EXHIBIT 4.39
SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and ▇▇▇▇▇▇ Aerospace
Group, Ltd. (formerly Advanced Aerodynamics & Structures, Inc.), a Delaware
corporation (the "Company"), hereby agrees to issue and to sell to the
Subscriber, an 8% Convertible Note (the "Note") convertible in accordance with
the terms thereof into shares of the Company's $.0001 par value Class A common
stock (the "Company Shares") and Class A Common Stock Purchase Warrants of the
Company ("Warrants") for the consideration set forth on the signature page
hereof ("Purchase Price"), all of which shall be deemed allocated to the cost
basis of the Note. The form of Note is annexed hereto as EXHIBIT A. The Company
Shares included in the Securities (as hereinafter defined) are sometimes
referred to herein as the "Shares" or "Common Stock"; the Note, Warrants and
Company Shares issuable upon conversion of the Note and exercise of the Warrants
are collectively referred to herein as, the "Securities." Upon acceptance of
this Agreement by the Subscriber, the Company shall issue and deliver to the
Subscriber the Note and Warrants against payment, by federal funds (U.S.) wire
transfer of the Purchase Price. This subscription is concurrent with, and part
of similar Subscription Agreements which relate to an offering of a minimum of
$100,000 of Purchase Price and up to a maximum of $10,000,000 of Purchase Price
(the "Offering"). A closing hereunder shall not take place unless the Company
shall receive or shall have previously received the net proceeds of not less
than $100,000 of Purchase Price pursuant to the Offering ("Minimum Offering").
The following terms and conditions shall apply to this subscription.
1. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. The Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) INFORMATION ON COMPANY. The Subscriber has been furnished
with the Company's Form 10-KSB for the year ended December 31, 2001, and Form
SB-2 Registration Statement filed on May 23, 2002 with the Securities and
Exchange Commission (the "Commission") under file number: 333-88964, together
with all subsequent forms 10-QSB and forms 8-K, and any amendments to any such
forms 10-KSB, 10-QSB and 8-K filed prior to the date hereof (collectively, the
"Reports"). In addition, the Subscriber has received from the Company such other
information concerning its operations, financial condition and other matters, as
the Subscriber has requested, and the Subscriber has considered all factors the
Subscriber deems material in deciding on the advisability of investing in the
Securities (such information in writing is collectively, the "Other Written
Information").
(b) INFORMATION ON SUBSCRIBER. The Subscriber is an
"accredited investor," as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (the "1933 Act"), is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as to
enable the Subscriber to utilize the information made available by the Company
to evaluate the merits and risks of and to make an informed investment decision
with respect to the proposed purchase, which represents a speculative
investment. The Subscriber has the authority and is duly and legally qualified
to purchase and own the Securities. The Subscriber is able to bear the risk of
such investment for an indefinite period and to afford a complete loss thereof.
(c) PURCHASE OF NOTE AND WARRANTS. On the Closing Date, the
Subscriber will purchase the Note and Warrants for its own account and not with
a view to any distribution thereof.
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(d) COMPLIANCE WITH SECURITIES ACT. The Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act, by
reason of their issuance in a transaction that does not require registration
under the 1933 Act (based in part on the accuracy of the representations and
warranties of Subscriber contained herein), and that such Securities must be
held unless a subsequent disposition is registered under the 1933 Act or is
exempt from such registration.
(e) SHARES LEGEND. Except as otherwise provided herein, the
Shares issuable upon conversion of the Note and exercise of the Warrants shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ▇▇▇▇▇▇ AEROSPACE GROUP, LTD. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(f) NOTE LEGEND. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES 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 UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ▇▇▇▇▇▇ AEROSPACE
GROUP, LTD. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) WARRANTS LEGEND. 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. 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 UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ▇▇▇▇▇▇
AEROSPACE GROUP, LTD. THAT SUCH REGISTRATION IS NOT REQUIRED."
(h) COMMUNICATION OF OFFER. The offer to sell the Securities
was directly communicated to the Subscriber. At no time was the Subscriber
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.
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(i) BUSINESS RELATIONSHIPS. To the best knowledge of
Subscriber, Subscriber represents that there is no present or planned business
relationship between Subscriber and any Company director other than in
connection with the transactions described in this Agreement, previous fundings
of the Company, or as described in the Reports, or in connection with a research
report prepared by a director of the Company.
(j) CORRECTNESS OF REPRESENTATIONS. The Subscriber represents
that the foregoing representations and warranties are true and correct as of the
date hereof and, unless the Subscriber otherwise notifies the Company prior to
the Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to and agrees with the Subscriber, except as set forth on SCHEDULE B
hereto, that:
(a) DUE INCORPORATION. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or prospects or condition (financial
or otherwise) of the Company.
(b) CAPITALIZATION. As of January 23, 2002, the authorized
capital stock of the Company consists of 625,000,000 shares of Class A Common
Stock, of which 48,827,749 shares are issued and outstanding; 10,000,000 shares
of Class B Common Stock, of which 1,900,324 shares are issued and outstanding;
4,000,000 shares of Class E-1 Common Stock of which 4,000,000 shares are issued
and outstanding; 4,000,000 shares of Class E-2 Common Stock, of which 4,000,000
shares are issued and outstanding; and 5,000,000 shares of Preferred Stock, of
which 120,000 shares are designated as Series A 5% Cumulative Preferred Stock,
of which 45,734 such shares were issued and outstanding. Except as set forth in
the Reports or Other Written Information, there are no options, warrants or
rights to subscribe to, securities, rights or obligations convertible into or
exchangeable for or giving any right to subscribe for any shares of capital
stock of the Company. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable.
