver to the Purchaser at the First
Closing the items set forth in Section 4.1.
(e) The Company shall have delivered to the Purchaser a
Certificate dated as of a recent date prior to the First Closing Date issued by
the Secretary of State of the State of Delaware to the effect that the Company
is legally and validly existing and in good standing.
(f) The Company shall have delivered to the Purchaser a
certificate executed by the Secretary of the Company dated as of the First
Closing Date, certifying as to (a) the directors resolutions authorizing the
transactions contemplated by this Agreement, (b) the Charter Documents of the
Company, (c) the incumbency and specimen signatures of the Chief Executive
Officer, President and Secretary of the Company, and (d) such other matters as
the Purchaser may reasonably request.
9.3 Conditions to the Company's Obligations to Consummate the Second
Closing.
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The obligations of the Company to effect the sale and issuance of
the Series B Preferred Stock shall be subject to the satisfaction of the
conditions set forth below, at or before the Second Closing Date (which
conditions may be waived by the Company in writing).
(a) The representations and warranties of the Purchaser set
forth in Section 6 of this Agreement shall be true and correct except as would
not have a material adverse effect on either party's ability to consummate the
transactions contemplated by this Agreement.
.
(b) The Purchaser shall have performed, satisfied and complied
in all material respects, with all covenants, agreements and conditions required
by this Agreement.
(c) The Purchaser shall have procured all regulatory approvals
and consents required by Law to be procured by it for the transactions
contemplated by this Agreement.
(d) The Purchaser shall have delivered to the Company at the
Second Closing the items set forth in Section 4.4.
9.4 Conditions to the Purchaser's Obligations to Consummate the
Second Closing.
The obligations of the Purchaser to effect the purchase of the
Series B Preferred Stock shall be subject to the satisfaction of the conditions
set forth below, at or before the Second Closing Date (which conditions may be
waived by the Purchaser in writing).
(a) The representations and warranties of the Company set
forth in Section 5 of this Agreement shall be true and correct in all material
respects as of the date hereof and as of the Second Closing Date, except to the
extent specified by the Company to be true and correct as of an earlier date or
except to the extent disclosed by the Company to the Purchaser on or prior to
the Second Closing Date, and the Purchaser shall have received a certificate to
such effect signed by the Chief Executive Officer of the Company dated as of the
date of the Second Closing Date.
(b) As of the Second Closing Date, there shall not have
occurred any event or condition which has had a Material Adverse Effect, and the
Purchaser shall have received a certificate to such effect signed by the Chief
Executive Officer of the Company dated as of the date of the Second Closing
Date.
(c) The Company shall have performed, satisfied and complied
in all material respects with all covenants, agreements and conditions required
by this Agreement, and the Purchaser shall have received a certificate to such
effect signed by the Chief Executive Officer of the Company dated as of the
Second Closing Date.
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(d) The Company shall have procured all regulatory approvals
and consents required by Law to be procured by it for the transactions
contemplated by this Agreement.
(e) If required under Nasdaq rules, the Company shall have
obtained shareholder approval of the purchase.
(f) BSB shall have extended the maturity date of the Line of
Credit until May 31, 2000.
(g) The Company shall have delivered to the Purchaser at the
Second Closing the items set forth in Section 4.3.
(h) The Company shall have delivered to the Purchaser a
bring-down Certificate dated as of a recent date prior to the Second Closing
Date issued by the Secretary of State of the State of Delaware to the effect
that the Company is legally and validly existing and in good standing.
(i) The Company shall have delivered to the Purchaser a
bring-down certificate executed by the Secretary of the Company dated as of the
Second Closing Date, certifying as to (a) the directors resolutions authorizing
the transactions contemplated by this Agreement, (b) the Charter Documents of
the Company, (c) the incumbency and specimen signatures of the Chief Executive
Officer, President and Secretary of the Company, and (d) such other matters as
the Purchaser may reasonably request.
(j) The Company shall have filed or caused to be filed the
Certificate of Designations relating to the Series B Preferred Stock with the
Secretary of State for the State of Delaware on or prior to the Second Closing
Date.
10. Restrictions on Transfer.
10.1 Restrictive Legends. Except as otherwise permitted by this
Section 10, each share certificate constituting the Common Stock and the Series
B Preferred Stock issued and sold pursuant to this Agreement and any share
certificate issued upon exchange of the Series B Preferred Stock for Common
Stock shall be stamped or otherwise imprinted with a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT
TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES
MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT
WITH RESPECT TO SUCH
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SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE
144A UNDER SUCH ACT, (iii) REGULATION S, OR (iv) ANY OTHER EXEMPTION
FROM REGISTRATION UNDER SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE
COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND
SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
10.2 Notice of the Proposed Transfer; Opinion of Counsel. The
Purchaser of each share certificate bearing the restrictive legend set forth in
Section 10.1 above ("Restricted Security") agrees that prior to any transfer or
attempted transfer of such Restricted Security to give to the Company (a)
written notice describing the manner or circumstances of such transfer or
proposed transfer, and (b) an opinion of counsel, which is knowledgeable in
securities law matters, in form and substance reasonably satisfactory to the
Company, to the effect that the proposed transfer of such Restricted Security
may be effected without registration of such Restricted Security under the
Securities Act. If the holder of the Restricted Security delivers to the Company
an opinion of counsel in form and substance reasonably satisfactory to the
Company that subsequent transfers of such Restricted Security will not require
registration under the Securities Act, the Company will after such contemplated
transfer deliver new Securities for such Restricted Security which do not bear
the Securities Act legend set forth in Section 10.1 above. Except to the extent
required by the Company's transfer agent, the requirements for an opinion of
counsel imposed by this Section 10.2 upon the transferability of any particular
Restricted Security shall not apply (i) when such Restricted Security is sold
pursuant to an effective registration statement under the Securities Act, (ii)
when such Restricted Security is transferred pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act or (iii) when such Restricted Security is
transferred pursuant to Regulation S promulgated under the Securities Act. The
restrictions imposed by this Section 10 shall cease and terminate upon the date
which is two (2) years after the later of (A) the original issue date of the
Restricted Security and (B) the last date on which the Company or any Affiliate
of the Company was the owner of the Restricted Security (or any predecessor
Restricted Security). As used in this Section 10.2, the term "transfer"
encompasses any sale, transfer or other disposition of any Securities referred
to herein.
11. Miscellaneous.
11.1 Indemnification; Expenses, Etc.
(a) The Company agrees to indemnify and hold harmless the
Purchaser, its Affiliates and each of its and their respective directors,
officers, partners, principals, shareholders and attorneys (individually, an
"Indemnified Party" and, collectively, the "Indemnified Parties") from and
against any and all losses, claims, damages, liabilities, costs
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(including reasonable attorneys' fees and including any costs of investigation)
and expenses (collectively, "Losses") to which any Indemnified Party may become
subject, insofar as such Losses arise out of or result from (i) any breach of
any representation or warranty made by the Company, or the failure of the
Company to fulfill in any material respect any agreement or covenant contained
in this Agreement or any other Transaction Document, or (ii) any proceeding
against the Company or any Indemnified Party brought by any third party arising
out of or in connection with this Agreement or the other Transaction Documents;
provided, however, that the Company shall not have any obligation under this
indemnity provision to indemnify any Indemnified Party with respect to Losses
(x) resulting from a breach of any representation, warranty or covenant of the
Purchaser hereunder or (y) until, in the case of Losses referred to in clause
(i) of this paragraph, the aggregate combined total of all such Losses incurred
by any Indemnified Party exceeds (10%) of the aggregate amount of the Financing
consummated hereunder, whereupon the Indemnified Party shall be entitled to
indemnity with respect to the amount of Losses in excess of such amount, and the
Company shall reimburse the Indemnified Party for all such Losses as they are
incurred or suffered by such Indemnified Party; provided further, that clause
(y) shall not apply to any third party claim made directly against the
Purchaser.
(b) If any Indemnified Party is entitled to indemnification
hereunder, such Indemnified Party shall give notice to the Company of any claim
or of the commencement of any proceeding against the Company or any Indemnified
Party brought by any third party with respect to which such Indemnified Party
seeks indemnification pursuant hereto; provided, however, that the delay to so
notify the Company shall not relieve the Company from any obligation or
liability except to the extent the Company is materially prejudiced by such
delay. The Company shall have the right, exercisable by giving written notice to
an Indemnified Party within thirty (30) days after the receipt of written notice
from such Indemnified Party of such claim or proceeding, to assume, at the
expense of the Company, the defense of any such claim or proceeding with counsel
reasonably satisfactory to such Indemnified Party. After notice from the Company
to the Indemnified Party of its election to assume the defense of such claim or
proceeding, the Company shall not be liable to the Indemnified Party for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party shall have the right to
employ separate counsel to represent the Indemnified Party which may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the Indemnified Party against the Company, but the fees and expenses
of such counsel shall be for the account of such Indemnified Party unless (i)
the Company and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) in the reasonable opinion of counsel to such
Indemnified Party, representation of both parties by the same counsel would be
inappropriate due to actual or potential conflicts of interest between them, it
being understood, however, that the Company shall not, in connection with any
one such claim or proceeding or separate but substantially similar or related
claims or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for all
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Indemnified Parties. The Company shall not consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by claimant or plaintiff to such Indemnified Party or Parties of a
release from all liability in respect of such claim, litigation or proceeding.
(c) If the indemnification provided for in Section 11.1(a) is
unavailable or insufficient to hold harmless an Indemnified Party in respect of
any loss, claim, damage, liability, cost or expense, then the indemnifying
party, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, claim, damage, liability, cost or expense (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company on
the one hand and the Purchaser on the other hand from the sale and purchase of
the Securities or (ii) if the allocation provided by clause (i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above, but also the relative fault
of the Company on the one hand and the Purchaser on the other hand in connection
with the events or facts which gave rise to such loss, claim, damage, liability,
cost or expense, as well as any other equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
events or facts that gave rise to such loss, claim, damage, liability, cost or
expense relate to a breach of representations and warranties or other covenants
and obligations under this Agreement and the other Transaction Documents by the
Company or the Purchaser and the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
events. The amount paid or payable by an Indemnified Party as a result of such
loss, claim, damage, liability, cost or expense shall be deemed to include any
reasonable and documented legal or other expenses incurred by such Indemnified
Party in connection with investigating or defending such claim.
11.2 Survival of Representations, Warranties, Covenants and
Indemnification. All representations and warranties contained in this Agreement
or in the other Transaction Documents shall survive for a period of one year
from the date hereof, except for representations and warranties relating to
compliance with Laws, Taxes and Returns, and the covenants contained in Sections
7.6, 7.7 and 7.8 of this Agreement, all of which shall survive until the
expiration of any applicable statute of limitations, and the indemnity agreement
contained in Section 11.1 of this Agreement; provided, however, that such
survival of representations and warranties relating to compliance with Laws,
Taxes and Returns and of the covenants contained in Sections 7.6, 7.7 and 7.8 of
this Agreement, shall only survive beyond one year to the extent there is any
third party claim made directly against the Purchaser.
11.3 Amendment and Waiver. This Agreement may be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may be given, provided that the same are in writing and signed by the
Purchaser and the Company.
