EXHIBIT 4.5
ADVANCED OPTICS ELECTRONICS, INC.
SECURITIES PURCHASE AGREEMENT
November 7, 2001
TABLE OF CONTENTS
Page
1. AGREEMENT TO SELL AND PURCHASE...........................................1
2. FEES AND WARRANTS........................................................1
3. CLOSING, DELIVERY AND PAYMENT............................................2
3.1 Closing.........................................................2
3.2 Delivery........................................................2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................3
4.1 Organization, Good Standing and Qualification...................3
4.2 Subsidiaries....................................................3
4.3 Capitalization; Voting Rights...................................3
4.4 Authorization; Binding Obligations..............................4
4.5 Liabilities.....................................................5
4.6 Agreements; Action..............................................5
4.7 Obligations to Related Parties..................................5
4.8 Changes.........................................................6
4.9 Title to Properties and Assets; Liens, Etc......................7
4.10 Intellectual Property...........................................7
4.11 Compliance with Other Instruments...............................8
4.12 Litigation......................................................8
4.13 Tax Returns and Payments........................................8
4.14 Employees.......................................................8
4.15 Registration Rights and Voting Rights...........................9
4.16 Compliance with Laws; Permits...................................9
4.17 Environmental and Safety Laws...................................9
4.18 Valid Offering.................................................10
4.19 Full Disclosure................................................10
4.20 Insurance......................................................10
4.21 SEC Reports....................................................10
4.22 No Market Manipulation.........................................10
4.23 Listing........................................................10
4.24 No Integrated Offering.........................................11
4.25 Stop Transfer..................................................11
4.26 Dilution.......................................................11
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................11
5.1 Requisite Power and Authority..................................11
5.2 Investment Representations.....................................12
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5.3 Purchaser Bears Economic Risk..................................12
5.4 Acquisition for Own Account....................................12
5.5 Purchaser Can Protect Its Interest.............................12
5.6 Accredited Investor............................................12
5.7 Legends........................................................12
6. COVENANTS OF THE COMPANY................................................13
6.1 Stop-Orders....................................................13
6.2 Listing........................................................13
6.3 Market Regulations.............................................14
6.4 Reporting Requirements........................................14
6.5 Use of Funds...................................................14
6.6 Access to Facilities...........................................14
6.7 Taxes..........................................................14
6.8 Insurance......................................................15
6.9 Books and Records..............................................15
6.10 Intellectual Property..........................................15
6.11 Properties.....................................................15
6.12 Confidentiality................................................15
6.13 Required Approvals.............................................15
6.14 Reissuance of Securities.......................................16
6.15 Opinion........................................................17
7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION.......17
7.1 Company Indemnification........................................17
7.2 Purchaser's Indemnification....................................17
7.3 Procedures.....................................................17
8. CONVERSION OF CONVERTIBLE NOTES.........................................18
8.1 Mechanics of Conversion........................................18
8.2 Mandatory Redemption...........................................19
8.3 Maximum Conversion.............................................19
8.4 Injunction - Posting of Bond...................................19
8.5 Buy-In.........................................................20
9. REGISTRATION RIGHTS.....................................................20
9.1 Registration Rights Granted....................................20
9.2 Registration Procedures........................................22
9.3 Provision of Documents.........................................23
9.4 Non-Registration Events........................................23
9.5 Expenses.......................................................24
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9.6 Indemnification and Contribution...............................24
10. OFFERING RESTRICTIONS...................................................27
11. INTENTIONALLY OMITTED...................................................27
12. MISCELLANEOUS...........................................................27
12.1 Governing Law..................................................27
12.2 Survival.......................................................27
12.3 Successors and Assigns.........................................27
12.4 Entire Agreement...............................................27
12.5 Severability...................................................28
12.6 Amendment and Waiver...........................................28
12.7 Delays or Omissions............................................28
12.8 Notices........................................................28
12.9 Attorneys' Fees................................................28
12.10 Titles and Subtitles...........................................29
12.11 Counterparts...................................................29
12.12 Broker's Fees..................................................29
12.13 Indemnification................................................29
12.14 Construction...................................................29
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ADVANCED OPTICS ELECTRONICS, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of November ___, 2001, by and among Advanced Optics Electronics, Inc., a
Nevada corporation (the "Company"), and the Purchaser listed on Exhibit A hereto
(the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale of 8% Convertible Notes in an
aggregate principal amount of $300,000 (the "Notes"), convertible into shares of
the Company's common stock, $0.001 par value per share (the "Common Stock");
WHEREAS, the Company wishes to issues warrants (the "Warrants") to the
Purchaser to purchase shares of the Company's Common Stock in connection with
Purchaser's purchase of the Notes;
WHEREAS, Purchaser desires to purchase the Notes and Warrants on the terms
and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Notes and Warrants to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company Notes in the amount set forth next to the Purchaser's
name on Exhibit A under the column heading "Closing Date Notes," convertible in
accordance with the terms thereof into shares of the Company's Common Stock,
which amount shall be equal to $300,000. The Notes purchased on the Closing Date
shall be known as the "Offering." The form of Notes is annexed hereto as Exhibit
B. The Notes will have a Maturity Date (as defined in the Notes) two years from
the date of issuance. Collectively, the Notes and Warrants (as defined in
Section 2) and Common Stock issuable upon conversion of the Notes and exercise
of the Warrants are referred to as the "Securities."