(c) REPORTS. The Company has delivered or made available to
the Subscriber true and complete copies of the Reports (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to the Subscriber any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the Reports complied in all material respects with the requirements of
the 1933 Act or the Exchange Act (as such term is hereinafter defined), as the
case may be, and rules and regulations of the Commission promulgated thereunder
and other federal, state and local laws, rules and regulations applicable to
such Reports. None of the Reports contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the Reports comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
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(d) AUTHORITY; ENFORCEABILITY. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.
(e) ADDITIONAL ISSUANCES. There are no outstanding agreements
or preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Reports or Other Written Information, or on SCHEDULE
B hereto.
(f) CONSENTS. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates, the National Association of Securities
Dealers ("NASD") or the Company's stockholders is required for execution of this
Agreement, and all other agreements entered into by the Company relating
thereto, including, without limitation issuance and sale of the Securities, and
the performance of the Company's obligations hereunder.
(g) NO VIOLATION OR CONFLICT. Assuming the representations and
warranties of the Subscriber in SECTION 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
hereto by the Company will:
(i) violate, conflict with, result in a breach of or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the certificate of incorporation, charter or bylaws of the Company or any of its
subsidiaries, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company or any of
its subsidiaries of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its subsidiaries or over the properties
or assets of the Company or any of its subsidiaries, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its subsidiaries is a party, by which
the Company or any of its subsidiaries is bound, or to which any of the
properties of the Company or any of its subsidiaries is subject or (D) the terms
of any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company, or any of its subsidiaries is a party; or
(ii) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its subsidiaries.
(h) THE SECURITIES. The Securities, upon issuance:
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(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and state laws;
(ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as hereinafter
defined, and the date the Note is converted, and the Warrants are exercised, the
Securities will be duly and validly issued, fully paid and nonassessable (and if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted, provided that the
Subscriber complies with the prospectus delivery requirements);
(iii) will not have been issued or sold in violation
of any preemptive or other similar rights of the holders of any securities of
the Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(i) LITIGATION. There is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body or arbitrator having jurisdiction over the
Company or any of its subsidiaries that would affect the execution by the
Company or the performance by the Company of its obligations under this
Agreement, and all other agreements entered into by the Company relating hereto.
Except as disclosed on SCHEDULE B hereto or in the Reports or Other Written
Information, there is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its subsidiaries relating to the Company or any of its directors or
officers.
(j) REPORTING COMPANY ELIGIBILITY. The Company is a
publicly-held company whose Common Stock is (and has been for the past ninety
(90) days) registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Pursuant to the provisions of the
Exchange Act, the Company has timely filed all reports and other materials
required to be filed thereunder with the Securities and Exchange Commission
during the preceding twelve (12) months.
(k) 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
the Securities or affect the price at which the Securities may be issued.
(l) INFORMATION CONCERNING COMPANY. The Reports and Other
Written Information contain all material information relating to the Company and
its operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in the Other Written
Information, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports and Other Written Information do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(m) DILUTION. The number of Shares issuable upon conversion of
the Note 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 of the Note. 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
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judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue Shares upon
conversion of the Note and exercise of the Warrants is binding upon the Company
and enforceable, except as otherwise described in this Subscription Agreement or
the Note, regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
(n) 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 the Securities, except as
may be required by law.
(o) DEFAULTS. Neither the Company nor any of its subsidiaries
is in violation of its Certificate of Incorporation or Bylaws, in each case, as
amended to date. Neither the Company nor any of its subsidiaries is (i) in
default under or in violation of any other material agreement or instrument to
which it is a party including without limitation the sublease for the Company's
facility in Long Beach, California, or by which it or any of its properties are
bound or affected, which default or violation would have a material adverse
effect on the Company, (ii) in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order of any court
or governmental authority arising out of any action, suit or proceeding under
any statute or other law respecting antitrust, monopoly, restraint of trade,
unfair competition or similar matters or (iii) to its knowledge, in violation of
any statute, rule or regulation of any governmental authority, which violation
would have a material adverse effect on the Company.
(p) 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, 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.
(q) NO GENERAL SOLICITATION. Neither the Company, nor any of
its subsidiaries, nor to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 1933 Act), in connection with the
offer or sale of the Securities.
(r) LISTING. The Company's common stock is quoted on, and
listed for trading on NASD OTC Bulletin Board. The Company has not received any
oral or written notice from the NASD 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.
(s) NO UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since December 31,
2001, and which individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company's financial condition.
(t) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31,
2001, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company, but which
has not been so publicly announced or disclosed in the Reports.
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(u) CORRECTNESS OF REPRESENTATIONS. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof in all material respects, will be true and correct as of the Closing
Date, and, unless the Company otherwise notifies the Subscriber prior to the
Closing Date, shall be true and correct in all material respects as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date for two (2) years.
3. REGULATION D OFFERING; OPINION. This Offering is being made pursuant
to the exemption from the registration provisions of the 1933 Act, afforded by
Rule 506 of Regulation D promulgated thereunder. On the Closing Date, the
Company will provide an opinion acceptable to Subscriber from the Company's
legal counsel opining on, among other things, the availability of the Regulation
D exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as EXHIBIT C. The Company will provide, at
the Company's expense, such other legal opinions at the Closing and in the
future as are reasonably requested in connection with the security interest to
be granted as described in Section 11 hereof and as may be reasonably necessary
for the conversion of the Note and issuance of the Common Stock upon conversion
of the Note and exercise of the Warrants.