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11.4 Notices, Etc. Except as otherwise provided in this Agreement,
notices and other communications under this Agreement shall be in writing and
shall be delivered personally, sent by telecopier (with written confirmation of
receipt), mailed by registered or certified mail, return receipt requested, or
by a nationally recognized overnight courier, postage prepaid, addressed, (a) if
to the Purchaser, at ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇, ▇-▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, telecopier
no.: 011-49-30-2030-5555, to the attention of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, with a copy to
Linklaters & Paines, 1345 Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, telecopier no.: (▇▇▇) ▇▇▇-▇▇▇▇, to the attention of ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇., Esq. or (b) if to the Company, at ▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, telecopier no.: (▇▇▇) ▇▇▇-▇▇▇▇, to the attention of ▇▇. ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, with a copy to ▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, telecopier no.: (▇▇▇) ▇▇▇-▇▇▇▇, to the attention of
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq. Any such notices which are mailed shall be deemed
delivered five (5) Business Days after mailing.
11.5 Expenses. Except as otherwise provided in this Agreement,
whether or not the transactions contemplated hereby are consummated, each party
will pay its own costs and expenses incurred in connection with the negotiation,
execution and closing of this Agreement and the other Transaction Documents and
the consummation of the transactions contemplated hereby and thereby; provided,
however, that the Company shall pay up to a maximum of thirty seven thousand
five hundred U.S. dollars ($37,500) of documented legal expenses related to the
Purchaser's due diligence, such amount to be deducted from the Second Closing
Purchase Price.
11.6 Entire Agreement. This Agreement and the other Transaction
Documents embody the entire agreement and understanding between the Purchaser
and the Company and except for the Confidentiality Agreement dated December 4,
1998 supersede all prior agreements and understandings, including, without
limitation, the Letter of Intent dated January 11, 1999 relating to the subject
matter hereof.
11.7 Successors and Assigns. Whenever in this Agreement any of the
parties hereto are referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of the respective parties which are contained in this Agreement
shall bind and inure to the benefit of the successors and assigns of all other
parties. The terms and provisions of this Agreement and the other Transaction
Documents shall inure to the benefit of and shall be binding upon any assignee
or transferee of any Purchaser, and in the event of such transfer or assignment,
the rights and privileges herein conferred upon any such Purchaser shall
automatically extend to and be vested in, and become an obligation of, such
transferee or assignee, all subject to the terms and conditions hereof.
11.8 Termination.
(a) This Agreement may be terminated and the transactions
contemplated hereby may be abandoned:
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(i) at any time prior to the First Closing or the Second
Closing, by the mutual written consent of the Company and the
Purchaser;
(ii) at any time prior to the Second Closing, by the
Company or Purchaser upon notice given to the other if the Second
Closing shall not have taken place for any reason by May 31, 1999;
provided that the failure of the Second Closing to occur on or
before such date (or the inability to satisfy such condition) is not
the result of the breach of the covenants, agreements,
representations or warranties hereunder of the party seeking such
termination;
(iii) at any time prior to the First Closing or the
Second Closing, upon the death or permanent physical disability or
mental incapacity of ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇; or
(iv) at any time prior to the First Closing or the
Second Closing, by the Company or the Purchaser upon written notice
to the other party if any court or Governmental Authority of
competent jurisdiction shall have issued a final permanent order,
enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and the time for appeal or reconsideration of such
order shall have expired.
(b) In the event of the termination of this Agreement as
provided in Section 11.8(a), this Agreement shall forthwith become wholly void
and of no further force and effect and there shall be no liability on the part
of the Company, the Purchaser or their respective officers and directors (except
as set forth in Sections 11.1 and 11.5; provided, however, that nothing
contained in this sentence is intended to eliminate the liability of a breaching
party to a non-breaching party who terminates this Agreement pursuant to Section
11.8(a)(ii) of this Agreement). The obligations of the parties to this Agreement
under Sections 11.1 and 11.5 shall survive any such termination.
11.9 Descriptive Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
11.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to any choice-of-law principles thereof.
11.11 Consent to Jurisdiction; Waiver of Immunities. (a) Each of the
Purchaser and the Company hereby irrevocably submits to the non-exclusive
jurisdiction of any court of the State of New York or United States federal
court sitting in the Borough of Manhattan, The City of New York, and any
appellate court therefrom in any action or proceeding arising out of or relating
to this Agreement, and the Purchaser hereby irrevocably agrees that all claims
in respect
32
38
of such action or proceeding may be heard and determined in such court. The
Purchaser hereby irrevocably waives, to the fullest extent permitted by
applicable law, the defense of an inconvenient forum to the maintenance of such
action or proceeding.
(b) To the fullest extent permitted under applicable law and
to the extent that the Purchaser has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution, execution
or otherwise) with respect to itself or its property, the Purchaser hereby
irrevocably waives such immunity in respect of its obligations under this
Agreement and, without limiting the generality of the foregoing, agrees that the
waivers set forth in this Section 11.9(b) shall have the fullest scope permitted
under the Foreign Sovereign Immunities Act of 1976 of the United States of
America and are intended to be irrevocable and not subject to withdrawal for
purposes of such Act.
11.12 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
33
39
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
SEMICONDUCTOR LASER INTERNATIONAL
CORPORATION,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President & Chief Executive Officer
bmp MOBILITY AG VENTURE
CAPITAL,
a German stock corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: CEO
40
Schedule 5.2
Authorization
1. Stockholder approval for the Second Closing, to the extent required by
the Nasdaq SmallCap Market rules.
41
Schedule 5.3
Consents
1. BSB Bank & Trust Company, as per Commitment Letter dated February 3,
1999.
42
Schedule 5.4
Capitalization
1. 1,000,000 shares of Common Stock reserved for issuance under the
Company's 1995 Stock Option Plan, as amended (the "Plan"), of which 148,455
shares have been reserved for currently outstanding options (a list of which
has been provided to the Purchaser).
2. 112,604 shares issuable upon exercise of options and warrants issued
outside of the Plan to certain executive officers, non-employee directors and
consultants.
3. 2,118,000 shares issuable on exercise of certain registered warrants
issued in connection with the Company's initial public offering. These
registered warrants are exercisable on or prior to March 19, 2000, at an
exercise price of $5.00 per share (a list of which has been provided to the
Purchaser).
4. 750,000 shares of Common Stock issuable upon exercise of warrants
issued to Marketing Direct Concepts, Inc. The MDC warrants are exercisable at
the exercise prices and for the number of shares indicated: (i) 75,000 shares of
Common Stock at $3.4688; (ii) 25,000 shares of Common Stock at $4.3438; (iii)
25,000 shares of Common Stock at $4.8438; and (iv) 25,000 shares of Common Stock
at $5.3438, and (b) a warrant to purchase 600,000 shares of Common Stock at an
exercise price of $3.4688. Of these shares, 150,000 can be exercised at any time
through October 26, 2000 and 600,000 can be exercised at any time through
December 11, 2000 (a list of which has been provided to the Purchaser).
5. 20,000 warrants to purchase 20,000 shares issued to WCF at an exercise
price of $3.75 per share (a list of which has been provided to the Purchaser).
6. 58,334 warrants to purchase 58,334 shares at an exercise price of $5.00
per share issued to FINOVA Technology Finance, Inc. (a list of which has been
provided to the Purchaser).
43
Schedule 5.5
Litigation; Defaults
1. Since April 1998, the Company has been responding to informal requests
for information from the Securities and Exchange Commission. In August 1998, the
Company learned that in June 1998, the Commission had issued a formal order of
investigation to determine whether violations of certain aspects of the federal
securities laws had occurred in connection with the Company. Pursuant to this
formal order of investigation, the Company and certain of its current and former
officers and directors have produced documents pursuant to subpoenas from the
Northeast Regional Office of the Commission. The investigation is in its early
stages and the Company is not able to speculate as to the specific subject
matter of the investigation on the Company. There can be no assurance as to the
timeliness of the completion of the investigation or as to the final result
thereof, and no assurance can be given that the final result of the
investigation will not have a material adverse effect on the Company. The
Company is cooperating with the investigation, and has responded and will
continue to respond to requests for information in connection with the
investigation.
2. In August 1998, the Company learned that the United States Attorney's
Office for the Southern District of New York is investigating whether violations
of securities laws have occurred in connection with the Company's public
disclosures. The Company is cooperating with the investigation and is responding
to a grand jury subpoena issued in connection with the investigation. There can
be no assurance as to the timeliness of the completion of the investigation or
as to the final result thereof, and no assurance can be given that the final
result of the investigation will not have a material adverse effect on the
Company or its current management.
3. The Company is currently engaged in litigation with a former employee,
Dr. ▇▇▇▇▇ ▇▇▇▇▇, who the Company brought an action against for a breach of
confidentiality obligations and defamation of character. ▇▇. ▇▇▇▇▇ has responded
with a counter claim alleging defamation of character and is seeking $500,000 in
damages. The litigation is presently in the discovery stage. The Company
believes the counter claim is without merit and is vigorously defending such
action.
4. See Schedule 5.14.
5. See Schedule 5.21.
44
Schedule 5.6
Material Developments
1. See list of late payments on accounts payable list (a copy of which
has been provided to the Purchaser).
2. See Schedule 5.21.
45
Schedule 5.7
Benefits; ERISA
Benefit Plans
1. Blue Cross/Blue Shield Medical Insurance, Group Health Plan as per
employee handbook and policy that have been provided previously to the
Purchaser.
2. Vacation Holiday and Sick Day Policy, as per employee handbook that has
been provided previously to the Purchaser.
3. Vision Plan, as per employee handbook that has been provided previously
to the Purchaser.
4. Security Mutual Life Employee Life Insurance and Accidental Death &
Dismemberment, as per employee handbook and policy that have been provided
previously to the Purchaser.
5. Security Mutual Life Disability Insurance, as per employee handbook and
policy that have been provided previously to the Purchaser.
6. Chubb Indemnity Insurance Co. Worker's Compensation, dated October 14,
1998.
7. 1995 Stock Option Plan, dated October 1, 1995 and as amended August 17,
1998.
Employment Agreements
1. Employment Agreement, dated October 1, 1995, between Semiconductor
Laser International Corporation and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
2. Employment Agreement, dated October 1, 1995, between Semiconductor
Laser International Corporation and ▇▇▇▇▇ ▇▇▇▇▇▇▇.
46
Schedule 5.10
Undisclosed Liabilities
(since September 30, 1998)
1. Accounts Payable increase of $344,000.
2. Accrued Audit Fees increase of $40,000.
3. ▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ have deferred automatic salary
increases and payment for offices provided for under their respective employment
agreements.
47
Schedule 5.11
Environmental
1. Phase I Environmental Site Assessment, dated May 1996, by Hawk
Engineering, P.C., previously provided to the Purchaser.
48
Schedule 5.12
Property
1. On December 18, 1996, the Company entered into an agreement (a copy of
which has been provided to the Purchaser)(the "Sale and Leaseback Agreement")
with the ▇▇▇▇▇▇ County ▇▇▇, in which the Company sold and leased back its
manufacturing facilities and equipment. The sale price was $1.00 and the lease
payment is $1.00 per year for twenty years. In accordance with the terms of the
Sale and Leaseback Agreement, the Company has the unilateral right at any time
to purchase from the ▇▇▇▇▇▇ County ▇▇▇ all assets sold to them for the price of
$1.00. The Sale and Leaseback Agreement also provides that the Company would
make payments in lieu of taxes at a rate dependent upon employment levels. All
rights of ownership of the facilities and equipment remain with the Company.