2. FEES AND WARRANTS.
(a) The Company will issue and deliver to the persons listed on
Exhibit A under the column heading "Warrant Holders", or to such other persons
as the Purchaser shall otherwise designate (such named persons, as they may be
so otherwise designated, being referred to as the "Warrant Recipients"),
Warrants to purchase shares of Common Stock in the amounts designated on Exhibit
A hereto in connection with the Offering (the "Warrants") pursuant to Section 1
hereof. The Warrants must be delivered on the Closing Date. The aggregate number
of shares of Common Stock purchasable upon exercise of the Warrants granted on
the Closing Date is set forth on Exhibit A hereto. A form of Warrant is annexed
hereto as Exhibit C. The per share "Purchase Price" of Common Stock as defined
in the Warrants shall be equal to the lowest closing bid price of the Common
Stock as reported by Bloomberg Financial for the Pink Sheets, the NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market, American Stock
Exchange, or New York Stock Exchange (each of the foregoing the "Principal
Market"), or such other principal market or exchange where the Common Stock is
listed or traded, for the ten (10) trading days preceding but not including the
Closing Date. All the representations, covenants, warranties, undertakings, and
indemnification, and other rights made or granted to or for the benefit of
Purchaser are hereby also made and granted to the holders of the Warrants in
respect of the Warrants and shares of the Company's Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares").
(b) The Company shall reimburse Purchaser for its reasonable
legal fees of $5,000 for services rendered to Purchaser in preparation of this
Agreement and the Related Agreements. Amounts required to be paid hereunder will
be paid at the Closing.
(c) The Company will pay (x) a cash fee in the amount of ten
percent (10%) of the aggregate gross purchase price to be paid to the Company
from the sale of Notes in the Offering and (y) a cash fee in the amount of ten
percent (10%) of the aggregate gross proceeds received by the Company upon
exercise of the Warrants (the "Warrant Exercise Compensation" and, collectively
with the fees referred to in subsection (x) above, the "Fund Manager's Fee") to
the persons listed on Exhibit A under the column heading "Fund Manager's Fee
Recipient." The Fund Manager's Fee must be paid on the Closing Date. The Warrant
Exercise Compensation must be paid by the Company within ten (10) days of the
exercise of a Warrant by the holder thereof. The aforementioned Fund Manager's
Fee and legal fees will be payable at the Closing out of funds held pursuant to
a Funds Escrow Agreement to be entered into by the Company, Purchaser and an
Escrow Agent. Failure to timely deliver the Fund Manager's Fee, Warrant Exercise
Compensation or the Warrants shall be deemed an Event of Default as defined in
Article III of the Notes.
3. CLOSING, DELIVERY AND PAYMENT.
3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), which closing is
comprised of Purchaser's purchase of Notes in the aggregate principal amount of
$300,000, shall take place on the date hereof, at the offices of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, Esq. ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at
such other time or place as the Company and Purchaser may mutually agree (such
date is hereinafter referred to as the "Closing Date").
3.2 Delivery. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser an applicable Note
representing the aggregate principal amount borrowed by the Company at the
Closing from the Purchaser and a warrant certificate registered in the
Purchaser's name representing the number of Warrant Shares as to which the
Warrant is exercisable pursuant to this Agreement, against payment of the
purchase price therefor by certified funds or wire transfer made payable to the
order of the Company, cancellation of indebtedness or any combination of the
foregoing.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as of the date
of this Agreement as set forth below.
4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, the Warrants to be issued in connection with this Agreement, the
Funds Escrow Agreement, the Security Agreement and all other agreements referred
to herein (collectively, the "Related Agreements"), to issue and sell the Notes
and the shares of Common Stock issuable upon conversion of the Notes (the
"Conversion Shares"), to issue and sell the Warrants and the Warrant Shares, and
to carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted and as presently proposed to be
conducted. The Company is duly qualified and is authorized to do business and is
in good standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so would not have a material adverse effect on the Company or its business.
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4.2 Subsidiaries. Except as disclosed on Schedule 4.2, the Company
does not own or control any equity security or other interest of any other
corporation, limited partnership or other business entity. If any entity is
listed on Schedule 4.2. and the Company owns a controlling interest in such
entity, each of the representations and warranties set forth in this Section 4
are being hereby restated with respect to such entity (modified as appropriate
to the nature of such entity.)
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, immediately
prior to the Closing, consists of (i) 150,000,000 shares of Common Stock, par
value $0.001 per share, 65,892,158 shares of which are issued and outstanding,
and (ii) 10,000,000 shares of Preferred Stock, par value $0.001 per share, no
shares of which are issued and outstanding.
(b) Other than (i) the shares reserved for issuance under the
Company's Stock Option Plan; and (iii) shares which may be granted pursuant to
this Agreement and the Related Agreements, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or arrangements or agreements of any
kind for the purchase or acquisition from the Company of any of its securities.
Neither the offer, issuance or sale of any of the Notes or Warrants, or the
issuance of any of the Conversion Shares or Warrant Shares, nor the consummation
of any transaction contemplated hereby will result in a change in the price or
number of any securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common
Stock and Preferred Stock (to the extent Preferred Stock has been issued) (i)
have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of Preferred Stock and the Common Stock are as stated in the Articles of
Incorporation (the "Charter"). The Conversion Shares and Warrant Shares have
been duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Company's Charter, the Notes, Warrants,
Conversion Shares and Warrant Shares (sometimes collectively referred to herein
as the "Securities") will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; provided, however, that the
Securities may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at the
time a transfer is proposed.
(e) No stock plan, stock purchase, stock option or other
agreement or understanding between the Company and any holder of any equity
securities or rights to purchase equity securities provides for acceleration or
other changes in the vesting provisions or other terms of such agreement or
understanding as the result of any merger, consolidated sale of stock or assets,
change in control or any other transaction(s) by the Company, including the
transactions contemplated hereunder.
(f) The provisions of NSR 78.378 to 78.3793, inclusive, of the
Nevada Revised Statutes, do not apply to the purchase of any Securities by the
Purchasers, or to, or as a result of, any of the matters or actions contemplated
in this Agreement or in any of the Related Agreements. The Company is not an
"issuing corporation" as such term is defined in NRS 78.3788 of the Nevada
Revised Statutes.