4. REISSUANCE OF SECURITIES. The Company agrees to reissue certificates
representing the Securities without the legends set forth in SECTIONS 1(e) and
1(f) above (a) at such time as the holder thereof is permitted to and disposes
of such Securities pursuant to Rule 144(d) and/or Rule 144(k) under the 1933
Act, in the opinion of counsel reasonably satisfactory to the Company, or (b)
upon resale subject to an effective registration statement after the Securities
are registered under the ▇▇▇▇ ▇▇▇. The Company agrees to cooperate with the
Subscriber in connection with all resales pursuant to Rule 144(d) and Rule
144(k) and provide legal opinions, at the Company's expense, necessary to allow
such resales, provided the Company and its counsel receive all reasonably
requested representations from the Subscriber and selling broker, if any. If the
Company fails to remove any legend, as required by this SECTION 4 (a "Legend
Removal Failure"), then beginning on the tenth (10th) day following such
failure, if the Company continues to fail to remove such legend, the Company
shall pay to the Subscriber or assignee holding shares subject to a Legend
Removal Failure an amount equal to 1% of the Purchase Price of the shares
subject to a Legend Removal Failure per day that such failure continues. If
during any twelve (12) month period, the Company fails to remove any legend as
required by this SECTION 4 for an aggregate of thirty (30) days, the Subscriber
or assignee holding Securities subject to a Legend Removal Failure may, at its
option, require the Company to purchase all or any portion of the Securities
subject to a Legend Removal Failure held by such Subscriber or assignee at a
price per share equal to 130% of the applicable Purchase Price.
5. WARRANTS. The Company will issue and deliver, at the Closing, to the
Subscriber, the Warrants, a form of which is annexed hereto as EXHIBIT D. The
Subscriber will receive Warrants to purchase one (1) Share for each $2.00 of
Purchase Price invested by the Subscriber pursuant to this Agreement. The per
share "Purchase Price" of Common Stock, as defined in the Warrants, shall be
$.30.
6. FEES.
(a) The Company shall pay to counsel to the Subscriber its
fees of $5,000 for services rendered in connection with the initial Closing of
the Offering. The fee shall be payable out of funds held pursuant to an Escrow
Agreement to be entered into by the Company, Subscriber and Grushko & ▇▇▇▇▇▇▇,
P.C. (the "Escrow Agreement"). The fee will be paid to the attorneys upon the
release of Purchase Price net proceeds to or on the Company's behalf.
(b) The Company will pay to the finders ("Finders") identified
on SCHEDULE E hereto a fee in the amount of ten percent (10%) of the Purchase
Price ("Finder's Fee"). The Finder's Fee must be paid each Closing Date with
respect to the Notes issued on such date. The Finder's Fee will be payable at
the election of each Finder in cash or by delivery to such electing Finders of
promissory notes ("Finder's Notes"). The Finder's Notes will be identical to the
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Notes. All the representations, covenants, warranties, undertakings, remedies,
liquidated damages, and indemnification, other rights including but not limited
to registration rights, and rights in Section 9 hereof, made or granted to or
for the benefit of the Subscriber are hereby also made and granted to the
Finders in respect of the Finder's Notes. References to Notes in this Agreement
(and where appropriate in documents delivered in connection herewith) shall also
relate to the Finder's Notes. In the event the Subscriber so elects, the Finders
Fee may be payable in whole or in part to the Subscriber.
(c) The Company will issue and deliver, at the Closing, to the
Finders identified on Schedule E, a Warrant, substantially in the form attached
hereto as Exhibit D, to purchase a number of shares of the Company's Class A
Common Stock equal to ten percent (10%) of the shares into which the Notes
issued pursuant hereto are convertible, at the Maximum Base Price set forth in
Section 2.1.2(i) of the Note. The per share "Purchase Price" of Common Stock, as
defined in the Warrants, shall be $.30. In the event there is no Finder in
connection with the Subscriber entitled to receive the Warrants, then such
Warrants will be issued to such Subscriber. Each Finder entitled to receive
Notes or Warrants shall execute and deliver to the Company a Finders Investment
Representation Letter, a form of which is annexed hereto as EXHIBIT F, prior to
release of a Finder's Note to each such Finder.
(d) The Company on the one hand, and the Subscriber on the
other hand, agree to indemnify the other against and hold the other harmless
from any and all liabilities to any other persons claiming brokerage commissions
or finder's fees except for Finders, on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Subscription Agreement or the transactions contemplated hereby and arising out
of such party's actions. Except for Finders, the Company represents that there
are no other parties entitled to receive fees, commissions or similar payments
in connection with the offering described in this Subscription Agreement.
7.1. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after it
receives notice of issuance by the Commission, 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.
(b) The Company shall promptly secure the listing of the
Company Shares and Common Stock issuable upon exercise of the Warrants upon each
national securities exchange or automated quotation system, if any, upon which
shares of its 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 of the Company shall be so listed. The Company will use its best efforts
to maintain the listing and trading of its Common Stock on the NASD OTC Bulletin
Board (the "Principal Market"), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the NASD and such exchanges, as applicable. The Company will provide the
Subscriber copies of all notices it receives notifying the Company of the actual
or threatened delisting of the Common Stock on any exchange or quotation system
on which the Common Stock is listed unless such notification would constitute
material non-public information.