2. FINOVA capital lease (copy of which has been provided to the
Purchaser).
3. BSB mortgage (copy of which has been provided to the Purchaser).
49
Schedule 5.13
Employment Practices
None.
50
Schedule 5.14
Intellectual Property
Licenses
1. License Agreement, dated September 1, 1996, by and between Northwestern
University and Semiconductor Laser International Corporation (Patent Numbers
5,384,151 and 5,389,396).
2. License Agreement, dated November 1, 1996, by and between Northwestern
University and Semiconductor Laser International Corporation (Patent Filing
Serial Number 08/543,779).
3. License Agreement, dated June 3, 1994, by and between the Government of
the United States of America as represented by the Department of the Air Force
and Semiconductor Laser International Corporation, under U.S. Patent
Applications S/N 08/113,375 (issued) and 08/113,374.
Patents
1. List of U.S. patent applications which has been provided to the
Purchaser. No Notices of Appeal and Petition for Revival have been filed in the
appropriate circumstances. Note that if renewal payment is not made by February
4, 1999, U.S. Patent Application No. 08/681,901 will lapse.
Claims
1. Reference is made to the e-mail message relating to the Status of
License Agreements sent by ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ to the Purchaser on January
7, 1999.
51
Schedule 5.15
Defaults on Material Contracts
1. See list of late payments on accounts payable list (a copy of which
has been provided to the Purchaser).
2. See Schedule 5.21.
52
Schedule 5.16
Taxes
1. Local School taxes for the 1998-1999 school year were paid late;
penalty fee paid.
2. With respect to all clauses of Section 5.16 of the Agreement, other
than those covered by paragraph (1) of this Schedule 5.16: None.
53
Schedule 5.17
Compliance with Laws
None.
54
Schedule 5.18
Transactions with Affiliates
1. Employment Agreement, dated October 1, 1995, between Semiconductor
Laser International Corporation and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
2. Employment Agreement, dated October 1, 1995, between Semiconductor
Laser International Corporation and ▇▇▇▇▇ ▇▇▇▇▇▇▇.
3. Members of the Board of Directors are entitled to a one time payment of
$2,000 upon joining the Board. Subsequently, Board members are entitled to
receive 2,500 options per year under the 1995 Plan and $1,000 for every Board
meeting attended in person.
55
Schedule 5.20
Insurance
1. Company is late in payment of its insurance premiums, as noted on the
Accounts Payable list referred to in Schedule 5.15. Additionally, the Company
owes approximately $6,000 in insurance premiums to Blue Cross/Blue Shield for
the month of January 1999.
2. ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ has submitted a claim with Great Northern
Insurance Company for certain property, valued at approximately $20,000 in the
aggregate, that was stolen from ▇▇. ▇▇▇▇▇▇▇'▇ company car. The insurance company
has acknowledged coverage of approximately $15,000 of such property, and has
requested that ▇▇. ▇▇▇▇▇▇▇ seek the remaining $5,000 from his personal insurance
coverage. The insurance company has not yet paid such $15,000 portion of the
claim.
56
Schedule 5.21
Customers and Suppliers
1. The Company is currently engaged in a dispute with one of its key
customers, Rocky Mountain Instruments("RMI"). RMI disputes the amounts owed to
the Company regarding certain orders, has made claims regarding defects in
certain of the units delivered and is currently late in making payments on such
orders. The Company believes that RMI owes approximately $468,571 (including a
late charge) to the Company. RMI accounted for approximately 38.9 % of the
Company's net sales for fiscal 1998 to date. Of the initial purchase order for
500 units, only 97 have been delivered to date and RMI has indicated that it
does not want the remaining units. While the Company believes that RMI is
obligated to accept such units and intends to enforce its rights, it has reduced
its backlog by approximately $1.5 million. RMI has ceased making purchases from
the Company.
2. Most suppliers have either stopped delivery or conditioned delivery on
payment of past due bills or COD.
57
Schedule 5.22
Registration Rights
1. ▇▇▇▇▇ & ▇▇▇▇▇▇▇ has unlimited piggy-back registration rights on the
110,280 shares issued to ▇▇▇▇▇ & ▇▇▇▇▇▇▇ in consideration of legal services.
2. The Company agreed to file a Registration Statement within 45 days of
the receipt of a request from the purchasers of common stock in the December
1997 and June 1998 private placements and to use its best efforts to have them
be declared effective by the SEC. All shares of common stock issued in the
aforementioned private placements have been registered.
3. Common stock issuable upon conversion of the MDC warrants have
unlimited piggy-back registration rights. All of the shares of common stock
underlying the MDC warrants have been registered.
58
Schedule 5.23
Distribution Rights
1. See list that has been provided to the Purchaser.
59
EXHIBIT A
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE
PREFERRED STOCK
OF
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION, a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY THAT:
Pursuant to authority conferred upon the Board of Directors (the
"Board") by the Certificate of Incorporation of the Corporation, as amended to
date (the "Certificate of Incorporation") and pursuant to the provisions of
Section 151 of the Delaware General Corporation Law, the Board, at a meeting
held on February 2, 1999, adopted the following resolution providing for the
voting powers, designations, preferences and rights, and the qualifications,
limitations and restrictions of the Series B Convertible Preferred Stock.
WHEREAS, the Certificate of Incorporation provides for two classes
of shares known as common stock, $.01 par value per share (the "Common Stock"),
and preferred stock, $.01 par value per share (the "Preferred Stock"); and
WHEREAS, the Board is authorized by the Certificate of Incorporation
to provide for the issuance of the shares of Preferred Stock in one or more
series and, by filing a certificate pursuant to the applicable law of the State
of Delaware, to establish from time to time the number of shares to be included
in any such series and to fix the voting powers, designations, preferences and
rights of the shares of any such series and the qualifications, limitations and
restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board deems it advisable
to, and hereby does, designate a Series B Convertible Preferred Stock and fixes
and determines the voting
60
powers, designations, preferences and rights, and the qualifications,
limitations and restrictions relating to the Series B Convertible Preferred
Stock as follows:
1. Designation. The shares of such series of Preferred Stock individually
and in the aggregate shall be designated "Series B Convertible Preferred Stock"
(referred to herein as the "Series B Stock").
2. Authorized Number. The number of shares constituting the Series B Stock
shall be one million (1,000,000). The number of authorized shares of Series B
Stock may be reduced by further resolution of the Board of Directors of the
Company and by the filing of a certificate pursuant to the provisions of the
Section 151(g) of the General Corporation Law of the State of Delaware stating
that such reduction has been so authorized (but not below the number of shares
of Series B Stock then outstanding) but the number of authorized shares of
Series B Stock shall not be increased.
3. Ranking. The Series B Stock shall rank as to dividends pari passu with
the Common Stock of the Corporation. The Series B Stock shall rank as to
liquidation, dissolution or winding up, senior and prior to the Common Stock of
the Corporation and to all other classes or series of stock issued by the
Corporation, except as otherwise approved by the affirmative vote or consent of
the holders of shares of Series B Stock pursuant to Section 8(b) hereof. (All
equity securities of the Corporation with respect to which the Series B Stock
ranks senior and prior with respect to liquidation, dissolution and winding up,
including the Common Stock, are collectively referred to herein as "Junior
Securities" and all equity securities of the Corporation with which the Series B
Stock ranks on a parity, with respect to dividends, are collectively referred to
herein as "Parity Securities.")
4. Dividends. The holders of shares of Series B Stock shall be entitled to
share, equally and ratably in any dividends declared by the Board on the Common
Stock, whether payable in cash, shares of Common Stock (or fractions thereof) or
property. The pro rata entitlement to such dividends of each share of Series B
Stock shall be computed on the basis of the conversion rate then in effect (as
defined in Section 6 hereof).
5. Liquidation.
(a) Liquidation Preference. Upon any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the holders
of the shares of Series B Stock shall be entitled to receive and to be paid out
of the assets of the Corporation available for distribution to its stockholders,
before any distribution or payment is made upon any Junior Securities, to be
paid an amount equal to (i) $1.00 per share of Series B Stock, representing the
liquidation preference per share of the Series B Stock (as adjusted for any
combinations, divisions or similar recapitalizations affecting the shares of
Series B Stock) (the "Liquidation Payments"). If upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the assets to be distributed among the holders of Series B Stock and the Parity
Securities shall be insufficient to permit payment in full to both the holders
of Series B Stock of the Liquidation Payments and to the holders of the Parity
Securities any applicable liquidation payments, then the entire assets of the
-2-
61
Corporation shall be distributed ratably among such holders in proportion to the
full respective distributive amounts to which they are entitled.
(b) Remaining Assets. Upon any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, after the holders of
Series B Stock shall have been paid in full the Liquidation Payments, the
remaining assets of the Corporation shall be distributed ratably per share to
the holders of the Series B Stock and the other Parity Securities. The pro rata
entitlement of each share of Series B Stock in any such distribution shall be
computed on the basis of the conversion rate then in effect.
(c) Notice of Liquidation. Written notice of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
stating a payment date, the amount of the Liquidation Payments and the place
where said Liquidation Payments shall be payable, shall be given by mail,
postage prepaid, not less than 30 days prior to the payment date stated therein,
to each holder of record of Series B Stock at his post office address as shown
by the records of the Corporation.
(d) Fractional Shares. The Liquidation Payments with respect to each
outstanding fractional share of Series B Stock shall be equal to a ratably
proportionate amount of the Liquidation Payments with respect to each
outstanding share of Series B Stock.
(e) Certain Actions not Liquidation. Neither the sale, lease or
exchange (for cash, stock, securities or other consideration) of all or
substantially all of the property and assets of the Corporation, nor the merger
or consolidation of the Corporation with or into any other corporation, nor the
merger or consolidation of any other corporation with or into the Corporation,
shall be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this paragraph 5.
6. Conversion.
The holders of the Series B Stock shall have the following
conversion rights:
(a) Conversion. Each share of Series B Stock shall be convertible at
any time, at the option of the holder of record thereof, into fully paid and
nonassessable shares of Common Stock at the "conversion rate" (as defined in
paragraph (b) below) then in effect upon surrender to the Corporation or its
transfer agent of the certificate or certificates representing the Series B
Stock to be converted, as provided below, or if the holder notifies the
Corporation or its transfer agent that such certificate or certificates have
been lost, stolen or destroyed, upon the execution and delivery of an agreement
satisfactory to the Corporation to indemnify the Corporation from any losses
incurred by it in connection therewith.
(b) Basis For Conversion; Converted Shares. The basis for any
conversion under this Section 6 shall be the "conversion rate" in effect at the
time of conversion, which for the purposes hereof shall mean the number of
shares of Common Stock issuable for each share of Series
-3-
62
B Stock surrendered for conversion under this Section 6. Initially, the
conversion rate shall be 5.0, i.e., 5.0 shares of Common Stock for each share of
Series B Stock being converted. Such conversion rate shall be subject to
adjustment as provided in Section 7 below. If any fractional interest in a share
of Common Stock would be deliverable upon conversion of Series B Stock, then
such fractional share shall be disregarded if less than one half a share, or if
more than one-half a share, the number of shares issuable upon conversion shall
be rounded out to the next full share. Any shares of Series B Stock which have
been converted shall be canceled and the certificates representing shares of
Series B Stock so converted shall represent the right to receive such number of
shares of Common Stock into which such shares of Series B Stock are convertible.