4.4 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder at each Closing and the authorization,
sale, issuance and delivery of the Securities pursuant hereto and the Related
Agreements has been taken or will be taken prior to the Closing. The Agreement
and the Related Agreements, when executed and delivered, will be valid and
binding obligations of the Company enforceable in accordance with their terms,
except (a) as limited by applicable bankruptcy, insolvency,
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reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (b) general principles of equity that
restrict the availability of equitable remedies. The sale of the Notes and the
subsequent conversion of the Notes into Conversion Shares are not and will not
be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with. The sale of the Warrants and the
subsequent exercise of the Warrants for Warrant Shares are not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with. The Notes and the Warrants, when executed and
delivered in accordance with the terms of this Agreement, will be valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.
4.5 Liabilities. The Company has no material liabilities and, to the
best of its knowledge, knows of no material contingent liabilities, except
current liabilities incurred in the ordinary course of business which have not
been, either in any individual case or in the aggregate, materially adverse.
4.6 Agreements; Action.
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $50,000 (other than obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the transfer or license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting the development, manufacture or
distribution of the Company's products or services, or (iv) indemnification by
the Company with respect to infringements of proprietary rights.
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(d) The Company has not engaged in the past two years in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company, or a
transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company.
4.7 Obligations to Related Parties. There are no obligations of the
Company to officers, directors, stockholders or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company and (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company). None of the officers, directors or stockholders of
the Company, or any members of their immediate families, are indebted to the
Company. None of the officers, directors or, to the best of the Company's
knowledge, key employees or stockholders of the Company or any members of their
immediate families, are indebted to the Company or have any direct or indirect
ownership interest in any firm or corporation with which the Company is
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affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company. No officer, director or stockholder, or any member of
their immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. The
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
4.8 Changes. Since June 30, 2001, there has not been:
(a) Any change in the assets, liabilities, financial condition,
prospects or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had or is
reasonably expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of the Company;
(b) Any resignation or termination of any officer, key employee
or group of employees of the Company;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company is
a party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company; or
(n) Any arrangement or commitment by the Company to do any of the
acts described in subsection (a) through (m) above.
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4.9 Title to Properties and Assets; Liens, Etc. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent, (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary for
its business as now conducted and to the Company's knowledge as presently
proposed to be conducted (the "Intellectual Property"), without any known
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to the foregoing proprietary rights, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
(b) The Company has not received any communications alleging that
the Company has violated any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity, nor is the Company aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been rightfully assigned to
the Company.
4.11 Compliance with Other Instruments. The Company is not in
violation or default of any term of its Amended Charter or Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order or writ. The execution, delivery and performance of and compliance
with this Agreement and the Related Agreements, and the issuance and sale of
Securities pursuant hereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties.
4.12 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement or the Related Agreements or the
right of the Company to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for any of the foregoing. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
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4.13 Tax Returns and Payments. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing, have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
4.14 Employees. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. The
Company is not a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company. The Company has
not received any notice alleging that any such violation has occurred. No
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of employment
with the Company. The Company is not aware that any officer, key employee or
group of employees intends to terminate his, her or their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. The Company is presently
not under any obligation, and has not granted any rights, to register any of the
Company's presently outstanding securities or any of its securities that may
hereafter be issued. To the Company's knowledge, no stockholder of the Company
has entered into any agreement with respect to the voting of equity securities
of the Company.
4.16 Compliance with Laws; Permits. To its knowledge, the Company is
not in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which violation would materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of this
Agreement and the issuance of any of the Securities, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing, as will be filed in a timely manner. The Company has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or financial
condition of the Company.
4.17 Environmental and Safety Laws. The Company is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. No Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or, to the Company's knowledge, by
any other person or entity on any property owned, leased or used by the Company.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean (a)
materials which are listed or otherwise defined as "hazardous" or "toxic" under
any applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of
-7-
hazardous wastes, or other activities involving hazardous substances, including
building materials, or (b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither the Company nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Securities to any person or persons so as
to bring the sale of such Securities by the Company within the registration
provisions of the Securities Act or any state securities laws.
4.19 Full Disclosure. The Company has provided the Purchaser with all
information requested by the Purchaser in connection with its decision to
purchase the Notes and Warrants, including all information the Company believes
is reasonably necessary to make such investment decision. Neither this
Agreement, the exhibits and schedules hereto, the Related Agreements nor any
other document delivered by the Company to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated hereby
or thereby, contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. To the Company's knowledge, there are no facts which
(individually or in the aggregate) materially adversely affect the business,
assets, liabilities, financial condition, prospects or operations of the Company
that have not been set forth in the Agreement, the exhibits and schedules
hereto, the Related Agreements or in other documents delivered to Purchaser or
its attorneys or agents in connection herewith.
4.20 Insurance. The Company has general commercial, product liability,
fire and casualty insurance policies with coverage customary for companies
similarly situated to the Company.
4.21 SEC Reports. The Company has filed all proxy statements, reports
and other documents required to be filed by it under the Exchange Act. The
Company has furnished the Purchaser with copies of (i) its Annual Report on Form
10-K for the fiscal year ended December 31, 2000 and (ii) its Quarterly Reports
on Form 10-Q for the fiscal quarter ended March 31, 2001, June 30, 2001 and
September 20, 2001 (collectively, the "SEC Reports"). Each SEC Report was in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial statements (and the notes thereto) included
in the SEC Reports, as of their respective dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.22 No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.
4.23 Listing. The Company's Common Stock is listed for trading on the
NASD OTC Bulletin Board and satisfies all requirements for the continuation of
such listing. The Company has not received any notice that its Common Stock will
be delisted from the NASD OTC Bulletin Board or that the Common Stock does not
meet all requirements for the continuation of such listing.
4.24 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act which would prevent the Company from
selling the Securities pursuant to Rule 506 under
-8-
the 1933 Act, or any applicable exchange-related stockholder approval
provisions. Nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Securities to be
integrated with other offerings.