(c) The Company shall notify the Commission, 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 the
Subscriber and promptly provide copies thereof to Subscriber.
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(d) Until at least two (2) years after the effectiveness of
the registration statement on Form SB-2, the Company (i) will comply in all
respects with its reporting and filing obligations under the Exchange Act, (ii)
comply with all reporting requirements that are applicable to an issuer with a
class of Shares registered pursuant to Regulation SB of the 1933 Act and (iii)
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 1933 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) two (2) years after the effective date of the registration statement on Form
SB-2 or (z) the sale by the Subscriber of all the Company Shares and Securities
issuable by the Company pursuant to this Agreement. Until at least two (2) years
after the Warrants has been exercised, the Company will use its commercial best
efforts to continue the listing of the Common Stock on the Principal Market and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and the Principal Market.
(e) The Company undertakes to reserve, from its authorized but
unissued Common Stock from and after the Closing Date and thereafter, for such
time that the Note or Warrants remain outstanding, a number of Common Shares
equal to not less than 150% of the amount of Common Shares necessary to allow
Subscriber to be able to convert all its outstanding Note, at the then
applicable Conversion Price (100% of such Common Shares being the "Required
Reservation Amount"), and one Common Share for each Common Share issuable upon
exercise of the Warrants. It shall be deemed an Event of Default under the Note
if at any time there is less than 100% of the Required Reservation Amount
reserved. The Company undertakes to amend its Certificate of Incorporation to
increase its authorized but unissued Common Stock within forty-five (45) days of
any date that there is less than 140% of the Required Reservation Amount
available for reservation on behalf of the holders of the Notes and Warrants. It
shall be deemed an Event of Default under the Note if (i) if 150% of the
Required Reservation Amount is not timely reserved, or (ii) if at any time from
and after forty-five (45) days after the Closing Date there is not reserved one
Common Share for each Common Share issuable upon exercise of the Warrants. The
reservation described in this section shall be on behalf of all the Subscribers
to the Offering in proportion to the principal amount of the Notes issued to
them in the Offering.
(f) The Company undertakes to use the proceeds of the
Subscriber's funds for general working capital and potential acquisitions.
7.2. COVENANTS OF THE SUBSCRIBER.
(a) NO SHORT SALES. The Subscriber agrees for itself and its
affiliates that prior to the effective date of the registration statement
described in Section 10.1(ii), that the Subscriber and its affiliates will not
engage in short sales, including a covered short sale, of any of the Company's
Common Stock at a per common share sales price of less than seventy-five cents
($.75). The Subscriber agrees for itself and its affiliates that after the
effective date of the registration statement described in Section 10.1(ii), the
Subscriber and its affiliates will not engage in short sales of any of the
Company's Common Stock. The foregoing notwithstanding the Subscriber may enter
into a short sale or other hedging transaction in connection with Company Shares
the Subscriber anticipates receiving in connection with a Conversion Notice (as
defined in the Note) that has been given to the Company or a conversion notice
given in connection with any other convertible instrument of the Company held by
the Subscribers.
9
(b) COMPLIANCE WITH LAW. The Subscriber's trading activities
with respect to the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the market or exchange on which the Common Stock is
listed.
8. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING INDEMNIFICATION.
(a) The Company agrees to indemnify, hold harmless, reimburse
and defend Subscriber, and Subscriber's officers, directors or other persons
acting in similar capacities against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon Subscriber or any such person 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 other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
the Company of any covenant or undertaking to be performed by the Company
hereunder, or any other agreement entered into by the Company and Subscriber
relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company and the Company's officers and directors against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Company or
any such person which results, arises out of or is based upon (i) any
misrepresentation by Subscriber or breach by Subscriber of any warranty in this
Agreement or in any exhibits or schedules attached hereto or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Subscriber of any covenant
or undertaking to be performed by the Subscriber hereunder, or any other
agreement entered into by the Company and Subscriber relating hereto.
(c) The procedures set forth in SECTION 10.6 shall apply to
the indemnifications set forth in SECTIONS 8(a) and 8(b) above.
9.1 CONVERSION OF NOTE.
(a) Upon the conversion of a Note 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 Subscriber (or its nominee) or
such other persons as designated by the Subscriber, and in such denominations to
be specified at conversion, representing the number of shares of common stock
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 Shares will be free-trading and freely
transferable, and will not contain a legend restricting the resale or
transferability of the Company Shares provided the Shares are being sold
pursuant to an effective registration statement covering the Shares to be sold
or are otherwise exempt from registration when sold.
(b) Subscriber will give notice of its decision to exercise
its right to convert a Note or part thereof by faxing an executed and completed
Notice of Conversion (as defined in the Note) to the Company. The Subscriber
will not be required to surrender the Note until the Note has been fully
converted or satisfied. Each date on which a Notice of Conversion is faxed 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 Note (and a Note representing the balance of the Note not so
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converted, if requested by Subscriber) to the Subscriber via express courier for
receipt by such Subscriber within three (3) business days after receipt by the
Company of the Notice of Conversion (the "Delivery Date"). To the extent that a
Subscriber elects not to surrender a Note for reissuance upon partial payment or
conversion, the Subscriber hereby indemnifies the Company against any and all
loss or damage attributable to a third-party claim in an amount in excess of the
actual amount then due under the Note.