The Board of Directors of the Corporation shall at all times reserve a
sufficient number of authorized but unissued shares of Common Stock to be issued
in satisfaction of the conversion rights and privileges aforesaid.
(c) Mechanics of Conversion. In the case of a conversion, before any
holder of Series B Stock shall be entitled to convert the same into shares of
Common Stock, it shall surrender the certificate or certificates for such shares
of Series B Stock, duly endorsed, at the office of the Corporation or its
transfer agent for the Series B Stock, and shall give written notice to the
Corporation of the election to convert the same and shall state therein the name
or names in which the certificate or certificates for shares of Common Stock are
to be issued. The Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to such holder of Series B Stock, or to the nominee
or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid. A
certificate or certificates will be issued for the remaining shares of Series B
Stock in any case in which fewer than all of the shares of Series B Stock
represented by a certificate are converted.
(d) Issue Taxes. The Corporation shall pay all issue taxes, if any,
incurred in respect of the issue of shares of Common Stock on conversion. If a
holder of shares surrendered for conversion specifies that the shares of Common
Stock to be issued on conversion are to be issued in a name or names other than
the name or names in which such surrendered shares stand, the Corporation shall
not be required to pay any transfer or other taxes incurred by reason of the
issuance of such shares of Common Stock to the name of another, and if the
appropriate transfer taxes shall not have been paid to the Corporation or the
transfer agent for the Series B Stock at the time of surrender of the shares
involved, the shares of Common Stock issued upon conversion thereof may be
registered in the name or names in which the surrendered shares were registered,
despite the instructions to the contrary.
(e) Rights of Holders of Shares. Each conversion of shares of Series
B Stock shall be deemed to have been made as of the close of business on the
applicable conversion date so that the rights of the holder of shares of such
Series B Stock shall, to the extent of such conversion, cease at such time and
the person or persons entitled to receive shares of the Common Stock upon
conversion of the shares of Series B Stock shall be treated for all purposes as
having become the record holder or holders of the Common Stock at such time.
-4-
63
7. Adjustment of Conversion Price and Conversion Rate. The number and kind
of securities issuable upon the conversion of the Series B Stock, the conversion
price and the conversion rate shall be subject to adjustment from time to time
in accordance with the following provisions:
(a) Distributions Combinations and Subdivisions of Capital Stock. If
at any time the outstanding shares of Common Stock of the Corporation shall be
subdivided into a greater or combined into a lesser number of shares (whether
with the same or a different par value or without par value), including, without
limitation, through a reverse stock split, the conversion rate shall be
proportionately increased or decreased.
(b) Distributions in Respect of Capital Stock. If the Corporation
shall distribute by way of dividend or otherwise upon its shares of Common Stock
any cash, securities or property (excluding cash dividends paid out of earnings
or surplus), then upon conversion of shares of Series B Stock occurring after
such distribution date, the holder of the Series B Stock will be entitled to
receive the number of shares of the Common Stock of the Corporation then
deliverable pursuant to the terms hereof, and, in addition, the cash, securities
or property which such holder would have received by way of such dividends or
other distributions if such holder had been the record holder of the number of
shares of such Common Stock, which would have been deliverable upon the exercise
of such holder's conversion right if such conversion had been effected
immediately prior to the record date for such distribution of cash, securities
or property.
(c) Recapitalization, Reclassification and Succession. If any
recapitalization of the Corporation or reclassification of shares of Common
Stock of the Corporation or any merger or consolidation of the Corporation into
or with a corporation or other business entity shall be effected, then the
holder of the Series B Stock shall thereafter have the right to receive the kind
and number of shares of stock or other securities or other property of the
Corporation which the holder of Series B Stock would have been entitled to
receive if the holder had held the Common Stock issuable upon conversion of his
Series B Stock immediately prior to such recapitalization, reclassification,
merger or consolidation.
(d) Fractional Shares. In the event that the application of the
provisions of this Section 7 would result in the issuance of a fraction of a
share of Common Stock of the Corporation, or a number of full shares plus a
fraction of a share of such Common Stock, then such fractional share shall be
disregarded if less than one-half a share, or, if more than one-half of a share,
the number of shares issuable upon such exchange shall be rounded out to the
next full share.
(e) Issuance of Additional Shares of Capital Stock. If the
Corporation shall issue any additional shares of Common Stock or Common Stock
equivalents (other than as provided in the foregoing subsections (a) through (d)
of this Section) for no consideration or for a consideration per share less than
Fair Market Value (as defined below) (or, in the care of a Common Stock
equivalent, if the exercise price or conversion price shall be less than Fair
Market Value) in effect on the date of and immediately prior to the issue of
such additional shares of Common Stock or
-5-
64
Common Stock equivalents, then and in such event, the Corporation shall cause
notice of such issuance to be mailed to each holder of shares of Series B Stock
at its then registered address by first-class mail, postage prepaid, and an
equitable adjustment as determined by the Board in good faith shall be made to
the conversion rate as soon as practicable and retroactive to such issue date in
order to prevent dilution resulting from such below market issuance of the
relative equity interest in the Corporation represented by shares of Series B
Stock then outstanding compared to the total capital stock of the Corporation
(including the Series B Stock) outstanding immediately prior to such issuance;
provided, however, that this provision shall not apply to (i) the issue of up to
500,000 Warrants, convertible into 500,000 shares of Common Stock in connection
with the Corporation's contemplated amendment to its $1,000,000 secured line of
credit (the "Line of Credit") maintained by BSB Bank & Trust Company ("BSB");
(ii) the issuance of shares upon exercise or conversion of a Common Stock
equivalent, as long as the exercise price or conversion price on the date of
issuance of such Common Stock equivalent was in excess of Fair Market Value, and
(iii) the issuance of Common Stock to a person that is not an Affiliate of the
Corporation in a private placement at a discount to market not to exceed twenty
five percent (25%) to reflect an illiquidity discount.
The term "Fair Market Value" means the higher of (a) the Market
Price on the date of issuance of Common Stock or Common Stock equivalent or (b)
the average closing sales price per share of Common Stock for the ten (10)
trading days immediately preceding the date of issuance of Common Stock or
Common Stock equivalents; provided, however, that, in the case of the issuance
of shares of Common Stock or Common Stock equivalents for consideration other
than cash, the Board shall determine in good faith the value of such shares of
Common Stock or Common Stock equivalents.
The term "Market Price" means, with respect to the shares of Common
Stock issuable upon conversion of the Series B Stock, (a) if the shares are
listed or admitted for trading on any national securities exchange or included
in The Nasdaq National Market or Nasdaq SmallCap Market, the last reported sales
price as reported on such exchange or market; (b) if the shares are not listed
or admitted for trading on any national securities exchange or included in The
Nasdaq National Market or Nasdaq SmallCap Market, the average of the last
reported closing bid and asked quotation for the shares as reported on NASDAQ or
a similar service if NASDAQ is not reporting such information; (c) if the shares
are not listed or admitted for trading on any national securities exchange or
included in The Nasdaq National Market or Nasdaq SmallCap Market or quoted by
NASDAQ or a similar service, the average of the last reported bid and asked
quotation for the shares as quoted by a market maker in the shares (or if there
is more than one market maker, the bid and asked quotation shall be obtained
from two market makers and the average of the lowest bid and highest asked
quotation). In the absence of any available public quotations for the Common
Stock, the Board of Directors of the Company shall determine in good faith the
fair value of the Common Stock, which determination shall be set forth in a
certificate by the Secretary of the Company.
The term "Affiliate" means any Person (i) which, directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with, another Person, (ii) which beneficially owns or
holds 20% or more of any class of the outstanding Voting
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Stock of such other Person or (iii) which is a relative or spouse of such
Person, or any relative of such spouse, who has the same home as such Person.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of Voting Stock, by contract or otherwise.
The term "Person" means any individual, entity or group, including,
without limitation, any corporation, limited liability company, limited or
general partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
The term "Voting Stock" means any class or classes of capital stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to vote for the election of directors, managers or
trustees of any Person (irrespective of whether or not at the time capital stock
of any class or classes will have, or might have, voting power by the reason of
the happening of any contingency).
(f) Corporation to Prevent Dilution. If any event or condition
occurs as to which other provisions of this Section 7 are not strictly
applicable or if strictly applied would not fairly protect the exercise of
conversion rights hereunder in accordance with the essential intent and
principles of such provisions, or which might materially and adversely affect
the conversion rights of the holder of Series B Stock under any provisions
hereof, then the Board of Directors shall in good faith make an adjustment in
the application and interpretation of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid, and
any adjustment necessary with respect to the conversion rate or the nature or
kind of securities issuable upon conversion hereunder so as to preserve without
dilution the rights of such holder; provided, however, that in no event shall
any such adjustment (other than a reverse stock split or the like) have the
effect of decreasing the conversion rate as otherwise determined pursuant to
this Certificate.
(g) Valid Issuance. All shares of Common Stock which may be issued
in connection with the conversion provisions set forth herein shall, upon
issuance by the Corporation, be validly issued, fully paid and nonassessable,
free from preemptive rights and free from all taxes, liens or charges with
respect thereto created or imposed by the Corporation.
(h) Other Provisions Applicable to Adjustment Under this Section.
The following provisions shall be applicable to the adjustments in Conversion
Price as provided in this Section 7:
(i) Treasury Shares. The number of shares of Common Stock at
any time outstanding shall not include any shares thereof then
directly or indirectly owned or held by or for the account of the
Corporation.
(ii) Minimum Adjustment. No adjustment of the conversion rate
shall be made if the amount of any such adjustment would be an
amount less than five percent (5%) of the conversion rate then in
effect, but any such amount shall be carried
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forward and an adjustment in respect thereof shall be made at the
time of and together with any subsequent adjustment which, together
with such amount and any other amount or amounts so carried forward,
shall aggregate an increase or decrease of five percent (5%) or
more.
8. Voting Rights.
(a) General. Holders of Series B Stock shall be entitled to notice
of all meetings of the Corporation's stockholders but shall not be entitled to
vote except in respect of such matters as to which they are entitled to vote as
a class under the Delaware General Corporation Law.
(b) Amendment. The Corporation shall not, without the approval by
vote or written consent of the holders of not less than a majority of the then
outstanding shares of Series B Stock, voting as a separate class, amend, alter
or repeal any of the provisions of the Certificate of Incorporation or the
Certificate of Designation creating this Series B Stock which would alter or
change the powers, preferences or special rights of the shares of Series B Stock
so as to affect them adversely, including, but not limited to, increasing or
decreasing the par value of the Series B Stock.
9. No Reissuance of Series B Stock. No share or shares of Series B Stock
acquired by the Corporation by reason of purchase, conversion or otherwise shall
be reissued, and all such shares of Series B Stock shall be canceled, retired
and eliminated from the shares of Series B Stock which the Corporation shall be
authorized to issue. Upon the filing of a certificate with the Secretary of
State of the State of Delaware as contemplated by paragraph 2 hereof, any such
shares of Series B Stock acquired by the Corporation shall have the status of
authorized and unissued shares of Preferred Stock issuable in undesignated
Series and may be redesignated and reissued in any series other than as Series B
Stock.