4.25 Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. The Company will not issue any stop transfer order or
other order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by federal securities laws.
4.26 Dilution. The number of shares of Common Stock issuable upon
conversion of the Notes and exercise of the Warrants may increase substantially
in certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to
conversion or exercise of such securities. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The Board
of Directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the shares of Common
Stock upon conversion of the Notes and exercise of the Warrants is binding upon
the Company and enforceable regardless of the dilution such issuance may have on
the ownership interests of other shareholders of the Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company with respect to
itself or himself as follows (such representations and warranties do not lessen
or obviate the representations and warranties of the Company set forth in this
Agreement):
5.1 Requisite Power and Authority. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (b) as limited by
general principles of equity that restrict the availability of equitable
remedies.
5.2 Investment Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement.
5.3 Purchaser Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment until the Securities are registered pursuant to the Securities
Act, or an exemption from registration is available.
5.4 Acquisition for Own Account. Purchaser is acquiring the Notes for
Purchaser's own account for investment only, and not with a view towards their
distribution.
5.5 Purchaser Can Protect Its Interest. Purchaser represents that by
reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement, and
-9-
the Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement.
5.6 Accredited Investor. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.7 Legends.
(a) The Notes shall bear the following legend until the Notes and
Conversion Shares are covered by an effective registration statement filed with
the SEC:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ADVANCED OPTICS ELECTRONICS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Conversion Shares and the Warrant Shares shall bear a
legend which shall be in substantially the following form until such shares are
covered by an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE, STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADVANCED OPTICS
ELECTRONICS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrants shall bear the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADVANCED
OPTICS ELECTRONICS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
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6.1 Stop-Orders. The Company will advise the Purchaser, promptly after
it receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Notes and upon the
exercise of the Warrants upon the Principal Market upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain such listing so long as any other shares of Common Stock shall be so
listed. The Company will maintain the listing of its Common Stock on a Principal
Market, and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. The Company will
provide the Purchaser copies of all notices it receives notifying the Company of
the threatened and actual delisting of the Common Stock from any Principal
Market.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 Reporting Requirements. (a) Until at least four (4) years after
the effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 9.1(d) hereof, the Company will (i)
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all respects with its reporting and
filing obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the Exchange Act, and (iv) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will not take any action or file any document (whether or
not permitted by the Securities Act or the Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Acts until the later of (y) four (4)
years after the effective date of the Registration Statement on Form SB-2 or
such other Registration Statement described in Section 9.1(d) hereof, or (z) the
sale by the Purchaser of all the Securities issuable by the Company pursuant to
this Agreement. Until at least four (4) years after the Warrants have been
exercised, the Company will use its commercial best efforts to continue the
listing of the Common Stock on the NASD OTC Bulletin Board and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and NASDAQ.
6.5 Use of Funds. The Company undertakes to use the proceeds of the
Purchaser's funds for the purposes set forth on Schedule 6.5 attached hereto. A
deviation form the use of proceeds set forth on Schedule 6.5 of more than 10%
per item or more than 20% in the aggregate shall be deemed a material breach of
the Company's obligations hereunder.
6.6 Access to Facilities. The Company will permit any representatives
designated by the Purchaser (or any transferee of the Purchaser), so long as
such person holds any Securities upon reasonable notice and during normal
business hours, at such person's expense and accompanied by a representative of
the Company, to (a) visit and inspect any of the properties of the Company, (b)
examine the corporate and financial records of the Company (unless such
examination is not permitted by federal, state or local law or by contract) and
make copies thereof or extracts therefrom and (c) discuss the affairs, finances
and accounts of any such corporations with the directors, officers and
independent accountants of the Company.
6.7 Taxes. The Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies
-11-
imposed upon the income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor.
6.8 Insurance. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than 100% of
the insurable value of the property insured; and the Company will maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated and to the
extent available on commercially reasonable terms.
6.9 Books and Records. The Company will keep true records and books of
account in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
6.10 Intellectual Property. The Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
6.11 Properties. The Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
material adverse effect.
6.12 Confidentiality. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement.
6.13 Required Approvals. For so long as at least 20% of the principal
amount of the Notes are outstanding, the Company, without the prior written
consent of the Purchaser, shall not:
(a) enter into any transaction or series of transactions with any
stockholder director, officer or employee which would require disclosure
pursuant to Rule 404 of the Regulation S-K under the Securities Act;
(b) authorize, create or issue any securities (or any rights or
securities directly or indirectly convertible into or exercisable or
exchangeable for securities) having rights, preferences or privileges superior
the Conversion Shares;
(c) directly or indirectly declare or pay any dividends or make
any distributions upon any of its capital stock or other equity securities (or
any securities directly or indirectly convertible into or exercisable or
exchangeable for equity securities);
(d) directly or indirectly redeem, purchase or otherwise acquire
any of the Corporation's capital stock or other equity securities (including,
without limitation, the Securities or any warrants, options and other rights to
acquire such capital stock or other equity securities) or directly or indirectly
redeem,
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purchase or make any payments with respect to any stock appreciation
rights, phantom stock plans or similar rights or plans;
(e) merge or consolidate with any entity or enter into an
agreement to do so;
(f) sell, lease or otherwise dispose of more than 10% of the
assets of the Company (computed on the basis of book value, determined in
accordance with GAAP consistently applied, or fair market value, determined by
the Board of Directors in its reasonable good faith judgment) in any transaction
or series of related transactions (other than sales of inventory in the ordinary
course of business) or sell or permanently dispose of any of its intellectual
property;
(g) liquidate, dissolve or effect a recapitalization,
reclassification or reorganization in any form of transaction (including,
without limitation, any reorganization into a limited liability company, a
partnership or any other non-corporate entity which is treated as a partnership
for federal income tax purposes or a stock split or "reverse" stock split of the
Common Stock);
(h) acquire any interest in any company or business (whether by a
purchase of assets, purchase of stock, merger or otherwise), enter into any
joint venture or make any investments in any other entity;
(i) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company's right to perform the
provisions of this Agreement or any of the agreements contemplated thereby;
(j) create, incur, assume or suffer to exist indebtedness
exceeding an aggregate principal amount of $375,000 outstanding at any time;
(k) amend, alter or repeal the Company's Bylaws or Restated
Certificate as to increase the number of authorized shares of the Common Stock
or any series of preferred stock, or materially affect the rights or other
powers of the Conversion Shares, or otherwise take any action which is designed
to, or could have the effect of, adversely affecting the rights or other powers
of the Conversion Shares; or
(l) materially alter or change the business of the Company.