(c) The Company understands that a delay in the delivery of
the Shares in the form required pursuant to SECTION 9 hereof, or the Mandatory
Redemption Amount described in SECTION 9.2 hereof, beyond the Delivery Date or
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay late payments to the Subscriber for late
issuance of Shares in the form required pursuant to SECTION 9 hereof upon
conversion of the Note or late payment of the Mandatory Redemption Amount, 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 of Note principal
amount 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 Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber 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
Subscriber 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
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.
9.2 MANDATORY REDEMPTION. In the event the Company is prohibited from
issuing Shares (except by reason of the limitations set forth in SECTION 9.3
hereof), fails to timely deliver Shares on a Delivery Date or upon the
occurrence of an Event of Default under the Note, after applicable notice and
cure periods, then at the Subscriber's election, the Company must pay to the
Subscriber five (5) business days after request by the Subscriber or on the
Delivery Date (if requested by the Subscriber prior to a Delivery Date), a sum
of money determined by multiplying the principal amount of the Note designated
by the Subscriber by 130%, together with accrued but unpaid interest thereon
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares 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, and any obligation to deliver Shares with respect to
conversion of the redeemed portion of the Note shall be extinguished. In the
event the Company does not have sufficient cash available to pay the Mandatory
Redemption Payment, but the Company has available to it the right to draw on any
equity line of credit, bank line of credit, put or other arrangement, then the
Company must exercise its right to draw on these alternative cash sources so as
to obtain funds to pay the Mandatory Redemption Payment.
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9.3 MAXIMUM CONVERSION. The Subscriber shall not be entitled to convert
on a Conversion Date that amount of the Note 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 Subscriber and its affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
proviso is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its affiliates 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, the Subscriber
shall not be limited to aggregate conversions of only 4.99%. The Subscriber may
void the conversion limitation described in this SECTION 9.3 with seventy-five
(75) days prior written notice to the Company. The Subscriber may allocate which
of the equity of the Company deemed beneficially owned by the Subscriber shall
be included in the 4.99% amount described above and which shall be allocated to
the excess above 4.99%.
9.4 INJUNCTION - POSTING OF BOND. The Company may not refuse conversion
of a Note based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, breach
of contract, or for any other 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 Subscriber 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 Subscriber to the extent Subscriber obtains judgment.
9.5 BUY-IN. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if after the
Delivery Date the Subscriber purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Subscriber of the Common Stock which the Subscriber anticipated receiving upon
such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber 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 Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
9.6 OPTIONAL REDEMPTION. The Company will have the option of redeeming
any outstanding Note ("Optional Redemption") by paying to the Subscriber a sum
of money equal to 125% of the principal amount of the portion of the Note
described below together with accrued but unpaid interest thereon and any and
all other sums due, accrued or payable to the Subscriber arising under this
Subscription Agreement, Note or any other document delivered herewith
("Redemption Amount") outstanding on the day notice of redemption ("Notice of
Redemption) is given to a Subscriber ("Redemption Date"). A Notice of Redemption
must be given, if at all, within two hours of the delivery to the Company by
facsimile of a Conversion Notice but only in connection with a portion of Note
for which notice of conversion has been given by the Subscriber employing the
Conversion Price described in SECTION 2.1(b)(ii) of the Note. The Subscriber may
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elect within five (5) business days after receipt of a Notice of Redemption to
give the Company Notice of Conversion in connection with some or all of the Note
principal and interest which was the subject of the Notice of Redemption
provided the Conversion Price elected by the Subscriber is the Maximum Base
Price set forth in SECTION 2.1(b)(i) of the Note. A Notice of Redemption must be
accompanied by a certificate signed by the chief executive officer or chief
financial officer of the Company stating that the Company has on deposit and
segregated ready funds equal to the Redemption Amount. The Redemption Amount
must be paid in good funds to the Subscriber no later than the fifth (5th)
business day after the Redemption Date ("Optional Redemption Payment Date"). In
the event the Company fails to pay the Redemption Amount by the Optional
Redemption Payment Date, then the Redemption Notice will be null and void and
the Company will thereafter have no further right to effect an Optional
Redemption, and at the Subscription's election, the Redemption Amount will be
deemed a Mandatory Redemption Payment and the Optional Redemption Payment Date
will be deemed a Mandatory Redemption Payment Date. Such failure will also be
deemed an Event of Default under the Note. A Notice of Redemption may be given
by the Company, provided (i) no Event of Default, as described in the Note,
shall have occurred; and (ii) the Company Shares issuable upon conversion of the
full outstanding Note principal are included for unrestricted resale in a
registration statement effective as of the Redemption Date. Purchase Price
proceeds may not be used to effect an Optional Redemption.
9.7 REDEMPTION. The Company may not redeem the Securities without the
consent of the holder of the Securities except as otherwise set forth herein.
10.1 REGISTRATION RIGHTS. The Company hereby grants the following
registration rights to holders of the Securities.
(i) If the Company at any time proposes to register any of its
securities under the 1933 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 Company Shares issued and issuable upon conversion
of the Notes and exercise of the Warrants (the Common Stock issued or issuable
upon conversion or exercise of the Securities [which includes the Notes,
Finder's Notes, Warrants, and Finder's Warrants] and securities issued or
issuable by virtue of ownership of the Securities being, the "Registrable
Securities"), for sale to the public, provided the Registrable Securities are
not otherwise registered for resale by the Subscriber or Holder pursuant to an
effective registration statement, each such time it will give at least thirty
(30) days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within thirty (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"). A
request for registration pursuant to this SECTION 10.1(i) shall be deemed to
have been made in connection with any registration statement filed after the
Closing Date.