10. Exclusion of Other Rights. Except as may otherwise be required by law,
shares of Series B Stock shall not have any voting powers, designations,
preferences and rights, other than those specifically set forth herein (as may
be amended from time to time) and in the Certificate of Incorporation.
11. Registered Holders. A holder of Series B Stock registered on the
Corporation's stock transfer books as the owner of shares of Series B Stock
shall be treated as the owner of such shares for all purposes. All notices and
all payments required to be mailed to a holder of shares of Series B Stock shall
be mailed to such holder's registered address on the Corporation's stock
transfer books, and all dividend and redemption payments to a holder of shares
of Series B Stock made hereunder shall be deemed to be paid in compliance hereof
on the date such payments are deposited into the mail addressed to such holder
at his registered address on the Corporation's stock transfer books.
12. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
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13. Severability of Provisions. If any right, preference or limitation of
the Series B Stock set forth herein (as may be amended) from time to time is
invalid, unlawful or incapable of being enforced by reason of any rule of law or
public policy, such right, preference or limitation (including, without
limitation, the dividend rate) shall be enforced to the maximum extent permitted
by law and all other rights, preferences and limitations set forth herein (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall, nevertheless, remain in
full force and effect, and no right, preference or limitation herein set forth
shall be deemed dependent upon any other such right, preference or limitation
unless so expressed herein.
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IN WITNESS WHEREOF, the undersigned has executed this Certificate
this __ day of _____________, 1999.
SEMICONDUCTOR LASER INTERNATIONAL
CORPORATION
By: __________________________
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President & Chief Executive Officer
69
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
BETWEEN
BMP MOBILITY AG
VENTURE CAPITAL
AND
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
Dated as of February 5, 1999
70
TABLE OF CONTENTS
Page No.
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ARTICLE 1.
DEFINITIONS........................................................... 1
SECTION 1.1.Definitions............................................... 1
ARTICLE 2.
REGISTRATION RIGHTS................................................... 4
SECTION 2.1.Demand Registration....................................... 4
SECTION 2.2.Piggy-Back Registration................................... 5
SECTION 2.3.Reduction of Offering..................................... 6
ARTICLE 3.
REGISTRATION PROCEDURES............................................... 7
SECTION 3.1.Filings; Information...................................... 7
SECTION 3.2.Registration Expenses..................................... 11
ARTICLE 4.
INDEMNIFICATION AND CONTRIBUTION...................................... 12
SECTION 4.1.Indemnification by the Company............................ 12
SECTION 4.2.Indemnification by Selling Holders........................ 13
SECTION 4.3.Conduct of Indemnification Proceedings.................... 13
SECTION 4.4.Contribution.............................................. 14
ARTICLE 5.
MISCELLANEOUS......................................................... 15
SECTION 5.1.Participation in Underwritten Registrations............... 15
SECTION 5.2.Rule 144 and 144A; Regulation S........................... 15
SECTION 5.3.Amendment and Modification................................ 15
SECTION 5.4.Successors and Assigns; Third Party Beneficiaries......... 16
SECTION 5.5.Entire Agreement.......................................... 16
SECTION 5.6.Headings.................................................. 16
SECTION 5.7.Notices................................................... 16
SECTION 5.8.Governing Law; Forum; Process............................. 17
SECTION 5.9.Consent to Jurisdiction, Waiver of Immunities............. 17
SECTION 5.10.Recapitalization, etc.................................... 17
SECTION 5.11.Counterparts............................................. 17
SECTION 5.12.Severability............................................. 18
SECTION ▇.▇▇.▇▇ Prejudice............................................. 18
SECTION 5.14.Words in Singular and Plural Form........................ ▇▇
-▇-
▇▇
▇▇▇▇▇▇▇▇▇▇▇▇ RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of February 5, 1999 (this
"Agreement"), between Semiconductor Laser International Corporation, a Delaware
corporation (the "Company") and bmp Mobility AG Venture Capital, a German stock
corporation ("Purchaser").
WHEREAS, the Company and the Purchaser have entered into a
Securities Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement"), pursuant to which the Purchaser will acquire an aggregate of two
million (2,000,000) shares of the Company's common stock (the "Common Stock"),
par value $.01 per share, for an aggregate purchase price of seven-hundred-fifty
thousand dollars ($750,000), and an aggregate of not less than six hundred fifty
thousand (650,000) and not more than one million (1,000,000) shares of the
Company's Series B Convertible Preferred Stock, $.01 par value per share (the
"Series B Preferred Stock), for an aggregate purchase price of up to two million
dollars ($2,000,000); and
WHEREAS, it is a condition precedent to the purchase of the Common
Stock and the Series B Preferred Stock under the Purchase Agreement that the
Company provide certain registration rights to the Purchaser with respect to the
shares of Common Stock purchased pursuant to the terms of the Purchase Agreement
and issuable upon conversion of the Series B Preferred Stock.
NOW, THEREFORE, in consideration on the foregoing premises and for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.1.Definitions. The following terms shall have the meanings
ascribed to them below:
"Agreement" means this Agreement, as amended, modified or
supplemented from time to time, in accordance with the terms hereof, together
with any exhibits, schedules or other attachments thereto.
"Business Day" means any day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York and Berlin, Germany are
authorized or obligated by law, executive order or government decree to be
closed.
72
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Common Stock" has the meaning ascribed thereto in the introduction
hereof.
"Company" has the meaning ascribed thereto in the introduction
hereof.
"Controlling Person" has the meaning ascribed thereto in Section
4.1.
"Damages" has the meaning ascribed thereto in Section 4.1.
"Demand Registration" has the meaning ascribed thereto in Section
2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Holder" means any Person who now holds or shall hereafter acquire
and hold Registrable Securities.
"Indemnified Party" means an Indemnified Party as defined in Section
4.3.
"Indemnifying Party" means an Indemnifying Party as defined in
Section 4.3.
"Person" means any individual, entity or group, including without
limitation, any corporation, limited liability company, limited or general
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Piggy-Back Registration" has the meaning ascribed thereto in
Section 2.2.
"Prospectus" means the prospectus included in any Registration
Statement (including without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the securities covered by such Registration
Statement, and all other amendments and supplements to the prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such prospectus.
"Purchase Agreement" has the meaning ascribed thereto in the
introduction hereof.
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"Purchaser" has the meaning ascribed thereto in the introduction
hereof.
"Registrable Securities" means (i) the shares of Common Stock issued
pursuant to the terms of the Purchase Agreement, (ii) the shares of Common Stock
issued or issuable upon conversion of the Series B Preferred Stock issued
pursuant to the terms of the Purchase Agreement, and (iii) any other shares of
Common Stock acquired as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events relating to the shares
described in clauses (i) and (ii) above, in each case until such time as (x) a
Registration Statement covering such shares of Common Stock has been declared
effective by the Commission and such shares of Common Stock have been disposed
of pursuant to such effective Registration Statement, or (y) such shares of
Common Stock would be eligible for sale pursuant to Rule 144 under the
Securities Act (or any similar provisions then in force), without regard to the
volume limitations set forth in Rule 144(e), or (z) such shares of Common Stock
have been otherwise transferred and the Company has delivered a new certificate
or other evidence of ownership for such Common Stock not bearing a restrictive
legend and not subject to any stop transfer or similar restrictive order and all
of such Common Stock may be resold by the Person receiving such certificate
without complying with the registration requirements of the Securities Act.
"Registration Statement" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such registration
statement.
"Request" has the meaning ascribed thereto in Section 2.1(a).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a Registration Statement under the Securities Act.
"Selling Holders' Counsel" means the counsel selected to represent
the Selling Holders as set forth in Section 3.1(c).
"Series B Preferred Stock" has the meaning ascribed thereto in the
Purchase Agreement.
"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal in an underwritten offering and not as part
of such dealer's market-making activities.
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ARTICLE 2.
REGISTRATION RIGHTS
SECTION 2.1.Demand Registration.
(a) Request for Registration. Subject to the limitations contained
in this Section 2.1(a), at any time after the date hereof any Holder or Holders
of an aggregate of Registrable Securities representing 25% or more of all the
Registrable Securities may make written requests (individually, a "Request") to
the Company for the registration of the offer and sale of some or all of the
Holders' Registrable Securities under the Securities Act (such registration
being hereinafter referred to as a "Demand Registration"). Subject to the
penultimate sentence of Section 2.1(b), the Company shall have no obligation to
effect more than two (2) Demand Registrations, including, for such purposes
only, any Piggy-Back Registration offered to the Holders under Section 2.2,
unless the Company is unable to include all shares requested to be included in
any such registration. Any Request will specify the number of Registrable
Securities proposed to be sold and the intended method(s) of disposition thereof
and shall also state the firm intent of the Holder to offer Registrable
Securities for sale. The Company shall give written notice of such Request
within 10 days after the receipt thereof to all other Holders. Within 20 days
after receipt of such notice by any such Holder, such Holder may request in
writing that all or any portion of its Registrable Securities be included in
such Registration Statement and the Company shall include in the Registration
Statement for such Demand Registration the Registrable Securities of all Holders
that requested to be so included. Each such request by such other Holders shall
specify the number of Registrable Securities proposed to be sold and the
intended method(s) of disposition thereof and shall also state the firm intent
of the Holder to offer Registrable Securities for sale. Notwithstanding the
foregoing, the Company shall not be requested to effect a Demand Registration
(i) unless the Request has been made at least 90 days since the last
Registration Statement (other than a shelf registration under Rule 415 of the
Securities Act or a Registration Statement on Form S-8) was filed by the Company
and (ii) with respect to shares of Common Stock issuable upon conversion of such
Series B Preferred Stock that are held by the Purchaser at the time of such
Demand Registration, unless the Purchaser provides the Company with a written
statement of its firm intent to sell its Series B Preferred Stock within 90 days
of such Demand Registration.
(b) Effective Registration. A registration will not be deemed to
have been effected as a Demand Registration unless the Registration Statement
relating thereto has been declared effective by the Commission and the Company
has complied in all material respects with its obligations under this Agreement
with respect thereto; provided that if, after the Registration Statement has
become effective, the offering and/or sale of Registrable Securities pursuant to
such Registration Statement is or becomes the subject of any stop order,
injunction or other order or requirement of the Commission or any other
governmental or administrative agency, or if any court or other governmental or
quasi-governmental agency prevents or otherwise limits the offer and/or sale of
the Registrable Securities pursuant to the Registration
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Statement, other than in each case primarily as a result of acts or omissions of
the Holder or any agent thereof, such registration will be deemed not to have
been effected. If (i) a registration requested pursuant to this Section 2.1 is
deemed not to have been effected or (ii) the Registration Statement relating to
a Demand Registration requested pursuant to this Section 2.1 does not remain
effective for a period of at least 180 consecutive days beyond the effective
date thereof or, with respect to an underwritten offering of Registrable
Securities, until 45 days after the commencement of the distribution by the
Holders of the Registrable Securities included in such Registration Statement,
then the Company shall continue to be obligated to use its best efforts to
effect such Registration pursuant to this Section 2.1. The Holders shall be
permitted to withdraw all or any part of the Registrable Securities from a
Registration Statement at any time prior to the effective date of such Demand
Registration Statement.