6.14 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the Act, or (b) upon resale
subject to an effective registration statement after such Securities are
registered under the Act. The Company agrees to cooperate with the Purchaser in
connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide
legal opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested representations from the selling Purchaser
and broker, if any.
6.15 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel in the form annexed hereto as Exhibit D. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Notes and exercise of the Warrants.
7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
7.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability,
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obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Purchaser which results, arises out of or is
based upon (i) any misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any exhibits or schedules attached hereto or any
Related Agreement, or (ii) any breach or default in performance by Company of
any covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
7.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company at all times against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal fees)
of any nature, incurred by or imposed upon the Company which results, arises out
of or is based upon (a) any misrepresentation by Purchaser in this Agreement or
in any exhibits or schedules attached hereto or any Related Agreement; or (b)
any breach or default in performance by Purchaser of any covenant or undertaking
to be performed by Purchaser hereunder, or any other agreement entered into by
the Company and Purchaser relating hereto.
7.3 Procedures. The procedures and limitations set forth in Section
9.6 shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above.
8. CONVERSION OF CONVERTIBLE NOTES.
8.1 Mechanics of Conversion.
(a) Upon the conversion of the Notes or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates in the name of the Purchaser (or its nominee) or
such other persons as designated by the Purchaser and in such denominations to
be specified representing the number of Conversion Shares issuable upon such
conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company's
Common Stock and that the Conversion Shares issued will be unlegended,
free-trading, and freely transferable, and will not contain a legend restricting
the resale or transferability of the Conversion Shares, provided the Purchaser
has notified the Company of the Purchaser's intention to sell the Conversion
Shares and the Conversion Shares are included in an effective registration
statement or are otherwise exempt from registration when sold.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Notes or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
converted to the Company (the "Notice of Conversion"). The Purchaser will not be
required to surrender the Notes until the Purchaser receives a certificate or
certificates, as the case may be, representing the Conversion Shares or until
the Note has been fully satisfied. Each date on which a Notice of Conversion is
telecopied or delivered to the Company in accordance with the provisions hereof
shall be deemed a "Conversion Date." The Company will or will cause the transfer
agent to transmit the Company's Common Stock certificates representing the
shares issuable upon conversion of the Notes (and a certificate representing the
balance of the Notes not so converted, if requested by Purchaser) to the
Purchaser via express courier for receipt by such Purchaser within three
business days after receipt by the Company of the Notice of Conversion (the
"Delivery Date").
(c) The Company understands that a delay in the delivery of the
Conversion Shares in the form required pursuant to Section 8 hereof, or the
Mandatory Redemption Payment described in Section 8.2 hereof, beyond the
Delivery Date or Mandatory Redemption Payment Date (as defined in Section 8.2)
could result in economic loss to the Purchaser. As compensation to the Purchaser
for such loss, the Company agrees to pay late payments to the Purchaser for late
issuance of the Conversion Shares in the form required pursuant to Section 8
hereof upon conversion of the Notes or late payment of the Mandatory Redemption
Payment, in the amount of $100 per business day after the Delivery Date or
Mandatory Redemption Payment Date, as the case may be, for each $10,000 Note
principal being converted or redeemed. The Company shall pay any payments
incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to the
Purchaser, in the event that the Company fails for any reason to effect delivery
of the Conversion
-14-
Shares by the Delivery Date or make payment by the Mandatory Redemption Payment
Date, the Purchaser will be entitled to revoke all or part of the relevant
Notice of Conversion or rescind all or part of the notice of Mandatory
Redemption by delivery of a notice to such effect to the Company whereupon the
Company and the Purchaser shall each be restored to their respective positions
immediately prior to the delivery of such notice, except that late payment
charges described above shall be payable through the date notice of revocation
or rescission is given to the Company.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to a Purchaser and thus refunded to
the Company.
8.2 Mandatory Redemption. In the event the Company is unable to issue
Conversion Shares on a Delivery Date or at any time when a Note is convertible,
for any reason, then at the Purchaser's election, the Company must pay to the
Purchaser five (5) business days after request by the Purchaser or on the
Delivery Date (if requested by the Purchaser) a sum of money determined by
multiplying the principal of the Note required to be converted and not so
converted (or otherwise not convertible, as applicable) by 130%, together with
accrued but unpaid interest thereon ("Mandatory Redemption Payment"). The
Mandatory Redemption Payment must be received by the Purchaser on the same date
as the Conversion Shares are otherwise deliverable or within five (5) business
days after request, whichever is sooner ("Mandatory Redemption Payment Date").
Upon receipt of the Mandatory Redemption Payment, the corresponding Note
principal and interest will be deemed paid and no longer outstanding.
8.3 Maximum Conversion. The Purchaser shall not be entitled to convert
on a Conversion Date that amount of a Note or Notes in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Purchaser on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Notes with respect to which the determination of this proviso
is being made on a Conversion Date, which would result in beneficial ownership
by the Purchaser of more than 4.99% of the outstanding shares of Common Stock of
the Company on such Conversion Date. For the purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. Subject to the foregoing, a Purchaser shall not be limited to
aggregate conversions of only 4.99%. A Purchaser may void the conversion
limitation described in this Section 8.3 upon 75 days prior notice to the
Company or upon an Event of Default under the Note. A Purchaser may allocate
which of the equity of the Company deemed beneficially owned by such Purchaser
shall be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
8.4 Injunction - Posting of Bond. In the event a Purchaser shall elect
to convert a Note or part thereof, the Company may not refuse conversion for any
reason, unless an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of such Purchaser
in the amount of 130% of the amount of the Note, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Purchaser to the extent it obtains judgment.