(ii) The Company shall file with the Commission on or before
the later of (i) forty-five (45) days after the Closing Date (as defined
herein), or (ii) fifteen (15) days after the effective date of the Company's
SB-2 registration statement filed with the Commission on May 23, 2002 under file
number: 333-88964 (the "Filing Date"), and use its reasonable commercial efforts
to cause to be declared effective, within one hundred and twenty (120) days
after the Closing Date, a Form SB-2 registration statement in order to register
the Registrable Securities for resale and distribution under the 1933 Act. The
registration statement described in this paragraph must be declared effective by
the Commission within one hundred and twenty (120) days of the Closing Date
("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
150% of the Company Shares issuable at the Conversion Price that would be in
effect on the Closing Date or the date of filing of such registration statement
(employing the Conversion Price (as defined in the Note) which would result in
the greater number of Shares), assuming the conversion of 100% of the Note which
13
are included in the Registrable Securities and one share of Common Stock for
each Common Share issuable upon exercise of the Warrants included in the
Registrable Securities. The Registrable Securities shall be reserved and set
aside exclusively for the benefit of the Subscriber, and not issued, employed or
reserved for anyone other than the Subscriber. 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.
10.2 REGISTRATION PROCEDURES. In connection with the registration of
the Registrable Securities under the 1933 Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the Commission 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 ("Sellers") copies of all
filings and Commission letters of comment;
(b) prepare and file with the Commission 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 latest of: (i) twelve (12) months after the Maturity Date (as defined
in the Note) of the Note; (ii) two (2) years after the Closing Date; or (iii)
six (6) months after the latest exercise period of the Warrants, and comply with
the provisions of the 1933 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 in order 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 or other trading market,
venue or service 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 1933 Act, of the happening of any event of
which the Company has knowledge as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing; and
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the Seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
14
10.3 PROVISION OF DOCUMENTS. 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 10.1(i) 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
reasonable and customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and investment
stature.
10.4 NON-REGISTRATION EVENTS. The Company and the Subscriber agree that
the Seller will suffer damages if any registration statement required under
SECTION 10.1(I) above is not filed within sixty (60) days after written request
by the Holder and not declared effective by the Commission within one hundred
twenty (120) days after such request (or the Filing Date and Effective Date,
respectively, in reference to the registration statement on Form SB-2 to be
filed pursuant to Section 10.1(ii)), and maintained in the manner and within the
time periods contemplated by SECTION 10 hereof, and it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if (i) the
registration statement described in SECTIONS 10.1(i) is not filed within sixty
(60) days of such written request, or is not declared effective by the
Commission on or prior to the date that is one hundred twenty (120) days after
such request, or (ii) the registration statement on Form SB-2 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 (5) days of receipt by the Company of a
communication from the Commission that the registration statement described in
SECTION 10.1(ii) will not be reviewed or (iii) any registration statement
described in SECTIONS 10.1(i) or 10.1(ii) 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 thirty (30) days in the aggregate per year but not
more than twenty (20) consecutive calendar days (defined as a period of three
hundred sixty-five (365) days commencing on the date the registration statement
is declared effective) (each such event referred to in clauses (i), (ii) and
(iii) of this SECTION 10.4 is referred to herein as a "Non-Registration Event"),
then, for so long as such Non-Registration Event shall continue, the Company
shall pay in cash as liquidated damages to each holder of any Registrable
Securities an amount equal to 1% per thirty (30) days for the first thirty (30)
days or part thereof and 2% for each thirty (30) days or part thereof,
thereafter, during the pendency of such Non-Registration Event, of the principal
of the Note issued, whether or not converted owned of record by such holder or
issuable as of or subsequent to the occurrence of such Non-Registration Event.
Payments to be made pursuant to this SECTION 10.4 shall be due and payable
immediately upon demand in restricted common stock of the Company at a per share
value equal to the trading price of the Company's Common Stock on the trading
day preceding the date such common stock is transmitted to Subscriber. It shall
not be deemed an Event of Default pursuant to Article 3 of the Note in
connection with a Non-Registration Event relating to the Effective Date unless
such Non-Registration Event has occurred and is continuing as of or after 181
days after the Closing Date. In the event a Mandatory Redemption Payment is
demanded from the Company by the Holder pursuant to SECTION 9.2 of this
Subscription Agreement, then the liquidated damages described in this SECTION
10.4 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 also be deemed a Non-Registration Event
to the extent that an amount equal to 120% of all the Common Stock underlying
the Registrable Securities is not included in an effective registration
statement as of and at any time after forty-five (45) days after the Effective
Date, at the Conversion Prices in effect from and after the Effective Date.
15
10.5 EXPENSES. All expenses incurred by the Company in complying with
SECTION 10, 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,
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, are called "Selling Expenses." The Seller shall pay the fees of its own
additional counsel, if any. The Company will pay all Registration Expenses in
connection with the registration statement under SECTION 10. All Selling
Expenses in connection with each registration statement under SECTION 10 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.