(c) Selection of Underwriter. If a requested registration pursuant
to this Section 2.1 involves an underwritten offering, the managing
Underwriter(s) thereof shall be selected by the Selling Holders and shall be
reasonably acceptable to the Company unless the Company has theretofore sold
shares of Common Stock in an underwritten offering, in which case the managing
Underwriter(s) of a requested registration pursuant to this Section 2.1 shall be
selected by the Company and shall be reasonably acceptable to the Selling
Holders.
(d) Deferral of Registration. Notwithstanding any other provision of
this Section 2, the Company shall not be obligated to effect the filing of a
Registration Statement pursuant to Section 2(a) hereof (i) during any period
when there exists an effective Registration Statement covering the Registrable
Securities, or (ii) for a period not to exceed 120 days, if the Company shall
furnish to the Holders requesting a Registration Statement under Section 2(a)
hereof a certificate, signed by the Company, stating that in the good faith
judgment of the Board of Directors of the Company it would be detrimental to the
best interests of the Company and its stockholders generally for such
Registration Statement to be filed at that time and the reasons therefore;
provided that in such event, the Holders initiating the request for registration
will be entitled to withdraw such request and such request will not be deemed as
having been made by the Holders for purposes of Section 2.1(a) of this
Agreement.
SECTION 2.2.Piggy-Back Registration. If at any time the Company
proposes to file a Registration Statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of any of
its respective security holders (other than (x) a Registration Statement on Form
S-4 or Form S-8 (or any substitute form that may be adopted by the Commission)
or on any other form inappropriate for an underwritten public offering or
related solely to securities to be issued in a merger, acquisition of the stock
or assets of another entity or in a similar transaction, or (y) a Registration
Statement pursuant to a Demand Registration in accordance with Section 2.1
hereof), then the Company shall give written notice of such proposed filing to
the Holders as soon as practicable (but in no event less than 30 days before the
anticipated filing date), and such notice shall offer such Holders the
opportunity to register such number of Registrable Securities as each such
Holder may request
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(which request shall specify the number of shares and the type of Registrable
Securities intended to be disposed of by such Holder and shall also state the
firm intent of the Holder to offer Registrable Securities for sale) (a
"Piggy-Back Registration"). The Company shall use its best efforts to cause the
managing Underwriter or Underwriters of a proposed underwritten offering to
permit the Registrable Securities requested to be included in a Piggy-Back
Registration on the same terms and conditions as any similar securities of the
Company or any other security holder included therein and to permit the sale or
other disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Any Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any Registration
Statement pursuant to this Section 2.2 by giving written notice to the Company
of its request to withdraw. The Company may withdraw a Piggy-Back Registration
at any time prior to the time it becomes effective and such withdrawn Piggy-Back
Registration shall not be counted for purposes of Section 2.1(a) of this
Agreement.
SECTION 2.3. Reduction of Offering.
(a) Demand Registration. The Company may include in a Demand
Registration pursuant to Section 2.1 hereof securities of the same class as the
Registrable Securities for the account of the Company and any other Persons who
hold securities of the same class as the Registrable Securities on the same
terms and conditions as the Registrable Securities to be included therein;
provided, however, that (i) if the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.1 hereof have informed the Company
in writing that it is their opinion that the total number of Registrable
Securities, and securities of the same class as the Registrable Securities which
Holders, the Company and any other Persons desiring to participate in such
registration intend to include in such offering is such as to materially and
adversely affect the success of such offering, then the number of shares to be
offered for the account of the Company and for the account of all such other
Persons (other than the Holders) participating in such registration shall be
reduced or limited pro rata in proportion to the respective number of shares
requested to be registered to the extent necessary to reduce the total number of
shares requested to be included in such offering to the number of shares, if
any, recommended by such managing Underwriter or Underwriters, and (ii) if the
offering is not underwritten, no other Person, including the Company, shall be
permitted to offer securities under any such Demand Registration unless the
Selling Holders owning a majority-in-interest of Common Stock to be sold consent
to the inclusion of such shares therein.
(b) Piggy-Back Registration. (i) Notwithstanding anything contained
herein, if the managing Underwriter or Underwriters of any underwritten offering
described in Section 2.2 have informed, in writing, the Holders requesting
inclusion in such offering that it is their opinion that the total number of
shares which the Company, Holders and any other Persons holding securities of
the same class as the Registrable Securities desiring to participate in such
registration intend to include in such offering is such as to materially and
adversely affect the success of such offering, then, the Company will include in
such registration (A) first, all the
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shares the Company offered for its own account, if any, (B) then, if additional
shares may be included in such registration without materially and adversely
affecting the success of such offering, the shares offered by the holders of
securities as a result of their exercise of "demand" registration rights by such
holders, if any, and (C) then, if additional shares may be included in such
registration without materially and adversely affecting the success of such
offering, the number of shares offered by the Holders and such other holders of
securities of the same class as the Registrable Securities whose piggy-back
registration rights may not be reduced without violating their contractual
rights (provided such contractual rights were in existence prior to the date of
this Agreement), on a pro rata basis in proportion to the relative number of
Registrable Securities of the holders (including the Holders) participating in
such registration.
(ii) If the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.2 notify the Holders requesting
inclusion in such offering that the kind of securities that the Holders, the
Company and any other Persons desiring to participate in such registration
intend to include in such offering is such as to materially and adversely affect
the success of such offering, (A) the Registrable Securities to be included in
such offering shall be reduced as described in clause (i) above or (B) if such
reduction would, in the judgment of the managing Underwriter or Underwriters, be
insufficient to substantially eliminate the material adverse effect that
inclusion of the Registrable Securities requested to be included would have on
such offering, such Registrable Securities will be entirely excluded from such
offering.
(c) If, as a result of the proration provisions of this Section 2.3,
any Holder shall not be entitled to include all Registrable Securities in a
Demand Registration or Piggy-Back Registration that such Holder has requested to
be included, such Holder may elect to withdraw his request to include
Registrable Securities in such registration without prejudice and without having
the Registration Statement treated as a Piggy-Back Registration for purposes of
Section 2.1(d).
(d) Holdback Agreements. If any registration of Registrable
Securities shall be in connection with an underwritten public offering, each
Holder agrees not to effect any public sale or distribution, including any sale
pursuant to Rule 144 under the Securities Act, of any Registrable Securities,
and not to effect any such public sale or distribution of any other equity
security of the Company or of any security convertible into or exchangeable or
exercisable for any equity security of the Company (in each case, other than as
part of such underwritten public offering) during the five (5) days prior to,
and during the one hundred eighty (180) day period beginning on, the effective
date of such Registration Statement (except as part of such registration).
ARTICLE 3.
REGISTRATION PROCEDURES
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SECTION 3.1. Filings; Information. Whenever the Company is required
to effect or cause the registration of the offer and sale of Registrable
Securities pursuant to Section 2.1 or 2.2 hereof, the Company will use its best
efforts to effect the registration of the offer and the sale of such Registrable
Securities in accordance with the intended method(s) of disposition thereof as
quickly as practicable, and in connection with any such request:
(a) The Company will prepare and file with the Commission a
Registration Statement with respect to the offer and sale of such securities and
use its best efforts to cause such Registration Statement to become and remain
effective until the completion of the distribution contemplated thereby;
provided, however, the Company shall not be required to keep such Registration
Statement effective for more than 180 days (or such shorter period which will
terminate when all Registrable Securities covered by such Registration Statement
have been sold, but not prior to the expiration of the applicable period
referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if
applicable); provided, further, that with respect to a Demand Registration, the
Company shall file with the Commission a Registration Statement as soon as is
practicable after the date of the Request and in any event no later than 60 days
after the date of the Request for the Demand Registration and shall cause such
Registration Statement to be declared effective as soon as is practicable after
the date of filing and in any event no later than 120 days after the date of
such Request.
(b) The Company will prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement as may be
necessary to keep such Registration Statement effective for as long as such
registration is required to remain effective pursuant to the terms hereof; cause
the Prospectus to be supplemented by any required Prospectus supplement, and, as
so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act applicable to it with respect
to the disposition of all Registrable Securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Selling Holders set forth in such Registration Statement
or supplement to the Prospectus.
(c) The Company, at least fifteen (15) Business Days prior to filing
a Registration Statement or at least ten (10) Business Days prior to filing a
Prospectus or any amendment or supplement to such Registration Statement or
Prospectus, will furnish to (i) each Selling Holder, (ii) not more than one
counsel representing all Selling Holders ("Selling Holders Counsel"), to be
selected by a majority-in-interest of such Selling Holders, and (iii) each
Underwriter, if any, of the Registrable Securities covered by such Registration
Statement copies of such Registration Statement as proposed to be filed,
together with exhibits thereto (whether or not incorporated by reference in such
Registration Statement), which documents will be subject to review and approval
by each of the foregoing within ten (10) Business Days after delivery (except
that such review and approval of any Prospectus or any amendment or supplement
to such Registration Statement or Prospectus must be within five (5) Business
Days after delivery), and thereafter, furnish to such Selling Holders, Selling
Holders' Counsel and Underwriters, if
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any, at the Company's expense, such number of conformed copies of such
Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein),
the Prospectus included in such Registration Statement (including each
preliminary Prospectus) and such other documents or information as such Selling
Holders, Selling Holders' Counsel or Underwriters may reasonably request in
order to facilitate the disposition of the Registrable Securities (it being
understood that the Company consents to the use of the Prospectus and any
amendment or supplement thereto by each Selling Holder and the Underwriters, if
any, in connection with the offering and sale of the Registrable Securities
covered by such Prospectus or any amendment or supplement thereto).
(d) The Company will use its best efforts to prevent the entry of
such stop order or to remove it at the earliest possible moment if entered.
(e) On or prior to the date on which the Registration Statement is
declared effective, use its best efforts to register or qualify such Registrable
Securities under such other securities or "blue sky" laws of such jurisdictions
as any Selling Holder, Selling Holders Counsel or Underwriter reasonably
requests and do any and all other acts and things which may be necessary or
advisable to enable such Selling Holder to consummate the disposition in such
jurisdictions of such Registrable Securities owned by such Selling Holder; use
its best efforts to keep each such registration or qualification (or exemption
therefrom) effective during the period which the Registration Statement is
required to be kept effective; and use its best efforts to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (e), (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction.
(f) The Company will notify each Selling Holder, Selling Holders'
Counsel and any Underwriter and (if requested by any such Person) confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of the issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement or the initiation or threatening of
any proceedings for that purpose, (iii) of the issuance by any state securities
commission or other regulatory authority of any order suspending the
qualification or exemption from qualification of any of the Registrable
Securities under state securities or "blue sky" laws or the initiation of any
proceedings for that purpose, and (iv) of the happening of any event which makes
any statement made in a Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated by reference therein untrue
in a material respect or which requires the making of any changes in such
Registration Statement, Prospectus or documents so that they will not contain
any untrue statement of a material fact or omit to state any material fact
required to be
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stated therein or necessary to make the statements in the Registration Statement
and Prospectus not misleading in light of the circumstances in which they were
made; and, as promptly as practicable thereafter, prepare and file with the
Commission and furnish a supplement or amendment to such Prospectus so that, as
thereafter deliverable to the buyers of such Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, such amendment to be
subject to the Holders' review under Section 3.1(c).