8.5 Buy-In. In addition to any other rights available to the
Purchaser, if the Company fails to deliver to the Purchaser Conversion Shares by
the Delivery Date and if after the Delivery Date the Purchaser purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Purchaser of the Common Stock which the Purchaser
anticipated receiving upon such conversion (a "Buy-In"), then the Company shall
pay in cash to the Purchaser (in addition to any remedies available to or
elected by such Purchaser) the amount by which (A) the Purchaser's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate principal and/or interest
amount of the Note, for which such conversion was not timely honored, together
with
-15-
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Purchaser
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 of Note
principal and/or interest, the Company shall be required to pay the Purchaser
$1,000, plus interest. The Purchaser shall provide the Company written notice
indicating the amounts payable to the Purchaser in respect of the Buy-In.
9. REGISTRATION RIGHTS.
9.1 Registration Rights Granted. The Company hereby grants the
following registration rights to holders of the securities purchased hereby.
(a) On two occasions, for a period commencing 60 days after the
Closing Date, but not later than four (4) years after the Closing Date (the
"Request Date"), the Company, upon a written request therefor from holders of
more than 50% of the aggregate of the Company's Securities then outstanding, on
an as converted basis (the Conversion Shares and Warrant Shares issued or
issuable with respect to all Notes or Warrants issued or to be issued hereunder,
being, the "Registrable Securities"), shall prepare and file with the SEC a
registration statement under the Securities Act covering the Registrable
Securities which are the subject of such request, unless such Registrable
Securities are the subject of an effective registration statement. In addition,
upon the receipt of such request, the Company shall promptly give written notice
to all other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within 10 days
after the Company gives such written notice. Such other requesting record
holders shall be deemed to have exercised their demand registration right under
this Section 9.1. As a condition precedent to the inclusion of Registrable
Securities, the holder thereof shall provide the Company with such information
as the Company reasonably requests. The obligation of the Company under this
Section 9.1 shall be limited to two registration statements.
(b) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own account or
for the account of other security holders or both, except with respect to
registration statements on Forms ▇-▇, ▇-▇ or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by the Purchaser
or subsequent holder pursuant to an effective registration statement, each such
time it will give at least 30 days' prior written notice to the record holder of
any Securities of its intention so to do. Upon the written request of the
holder, received by the Company within 30 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 9.1(b) shall be, in
whole or in part, an underwritten public offering of Common Stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the forgoing
provisions, or Section 9.1(a) hereof, the Company may withdraw or delay or
suffer a delay of any registration statement referred to in this Section 9.1(b)
without thereby incurring any liability to the Seller.
(c) If, at the time any written request for registration is
received by the Company pursuant to Section 9.1(a), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the Securities Act in connection with the proposed offer and sale for cash
of any of its securities for the Company's own account, such written request
shall be deemed to have been given pursuant to Section 9.1(b) rather than
Section 9.1(a), and the rights of the holders of Registrable Securities covered
by such written request shall be governed by Section 9.1(b) except that the
Company or underwriter, if any, may not withdraw such registration or limit the
amount of Registrable Securities included in such registration.
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(d) The Company shall file with the SEC within 20 days of the
date hereof (the "Filing Date"), and use its reasonable commercial efforts to
cause to be declared effective a Form SB-2 registration statement (or such other
form that it is eligible to use) within 45 days of the Filing Date in order to
register the Registrable Securities for resale and distribution under the
Securities Act. The registration statement described in this paragraph must be
declared effective by the SEC within 45 days of the Filing Date (as defined
herein) ("Effective Date"). The Company will register not less than a number of
shares of Common Stock in the aforedescribed registration statement that is
equal to 300% of the Warrant Shares and Conversion Shares issuable at the
Conversion Prices set forth in the Warrants and Notes, respectively, that would
be in effect on the Closing Date or the date of filing of such registration
statement (employing the conversion price which would result in the greater
number of Shares), assuming the conversion of 100% of the Notes which are then
outstanding or issuable hereunder, and at least one share of common stock for
each common share issuable upon exercise of the Warrants which are then
outstanding or issuable hereunder (employing the Conversion Price that would
result in the greater number of shares). The Registrable Securities shall be
reserved and set aside exclusively for the benefit of the Purchaser and the
holders of the Warrants, as the case may be, and not issued, employed or
reserved for anyone other than the Purchaser and the holders of the Warrants.
Such registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 9.1(d).
9.2 Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as herein provided), and promptly provide to
the holders of Registrable Securities copies of all filings and SEC letters of
comment;
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective until the
later of: (i) six months after the latest exercise period of the Warrants; (ii)
twelve months after the Maturity Date of the last maturing Notes or (iii) four
years after the Closing Date, and comply with the provisions of the Securities
Act with respect to the disposition of all of the Registrable Securities covered
by such registration statement in accordance with the Seller's intended method
of disposition set forth in such registration statement for such period;
(c) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request to facilitate the public sale or their disposition of the securities
covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately notify the Seller and each underwriter under such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the
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happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing; and
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Seller or underwriter,
all publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
9.3 Provision of Documents.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 9.1(a) or a request for
registration has been made pursuant to Section 9.1(b), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 9.