10.6 INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless the
Subscriber, each officer of the Subscriber (or other person servicing in a
similar capacity), each director of the Subscriber (or other person serving in a
similar capacity), each underwriter of such Registrable Securities thereunder
and each other person, if any, who controls such Subscriber or underwriter
within the meaning of the 1933 Act, against any losses, claims, damages or
liabilities, joint or several, to which the Subscriber, or such underwriter or
controlling person may become subject under the 1933 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 1933 Act pursuant to SECTION 10,
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 Subscriber, and each of the Subscriber's officers, directors and
other persons serving in similar capacities, 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 shall not be liable to
the Subscriber, and each of the Subscriber's officers, directors and other
persons serving in similar capacities, to the extent that any such damages arise
out of or are based upon an untrue statement or omission made in any preliminary
prospectus if (i) the Subscriber failed to send or deliver a copy of the final
prospectus delivered by the Company to the Subscriber with or prior to the
delivery of written confirmation of the sale by the Subscriber to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission or (iii) 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 Subscriber, or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) The Subscriber will indemnify and hold harmless the
Company, and each person, if any, who controls the Company within the meaning of
the 1933 Act, each officer of the Company who signs the registration statement,
each director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the 1933 Act, against all losses, claims,
damages or liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the 1933
16
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 1933
Act pursuant to SECTION 10, 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, director,
underwriter and 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 Subscriber 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 Subscriber,
as such, furnished in writing to the Company by such Subscriber specifically for
use in such registration statement or prospectus, and provided, further,
however, that the liability of the Subscriber hereunder shall be limited to the
gross proceeds received by the Subscriber 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 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this SECTION 10.6(c), except and only if and to the extent the indemnifying
party is materially 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 10.6(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 1933 Act in any case in which either (i)
the Subscriber, or any controlling person of the Subscriber, makes a claim for
indemnification pursuant to this SECTION 10.6 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 10.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Subscriber or
controlling person of the Subscriber in circumstances for which indemnification
is provided under this SECTION 10.6; then, and in each such case, the Company
and the Subscriber 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 Subscriber is responsible only for the portion
represented by the percentage that the public offering price of its securities
17
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, (y) the Subscriber 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 (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the ▇▇▇▇
▇▇▇) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
11. MISCELLANEOUS.
(a) NOTICES. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being faxed (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i) if to the Company, to
▇▇▇▇▇▇ Aerospace Group, Ltd., ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇, with a copy by facsimile only to ▇▇▇▇,
Forward, ▇▇▇▇▇▇▇▇ & Scripps, LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇
▇▇▇▇▇, Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq., facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇, and (ii) if
to the Subscriber, to the name, address and telecopy number set forth on the
signature page hereto, with a copy by telecopier only to Grushko & ▇▇▇▇▇▇▇,
P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, telecopier number:
(▇▇▇) ▇▇▇-▇▇▇▇. Any notice that may be given pursuant to this Agreement, or any
document delivered in connection with the foregoing may be given by the
Subscriber on the first business day after the observance dates in the United
States of America by Orthodox Jewry of Rosh Hashanah, Yom Kippur, the first two
days of the Feast of Tabernacles, Shemini Atzeret, Simchat Torah, the first two
and final two days of Passover and Pentecost, with such notice to be deemed
given and effective, at the election of the Subscriber on a holiday date that
precedes such notice. Any notice received by the Subscriber on any of the
aforedescribed holidays may be deemed by the Subscriber to be received and
effective as if such notice had been received on the first business day after
the holiday.
(b) CLOSING. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, upon the satisfaction of all
conditions to Closing set forth in this Agreement. The closing date shall be the
date that subscriber funds representing the net amount due the Company from the
Purchase Price are transmitted by wire transfer or other method of delivery, to
or on the Company's behalf (each such closing a "Closing Date").
(c) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, and the
documents incorporated herein by reference, represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by the parties hereto. It is the express
understanding of the parties hereto that no party has made any representation
whatsoever, express or implied, oral or written, other than those
representations of the parties hereto expressly set forth in this Agreement. No
right or obligation of any party shall be assigned by that party without prior
notice to and the written consent of the other parties.
(d) EXECUTION. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.
(e) LAW GOVERNING THIS AGREEMENT. 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 any
party against the others 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 Southern District of New York. The 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 parties
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.
18
(f) SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to SECTION 11(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) ADJUSTMENTS. The Conversion Price and amount of Common
Stock issuable upon conversion of the Notes and other references to sales prices
shall be adjusted consistent with customary anti-dilution adjustments.
(h) CONFIDENTIALITY. The Company agrees that it will not
disclose publicly or privately the identity of the Subscriber unless expressly
agreed to in writing by the Subscriber or only to the extent required by law.
(i) AUTOMATIC TERMINATION. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the twentieth (20th) business day following the date this
Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
19
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
----------------------------------------
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned, whereupon it shall
become a binding agreement between us.
▇▇▇▇▇▇ AEROSPACE GROUP, LTD.
a Delaware corporation
By: /S/: L. ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------
L. ▇▇▇▇▇ ▇▇▇▇▇▇, Executive
Vice-President and Chief Financial
Officer
Dated: July 31, 2002
--------------------------------------------------------------------------------
SUBSCRIBERS PURCHASE PRICE WARRANTS
--------------------------------------------------------------------------------
$300,000.00 150,000
/S/: ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
----------------------
(Signature)
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ #184-202
CP. 11580, Col. ▇▇▇▇▇▇▇
Mexico City, Mexico
Fax:
--------------------------------------------------------------------------------
20
EXHIBIT A
FORM OF NOTE
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER
SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ▇▇▇▇▇▇
AEROSPACE GROUP, LTD. THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
----------------
FOR VALUE RECEIVED, ▇▇▇▇▇▇ AEROSPACE GROUP, LTD., a Delaware
corporation (the "Borrower"), hereby promises to pay to
______________________________________________________________________________
(the "Holder") or order, without demand, the sum of ______________________
($__________), with simple interest accruing at the annual rate of eight percent
(8%), on July ___, 2007 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE 1
PAYMENT RELATED PROVISIONS
1.1. PAYMENT GRACE PERIOD. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of ten percent (10%) per annum
shall apply to the amounts owed hereunder.