(g) The Company will use its best efforts to make generally
available an earnings statement satisfying the provisions of Section 11(a) of
the Securities Act no later than 90 days after the end of the 12-month period
beginning with the first day of the Company's first fiscal quarter commencing
after the effective date of a Registration Statement, which earnings statement
shall cover said 12-month period, and which requirement will be deemed to be
satisfied if the Company timely files complete and accurate information on Forms
10-QSB, 10- KSB and 8-KSB under the Exchange Act and otherwise complies with
Rule 158 under the Securities Act.
(h) The Company will enter into customary agreements reasonably
satisfactory to the Company (including, if applicable, an underwriting agreement
in customary form and which is reasonably satisfactory to the Company) and take
such other actions as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities.
(i) The Company, during the period when the Prospectus is required
to be delivered under the Securities Act, will use all reasonable efforts to
file all documents required to be filed with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act.
(j) The Company will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange or quoted on any
automated quotation system on which similar securities of the Company are then
listed or quoted and enter into customary agreements, including a listing
application in customary form; provided that the applicable listing requirements
are satisfied, and to provide a transfer agent and register (to the extent that
the Company utilizes the services of a transfer agent and register at such time)
for such Registrable Securities covered by the Registration Statement no later
than the effective date of such Registration Statement.
(k) The Company will make available for inspection by any Holder of
Registrable Securities covered by the Registration Statement, any underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant, or other agent retained by any such Holder or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company as such
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Inspector shall deem necessary or desirable in order to permit it to conduct a
reasonable investigation within the meaning of Section 11 of the Securities Act
and cause the Company's officers, directors and employees to supply all
information and respond to all inquiries reasonably requested by any such
Inspector in connection with such Registration Statement.
(l) The Company will use its best efforts to obtain a comfort letter
from the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by comfort letters.
(m) The Company will, not later than the effective date of the
Registration Statement, use its best efforts to provide a CUSIP number for all
Registrable Securities, and provide the applicable transfer agents with printed
certificates for the Registrable Securities, which are in a term eligible for
deposit with The Depository Trust Company.
The Company may require each Selling Holder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration including, without limitation, all such information as may be
requested by the Commission or the National Association of Securities Dealers,
Inc.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(f)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3.1(f) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent Prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective (including the period referred to in
Section 3.1(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1(f) hereof to
the date when the Company shall make available to the Selling Holders covered by
such Registration Statement a Prospectus supplemented or amended to conform with
the requirements of Section 3.1(f) hereof.
SECTION 3.2. Registration Expenses. The Company shall pay all
expenses incident to the Company's performance of or compliance with this
Agreement including, without limitation: (i) all registration and filing fees,
(ii) the fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing, messenger and
delivery expenses, (iv) the Company's internal expenses (including, without
limitation, all
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salaries and expenses of its officers and employees performing legal or
accounting duties), (v) the fees and expenses incurred in connection with the
listing or quotation, as appropriate, of the Registrable Securities, (vi) the
fees and disbursements of counsel for the Company and the fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any special audit or cold comfort letters) and (vii) the fees and
expenses of any special experts retained by the Company in connection with such
registration. The Company shall have no obligation to pay any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities and
any of the expenses incurred by Selling Holders which are not payable by the
Company, such costs to be borne by the Selling Holder or Selling Holders.
ARTICLE 4.
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law, each
Selling Holder, its general partners, limited partners, managers, officers,
directors, employees, advisors and agents, and each Person, if any, who
controls, is controlled by or is under common control with such Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the general partners, limited partners, managers,
officers, directors, employees, advisors and agents of such controlling Person
(collectively, the "Controlling Persons"), from and against any loss, claim,
damage, liability, attorneys' fees, cost or expense and costs and expenses of
investigating and defending any such claim (collectively, the "Damages") and any
action in respect thereof to which such Selling Holder, its general partners,
managing partners, managers, officers, directors, employees, advisors and
agents, and any such Controlling Person may become subject under the Securities
Act, the Exchange Act state blue sky laws, common law or otherwise, insofar as
such Damages (or proceedings in respect thereof) arise out of, or are based
upon, (x) any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus or any preliminary or
summary Prospectus, (y) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are based upon information
furnished in writing to the Company by a Selling Holder expressly for use
therein, or (z) any violation by the Company of any federal, state or common law
rule or regulation applicable to the Company and relating to action required of
or inaction by the Company in connection with any such registration, and the
Company shall reimburse each Selling Holder, its partners, officers, directors,
employees, advisors and agents, and each such Controlling Person for any legal
and other expenses reasonably incurred by that Selling Holder, its partners,
officers, directors, employees, advisors and agents, or any such Controlling
Person in investigating or defending or preparing to defend against any such
Damages or proceedings; provided, however, that the Company shall not be liable
to any Selling Holder or other indemnitee to the extent that any such Damages
arise out of or are based upon an untrue statement or omission made in any
preliminary Prospectus if (i) such Selling Holder failed to
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send or deliver a copy of the final Prospectus with or prior to the delivery of
written confirmation of the sale by such Selling Holder to the Person asserting
the claim from which such Damages arise in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Securities Act, and
(ii) the final Prospectus would have corrected such untrue statement or such
omission, where such failure to deliver the Prospectus was not a result of
non-compliance by the Company under Section 3.1(f) of this Agreement. The
Company also agrees to indemnify any Underwriters of the Registrable Securities,
their officers and directors and each Person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Selling
Holders provided in this Section 4.1. This indemnity will survive the transfer
of the Registrable Securities by the Holder thereof.
SECTION 4.2. Indemnification by Selling Holders. Each Selling Holder
agrees, severally but not jointly, to indemnify and hold harmless the Company,
its officers, directors, employees, advisors and agents and each Person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, together with the partners, officers,
directors, employees, advisors and agents of such Controlling Person, to the
same extent as the foregoing indemnity from the Company to such Selling Holder,
but only with reference to information related to such Selling Holder, or its
plan of distribution, furnished in writing by such Selling Holder expressly for
use in any Registration Statement or Prospectus, or any amendment or supplement
thereto, or any preliminary Prospectus; provided, however, that such Selling
Holder shall not be liable in any such case to the extent that prior to the
filing of any such Registration Statement or Prospectus or amendment or
supplement thereto, such Selling Holder has furnished in writing to the Company
information expressly for use in such Registration Statement or Prospectus or
any amendment or supplement thereto which corrected or made not misleading
information previously furnished to the Company. In no event shall the liability
of any Selling Holder be greater in amount than the dollar amount of the
proceeds received by such Selling Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. In case any action or
proceeding shall be brought against the Company or its officers, directors,
employees, advisors or agents or any such Controlling Person or its officers,
directors, employees or agents, in respect of which indemnity may be sought
against such Selling Holder, such Selling Holder shall have the rights and
duties given to the Company, and the Company or its officers, directors,
employees or agents, or such Controlling Person, or its officers, directors,
employees, advisors or agents, shall have the rights and duties given to such
Selling Holder, by the preceding paragraph. This indemnity will survive the
transfer of the Registrable Securities by the Holder thereof.
SECTION 4.3. Conduct of Indemnification Proceedings. Promptly after
receipt by any Person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the Person against whom such indemnity may be
sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of
the claim or the commencement of such action; provided that the failure to
notify
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the Indemnifying Party shall not relieve it from any liability which it may have
to an Indemnified Party otherwise than under Section 4.1 or 4.2 except to the
extent of any actual prejudice resulting therefrom. If any such claim or action
shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified Indemnifying Party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided that the Indemnified Party shall
have the right to employ separate counsel to represent the Indemnified Party and
its Controlling Persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) in the opinion of counsel to such Indemnified Party, representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflicts of interest between them, it being understood, however, that the
Indemnifying Party shall not, in connection with any one such claim or action or
separate but substantially similar or related claims or actions in the same
jurisdiction arising out of the same allegations or circumstances, be liable for
the fees and expenses of more than one separate firm of attorneys (together with
local counsel) at any time for all Indemnified Parties. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any claim or pending or threatened proceeding in respect of which
the Indemnified Party is or could have been a party and indemnity could have
been sought hereunder by such Indemnified Party, and such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding. Whether or not the defense of any claim or action
is assumed by the Indemnifying Party, such Indemnifying Party will not be
subject to any liability for any settlement made without its consent, which
consent will not be unreasonably withheld.
SECTION 4.4. Contribution. If the indemnification provided for in
this Article 4 is unavailable to the Indemnified Parties in respect of any
Damages referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Damages in such proportion
as is appropriate to reflect the relative benefits received by the Company on
the one hand and the Selling Holders on the other from the offering of the
Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits but also the relative fault of the Company on the one hand and the
Selling Holders on the other in connection with the statements or omissions
which resulted in such Damages, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the holders of Registrable Securities on the other
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hand with respect to an offering thereof shall be deemed to be in the same
proportion that the total purchase price paid to the Company in respect of the
Registrable Securities bears to the amount by which the total net proceeds from
the offering of the Registrable Securities (before deducting expenses) received
by the holders thereof with respect to such offering exceeds the purchase price
paid to the Company in respect of such Registrable Securities. The relative
fault of the Company on the one hand and of each Selling Holder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 4.4 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
Damages referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 4.4, no Selling Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities of such Selling Holder were offered to the public exceeds the amount
of any damages which such Selling Holder has otherwise paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. Each Selling Holder's
obligations to contribute pursuant to this Section 4.4 is several in the
proportion that the proceeds of the offering received by such Selling Holder
bears to the total proceeds of the offering received by all the Selling Holders
and not joint.
ARTICLE 5.
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No Person
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
registration rights.
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SECTION 5.2. Rule 144 and 144A; Regulation S. The Company covenants
that it will use all reasonable efforts to file any reports required to be filed
by it under the Securities Act and the Exchange Act and that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 or Rule 144A under the Securities Act, (b) Regulation S
under the Securities Act, or (c) any other applicable exemption from the
registration requirements of the Securities Act adopted by the Commission. Upon
the request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
SECTION 5.3. Amendment and Modification. Any provision of this
Agreement may be waived, provided that such waiver is set forth in a writing
executed by the party against whom the enforcement of such waiver is sought.
This Agreement may not be amended, modified or supplemented other than by a
written instrument signed by the holders of at least a majority of the
Registrable Securities (calculated on an as converted basis). No course of
dealing between or among any Persons having any interest in this Agreement will
be deemed effective to modify, amend or discharge any part of this Agreement or
any rights or obligations of any Person under or by reason of this Agreement.
SECTION 5.4. Successors and Assigns; Third Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto, each subsequent Holder and their respective
successors and assigns and executors, administrators and heirs. Holders are
intended third party beneficiaries of this Agreement and this Agreement may be
enforced by such Holders.
SECTION 5.5. Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them, including the Letter of Intent dated January
11, 1999.
SECTION 5.6. Headings. Subject headings are included for convenience
only and shall not affect the interpretation of any provisions of this
Agreement.