(b) In connection with each registration hereunder, the Seller
will furnish to the Company in writing such information and representation
letters with respect to itself and the proposed distribution by it as reasonably
shall be necessary in order to assure compliance with federal and applicable
state securities laws. In connection with each registration pursuant to Section
9 covering an underwritten public offering, the Company and the Seller agree to
enter into a written agreement with the managing underwriter in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
9.4 Non-Registration Events. The Company and the Purchaser agree that
the Seller will suffer damages if any registration statement required under
Section 9.1(a) above is not filed within 30 days after written request by the
holder and not declared effective by the SEC within 90 days after such request,
and maintained in the manner and within the time periods contemplated by Section
9 hereof, and it would not be feasible to ascertain the extent of such damages
with precision. Accordingly, if (i) the Registration Statement described in
Section 9.1(a) is not filed within 30 days of such written request, or is not
declared effective by the SEC on or prior to the date that is 90 days after such
request, or (ii) the registration statement on Form SB-2 or such other form as
described in Section 9.1(d) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or within five
days of receipt by the Company of a communication from the SEC that the
registration statement described in Section 9.1(d) will not be reviewed, or
(iii) any registration statement described in Section 9.1(a) or (d) is filed and
declared effective but shall thereafter cease to be effective (without being
succeeded immediately by an additional registration statement filed and declared
effective) for a period of time which shall exceed 30 days in the aggregate per
year but not more than 20 consecutive calendar days (defined as a period of 365
days commencing on the date the Registration Statement is declared effective)
(each such event referred to in this Section 9.4 is referred to herein as a
"Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, (i) the Company shall pay in cash as Liquidated Damages to each
holder of any Registrable Securities an amount equal to two percent (2%) per
month or part thereof during the pendency of such Non-Registration Event of the
principal of the Notes issued in connection with the Offering, whether or not
converted, then owned of record by such holder or issuable as of or subsequent
to the occurrence of such Non-Registration Event and (ii) the Conversion Price
as defined in Section 2.1 of the Notes shall be reduced by 10% for each 30-day
period following the Effective Date that the Registration Statement is not
declared effective by the SEC. Payments to be made pursuant to this Section
shall be due and payable immediately upon demand in immediately available funds.
In the event a Mandatory Redemption Payment is demanded from the Company by the
holder pursuant to Section 8.2 of this Agreement, then the Liquidated Damages
described in this Section 9.4 shall no longer accrue on the portion of the
purchase price underlying the Mandatory Redemption Payment, from and after the
date the holder receives the Mandatory Redemption Payment. It shall be deemed a
Non-Registration Event to the extent that all the Common Stock included in the
Registrable Securities and underlying the Securities is not included in an
effective registration statement as of and after the Effective Date at the
conversion prices in effect from and after the Effective Date.
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9.5 Expenses. All expenses incurred by the Company in complying with
Section 9, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars,
fees of, and disbursements incurred by, one counsel for the Seller, and costs of
insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller beyond those
included in Registration Expenses, are called "Selling Expenses."
The Company will pay all Registration Expenses in connection with
the registration statement under Section 9. All Selling Expenses in connection
with each registration statement under Section 9 shall be borne by the Seller
and may be apportioned among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
9.6 Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to Section 9, the Company will indemnify and
hold harmless each Seller, each officer of each Seller, each director of each
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls any such Seller or underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which the Seller, or such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Registrable Securities was registered under the Act pursuant to
Section 9, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by any such
Seller, the underwriter or any such controlling person in writing specifically
for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 9, the Seller will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement and each director of the Company, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer or director may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Securities were registered under the Securities Act
pursuant to Section 9, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer or director for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action, provided,
however, that the Seller will be liable hereunder in any such case if and only
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with information
pertaining to such Seller, as such, furnished in writing to the Company by such
Seller specifically for use in such registration statement or prospectus, and
provided, further, however, that the liability of the Seller hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the
Registrable Securities sold by the Seller under such registration
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statement bears to the total public offering price of all securities sold
thereunder, but not in any event to exceed the net proceeds received by the
Seller from the sale of Registrable Securities covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 9.6(c) if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Act in any case in which either (i) the
Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 9.6 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 9.6 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of the Seller
or controlling person of the Seller in circumstances for which indemnification
is provided under this Section 9.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (A) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
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10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or stock or stock options granted to employees or directors of the
Company; or equity or debt issued in connection with an acquisition of a
business or assets by the Company; or the issuance by the Company of stock in
connection with the establishment of a joint venture partnership or licensing
arrangement (these exceptions hereinafter referred to as the "Excepted
Issuances"), the Company will not issue any equity, convertible debt or other
securities which are or could be (by conversion or registration) free-trading
securities prior to the expiration of 12 months from the actual effective date
of the registration statement described in Section 9.1(d) above (the "Exclusion
Period"). This restriction shall not prohibit the Company from issuing any
equity, convertible debt or other securities prior to the expiration of the
Exclusion Period, provided that such equity, convertible debt or other
securities are restricted securities when issued and remain restricted until the
expiration of the Exclusion Period. Notwithstanding the above, if the Purchaser
elects not to further fund the Company following the transaction contemplated
hereby, the Purchaser shall waive the provisions of this Section 10.
11. ACCOUNTS RECEIVABLE. All sums due or which shall become due and owing
to the Company with respect to the Company's Accounts Receivable set forth on
Schedule A attached hereto ("Accounts Receivable") shall be immediately paid to
the Purchaser by wire transfer, upon the Company's receipt of such sums in
immediately available funds. In consideration of an early redemption fee, ninety
percent (90%) of the sums received pursuant to this section shall be applied
against the principal amount of the Note, plus any accrued interest thereon. The
Company hereby agrees to provide the Purchaser no later than the third day of
every month, a reconciliation report of its Accounts Receivable and an updated
Accounts Receivable Aging schedule. The Purchaser will be granted a security
interest in the Accounts Receivables to be memorialized in a Security Agreement.
The Company will also execute all such documents reasonably necessary to
memorialize and further protect the security interest described above.
12. MISCELLANEOUS.
12.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
12.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
12.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Securities from time to time.
12.4 Entire Agreement. This Agreement, the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute
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the full and entire understanding and agreement between the parties with regard
to the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
12.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
12.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the holders
of the Securities under the Agreement may be waived only with the written
consent of such holders of Securities. The rights of the holder of a Note may be
waived only with the written consent of the holder of such Note.
12.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the Purchaser's part of any breach, default
or noncompliance under this Agreement, the Notes or the Related Agreements or
any waiver on such party's part of any provisions or conditions of the
Agreement, a Note or the Related Agreements must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the Notes or the Related Agreements, by
law or otherwise afforded to any party, shall be cumulative and not alternative.
12.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof and to the Purchaser at
the address set forth on the signature page hereto for such Purchaser, with a
copy in the case of the Purchaser to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at
such other address as the Company or the Purchaser may designate by ten days
advance written notice to the other parties hereto.
12.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
12.10 Titles and Subtitles. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
12.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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12.12 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein, except as specified herein with respect to
the Purchaser. Each party hereto further agrees to indemnify each other party
for any claims, losses or expenses incurred by such other party as a result of
the representation in this Section 12.12 being untrue.
12.13 Indemnification. The Company shall indemnify the Purchaser for
any losses or expenses incurred by the Purchaser in connection with any claims
brought against the Purchaser by any third party (including any other
stockholder of the Company) as a result of the transactions contemplated by this
Agreement, other than for a breach of representation or warranty made by the
Purchaser herein.
12.14 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.
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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
ADVANCED OPTICS ELECTRONICS, INC. LAURUS MASTER FUND, LTD.
By:
___________________________________ By:_______________________________
Name:
Title: Name:_____________________________
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Address: c/o Onshore Corporate
Services Ltd.
▇.▇. ▇▇▇ ▇▇▇▇ G.T.,
Queensgate House,
South Church Street
Grand Cayman, Cayman Islands
[Securities Purchase Agreement Signature Page]
LIST OF EXHIBITS
Schedule of Purchasers Exhibit A
Form of Offering Convertible Note Exhibit B
Form of Warrant Exhibit C
Form of Opinion Exhibit D
EXHIBIT A
SCHEDULE OF PURCHASERS
---------------------------------------- ----------------------------------
Purchaser Closing Date Notes
---------------------------------------- ----------------------------------
Laurus Master Fund, Ltd. $300,000
TOTAL $300,000
---------------------------------------- ----------------------------------
SCHEDULE OF WARRANT HOLDERS
---------------------------------------- ----------------------------------
Name of Warrant Holder Number of Warrant Shares
---------------------------------------- ----------------------------------
Laurus Master Fund, Ltd. 300,000
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SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS
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Fund Manager Closing Date Finder's Fees
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Laurus Capital Management, L.L.C. $30,000
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TOTAL $ 30,000 (10% of Closing)
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WARRANT EXERCISE COMPENSATION
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Warrant Holder PROPORTIONATE SHARE OF 10% CASH
COMMISSIONS PAYABLE ON WARRANT
EXERCISE
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Laurus Master Fund, Ltd. 100%
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TOTAL 100%
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A-1
EXHIBIT B
FORM OF CONVERTIBLE NOTE
B-1
EXHIBIT C
FORM OF WARRANT
C-1
EXHIBIT D
FORM OF OPINIoN
1. The Company is a corporation validly existing and in good standing under
the laws of the State of Nevada and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.
2. The Company has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Agreement and Related Agreements.
All corporate action on the part of the Company, its officers, directors and
stockholders necessary for (i) the authorization of the Agreement and Related
Agreements, and the performance of all obligations of the Company thereunder at
each Closing, and (ii) the authorization, sale, issuance and delivery of the
Securities pursuant to the Agreement and the Related Agreements has been taken.
The Conversion Shares and the Warrant Shares, when issued pursuant to and in
accordance with the terms of the Agreement and upon delivery, shall be validly
issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement, the Notes or
the Related Agreements by the Company and the consummation of the transactions
contemplated by any thereof, will not, with or without the giving of notice or
the passage of time or both:
(a) Violate the provisions of the Restated Articles or bylaws of the
Company; or
(b) To the best of such counsel's knowledge, violate any judgment,
decree, order or award of any court binding upon the Company.
4. The Agreement and Related Agreements constitute and the Notes, upon
their issuance will constitute, valid and legally binding obligations of the
Company, and are enforceable against the Company in accordance with their
respective terms.
5. The sale of the Notes and the subsequent conversion of the Notes into
Conversion Shares are not and will not be subject to any preemptive rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with. The sale of the Warrants and the subsequent exercise of
the Warrants for Warrant Shares are not and will not be subject to any
preemptive rights or, to such counsel's knowledge, rights of first refusal that
have not been properly waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchasers contained in the Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act, and will have been registered or qualified (or are exempt from registration
and qualification) under the registration, permit or qualification requirements
of all applicable state securities laws. To the best of such counsel's
knowledge, neither the Company, nor any of its affiliates, nor any person acting
on its or their behalf, has directly or indirectly made any offers or sales of
any security or solicited any offers to buy and security under circumstances
that would cause the offering of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions.
D-1
7. There is no action, suit, proceeding or investigation pending or, to the
best of such counsel's knowledge, currently threatened against the Company that
questions the validity of the Agreement or the Related Agreements or the right
of the Company to enter into any of such agreements, or to consummate the
transactions contemplated thereby, or which might result, either individually or
in the aggregate, in any material adverse change in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any change in
the current equity ownership of the Company. To the best of such counsel's
knowledge, the Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality; nor is there any action, suit, proceeding or investigation by
the Company currently pending or which the Company intends to initiate.
8. The holding period of the Company shares deposited as security pursuant
to the Security Agreement in the hands of the Purchasers for purposes of Rule
144 of the Act will combine with and date back to the acquisition date of such
security shares by the depositing Shareholders.
D-2