SECTION 5.7. Notices. Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if personally served or sent by
telecopy, on the Business Day after notice is delivered to a courier or mailed
by express mail if sent by courier delivery service or express mail for next day
delivery and on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
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If to the Company to:
▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Purchaser to:
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇
▇-▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telecopier no.: 011 49 30 20 305 555
with a copy to:
Linklaters & Paines
1345 Avenue of the ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., Esq.
Telecopier no.: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 5.8. Governing Law; Forum; Process. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to any choice-of-law principles thereof.
SECTION 5.9. Consent to Jurisdiction, Waiver of Immunities. The Company
and the Holders hereby irrevocably submit to the non-exclusive jurisdiction of
any court of the State of New York or United States federal court sitting in the
Borough of Manhattan, The City of
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New York, and any appellate court therefrom, in any action or proceeding arising
out of or relating to this Agreement and hereby irrevocably agree that all
claims in respect of such action or proceeding may be heard and determined in
such court. The Company and the Holders irrevocably waive, to the fullest extent
permitted by applicable law, the defense of an inconvenient forum to the
maintenance of such action or proceeding.
SECTION 5.10. Recapitalization, etc. In the event that any securities are
issued in respect of, in exchange for, or in substitution of, any Registrable
Securities by reason of any reorganization, recapitalization, reclassification,
merger, consolidation, spin-off, partial or complete liquidation, stock
dividend, stock split, sale of assets, distribution to stockholders or
combination of the shares of Registrable Securities or any other change in the
Company's capital structure, appropriate adjustments shall be made in the
percentages specified herein so as to fairly and equitably preserve, as far as
practicable, the original rights and obligations of the parties hereto under
this Agreement.
SECTION 5.11. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same agreement.
SECTION 5.12. Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this Agreement shall be construed in a manner
which, as nearly as possible, reflects the original intent of the parties.
SECTION 5.13. No Prejudice. The terms of this Agreement shall not be
construed in favor of or against any party on account of its participation in
the preparation hereof.
SECTION 5.14. Words in Singular and Plural Form. Words used in the
singular form in this Agreement shall be deemed to import the plural, and vice
versa, as the sense may require.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
SEMICONDUCTOR LASER INTERNATIONAL
CORPORATION,
a Delaware corporation
By:
----------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President & Chief Executive Officer
bmp MOBILITY AG VENTURE
CAPITAL,
a German stock corporation
By:
-----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: CEO
89
90
EXHIBIT C
[FORM OF OPINION]
_______________, 1999
bmp Mobility AG Venture Capital
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇
▇-▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇
Re: Stock Purchase Agreement, dated as of _________ __, 1999
(the "Agreement"), between Semiconductor Laser
International Corporation, a Delaware corporation (the
"Company") and bmp Mobility AG Venture Capital, a German
stock corporation (the "Purchaser")
Gentlemen and Ladies:
We have acted as special corporate and securities counsel to the Company
in connection with the execution and delivery by the Company of the Agreement
and the transactions contemplated thereby. Unless otherwise indicated,
capitalized terms used but not otherwise defined herein shall have the
respective meanings attributed to them in the Agreement. This opinion is being
delivered to you pursuant to Section [4.1(b)][4.3(b)] of the Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction to be genuine, of the
following:
(i) the Agreement and all exhibits and schedules thereto, the
Certificate of Designations and the Registration Rights
Agreement;
(ii) certain resolutions adopted by the Board of Directors of the
Company authorizing the execution and delivery of the
Transaction Documents;
(iii) a certified copy of the Company's Certificate of Incorporation
issued by the Secretary of State of the State of Delaware as
of March 20, 1996;
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(iv) the By-laws of the Company, as amended to date, certified by
the Chairman of the Board, President and Chief Executive
Officer of the Company;
(v) a good standing certificate of the Company, issued by the
Secretary of State of the State of Delaware as of February 1,
1999 (the "Good Standing Certificate"); and
(vi) such other agreements, documents, certificates and instruments
relating to the Company as we have deemed necessary under the
circumstances.
In making such examination, we have assumed the genuineness of all
signatures, the authority of all signatories other than on behalf of the
Company, the legal competence and capacity of all individuals who are
signatories, the authenticity of all documents submitted to us as originals, and
the conformity to original documents of documents submitted to us as certified
or photostatic copies. Except as otherwise noted, we have also assumed the due
execution and delivery pursuant to valid authorization of each Transaction
Document by the Purchaser.
We note that we are not general counsel to the Company and would not
ordinarily be familiar with or aware of matters relating to the Company unless
they are brought to our attention by representatives of the Company, as
applicable, with respect to matters upon which we have been specifically
requested to act by the Company, as applicable. Accordingly, our examination in
connection herewith has been limited to the documents identified to us by the
Company as relevant to the transactions contemplated by the Agreement.
Our opinion as to the organization of the Company set forth in paragraph 1
below is based solely upon the certified copy of the Company's Certificate of
Incorporation issued by the Secretary of State of the State of Delaware as of
March 20, 1996. Our opinion as to the valid existence and good standing of the
Company in the State of Delaware set forth in paragraph 1 below is based solely
upon the Good Standing Certificate.
Insofar as paragraph 6 of this opinion relates to orders, writs,
injunctions, decrees, statutes, rules or regulations, we have relied on our
inquiry of various officers of the Company and such examinations of law as we
deemed appropriate based upon such inquiry. In that regard, we advise you that
we have not searched any court records, indices or dockets. As to matters of
fact material to this opinion, we have relied upon a certificate of an officer
of the Company and, with the Company's permission, the representations and
warranties of the Company contained in the Agreement.
The phrase "to our knowledge" as used in this opinion shall mean the
actual knowledge of attorneys within our firm based on (i) work performed on
substantive aspects of this transaction or other matters which have come to
their attention in the course of their representation of the Company, as
applicable, (ii) inquiries of and consultations with certain
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officers of the Company, and (iii) our review of the documents and agreements
set forth herein, and does not include matters as to which such attorneys could
be deemed to have constructive knowledge.
We note that we do not render any opinion herein regarding the laws of
jurisdictions other than the laws of the State of New York, except with respect
to the federal securities laws of the United States of America and except for
matters governed by Delaware general corporate law in the opinions expressed
below. To the extent that any matters covered by an opinion expressed below
involve the laws of the State of Delaware, our opinion is based solely upon our
reading of the General Corporation Law of the State of Delaware and official
certificates issued by appropriate authorities of the State of Delaware.
Subject to and based upon the foregoing, and subject to the further
qualifications set forth below, it is our opinion that:
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, properties or
financial condition of the Company (a "Material Adverse Effect"). The
Company has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted.
2. The authorized capital stock of the Company consists solely of 20,000,000
shares of common stock and 5,000,000 shares of preferred stock.
3. The Securities have been duly authorized and, when the Common Stock is
issued, delivered and paid for on the First Closing Date and the Series B
Preferred Stock is issued, delivered and paid for on the Second Closing
Date, in each case in accordance with the terms of the Agreement, and
subject to the filing of the Certificate of Designations with the
Secretary of State of the State of Delaware, the Securities will be
validly issued, fully paid and non-assessable shares of (i) the Company's
common stock, par value $0.01 per share, and (ii) the Company's preferred
stock, par value $0.01 per share, respectively, free from all liens,
claims and encumbrances with respect to the issue thereof and will not
impose personal liability on the holder thereof; the holders of
outstanding shares of the Company's Capital Stock are not entitled to
statutory preemptive or, to our knowledge, any other rights to subscribe
for the Securities.
4. 5,000,000 shares of common stock of the Company have been duly authorized
and reserved for issuance upon the conversion of the Series B Preferred
Stock (the "Conversion Shares") and when issued upon such conversion in
accordance with the terms of the Certificate of Designations, subject to
the filing of the Certificate of Designations with the Secretary of State
of the State of Delaware, will be validly issued,
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fully paid and non-assessable, free from all liens, claims and
encumbrances with respect to the issue thereof and will not impose
personal liability on the holder thereof; the holders of outstanding
shares of the Company's Capital Stock are not entitled to preemptive or,
to our knowledge, other rights to subscribe for the Conversion Shares.
5. The Company has all requisite corporate power and authority to execute and
deliver the Agreement, the Registration Rights Agreement, the Certificate
of Designations and the other Transactions Documents and to consummate the
transactions contemplated thereby. The execution and delivery of the
Agreement, the Registration Rights Agreement, the Certificate of
Designations and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated thereby
(including, without limitation, the issuance of the Securities and the
Conversion Shares) have been duly and validly authorized by the Board of
Directors of the Company, and except to the extent shareholder approval is
required to be obtained under the NASDAQ SmallCap Market rules, no other
corporate proceedings on the part of the Company are necessary to
authorize the Agreement, the Registration Rights Agreement, the
Certificate of Designations and the other Transaction Documents or to
consummate the transactions so contemplated. The Agreement, the
Registration Rights Agreement, the Certificate of Designations and the
other Transaction Documents have been duly and validly executed and
delivered by the Company and constitute valid and binding obligations, or,
in the case of the Certificate of Designations, instruments, of the
Company, enforceable against the Company in accordance with their terms,
except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other laws affecting
creditors rights generally and (ii) the availability of equitable
remedies, and except as indemnity and contribution rights may be limited
by applicable securities laws.
6. The execution, delivery and performance of the Agreement, the Registration
Rights Agreement, the Certificate of Designations and the other
Transaction Documents by the Company and the consummation of the
transactions contemplated thereby (including the issuance of the
Securities and the Conversion Shares) will not contravene or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation to
acceleration of any obligation, or result in creation of any Lien upon any
of the properties or assets or the Company under, (a) the Charter
Documents, (b) any instrument, contract or agreement known to us as to
which the Company is a party of by which any of its assets or properties
is bound, or (c) any Law, judgment or decree known by us to be applicable
to the Company or its properties or assets, other than, in the case of
clauses (b) or (c), any such violations, defaults, rights or Liens that
individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect.
7. No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Authority, is required by the
Company in connection with the execution and delivery of the Agreement by
the Company or the consummation by the
94
Company of the transactions contemplated by the Agreement, the
Registration Rights Agreement, the Certificate of Designations and the
other Transaction Documents (including the issuance of the Securities and
the Conversion Shares), except those which are contemplated by the
Agreement.
8. Except as disclosed in the SEC Documents, to our knowledge there is (x) no
suit, action or proceeding pending or threatened against the Company that
could reasonably be expected to have a Material Adverse Effect, (y)
judgment, decree, injunction, rule or order of any Governmental Authority
or arbitrator outstanding against the Company in each case that could
reasonably be expected to have a Material Adverse Effect.
9. On the basis of and in reliance upon the factual representations,
warranties and covenants of the Purchaser contained in the Agreement, the
offer and sale of the Securities to the Purchaser pursuant to the
Agreement is exempt from the registration requirements of Section 5 of the
Securities Act.
This opinion is delivered solely to you for your information in connection
with the transactions contemplated by the Agreement and may not be used,
circulated or relied on by any other person or quoted in whole or in part or
otherwise referred to without our express prior written consent. The opinions
expressed herein are as of the date hereof and we disclaim any obligation to
update this opinion.
Very truly yours,
▇▇▇▇▇▇▇ BERLIN SHEREFF ▇▇▇▇▇▇▇▇, LLP