1.2. CONVERSION PRIVILEGES. The Conversion Privileges set forth in Article
II shall remain in full force and effect commencing 120 days from the
date hereof and until the Note is paid in full.
1.3. INTEREST RATE. Subject to the Holder's right to convert, interest
payable on this Note shall accrue at the annual rate of eight percent
(8%) and be payable on the Maturity Date, accelerated or otherwise,
when the principal and remaining accrued but unpaid interest shall be
due and payable, or sooner as described below. Interest may be paid by
the Company by delivery of an amount of Common Stock of the Company
calculated by dividing the amount of interest payable on an interest
due date by the Conversion Price (defined below) in effect on such
interest due date.
ARTICLE 2
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.
2.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.
(a) The Holder shall have the right from and after 120 days after
the issuance of this Note and then at any time until this Note
is fully paid, to convert any outstanding and unpaid principal
portion of this Note, and/or at the Holder's election, the
interest accrued on the Note, (the date of giving of such
21
notice of conversion being a "Conversion Date") into fully
paid and nonassessable shares of Class A common stock of
Borrower as such stock exists on the date of issuance of this
Note, or any shares of capital stock of Borrower into which
such stock shall hereafter be changed or reclassified (the
"Common Stock") at the conversion price, as defined in Section
2.1(b) hereof (the "Conversion Price"), determined as provided
herein. Upon delivery to the Company of a Notice of
Conversion, as described in Section 9 of the subscription
agreement entered into between the Company and Holder relating
to this Note (the "Subscription Agreement"), the terms of
which are incorporated herein by this reference, of the
Holder's written request for conversion, Borrower shall issue
and deliver to the Holder within three (3) business days from
the Conversion Date that number of shares of Common Stock for
the portion of the Note converted in accordance with the
foregoing. At the election of the Holder, the Company will
deliver accrued but unpaid interest on the Note through the
Conversion Date directly to the Holder on or before the
Delivery Date (as defined in the Subscription Agreement). The
number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that
portion of the principal (and interest, at the election of the
Holder) of the Note to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof,
the Conversion Price per share shall be at the election of the
Holder: (i) $.35 ("Maximum Base Price"); or (ii) seventy
percent (70%) of the average of the three lowest closing bid
prices for the Common Stock for the thirty (30) trading days
prior to but not including the Conversion Date, on the NASD
OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National
Market System, American Stock Exchange or New York Stock
Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock, the
"Principal Market"), or if not then trading on a Principal
Market, such other principal market or exchange where the
Common Stock is listed or traded. If the Principal Market does
not report bid prices, then the closing price shall be
substituted for the bid price referred to in this Section
2.1(b)(ii) when determining the Conversion Price.
(c) The Maximum Base Price described in Section 2.1(b)(i) above
and number and kind of shares or other securities to be issued
upon conversion determined pursuant to Section 2.1(a) and
2.1(b), shall be subject to adjustment from time to time upon
the happening of certain events while this conversion right
remains outstanding, as follows:
(A) Merger, Sale of Assets, etc. If the Borrower at any
time shall consolidate with or merge into or sell or
convey all or substantially all its assets to any
other corporation, this Note, as to the unpaid
principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or
other securities and property as would have been
issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or
with respect to the securities subject to the
conversion or purchase right immediately prior to
such consolidation, merger, sale or conveyance. The
foregoing provision shall similarly apply to
successive transactions of a similar nature by any
such successor or purchaser. Without limiting the
generality of the foregoing, the anti-dilution
provisions of this Section shall apply to such
securities of such successor or purchaser after any
such consolidation, merger, sale or conveyance.
22
(B) Reclassification, etc. If the Borrower at any time
shall, by reclassification or otherwise, change the
Common Stock into the same or a different number of
securities of any class or classes, this Note, as to
the unpaid principal portion thereof and accrued
interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind
of securities as would have been issuable as the
result of such change with respect to the Common
Stock immediately prior to such reclassification or
other change.
(C) Stock Splits, Combinations and Dividends. If the
shares of Common Stock are subdivided or combined
into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock
in shares of Common Stock, the Conversion Price shall
be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased
in the case of combination of shares, in each such
case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event
bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
(D) Share Issuance. Subject to the provisions of this
Section, if the Borrower at any time shall issue any
shares of Common Stock prior to the conversion of the
entire principal amount of the Note (otherwise than
as: (i) provided in Sections 2.1(c)A, 2.1(c)B or
2.1(c)C or this subparagraph D; or (ii) pursuant to
options, warrants or other obligations to issue
shares, outstanding on the date hereof or proposed to
be issued as described in the Reports and Other
Written Information [(i) and (ii) above are
hereinafter referred to as the "Existing Option
Obligations"]) for a consideration less than the
Conversion Price that would be in effect at the time
of such issue, then, and thereafter successively upon
each such issue, the Conversion Price shall be
reduced as follows: (i) the number of shares of
Common Stock outstanding immediately prior to such
issue shall be multiplied by the Conversion Price in
effect at the time of such issue and the product
shall be added to the aggregate consideration, if
any, received by the Borrower upon such issue of
additional shares of Common Stock; and (ii) the sum
so obtained shall be divided by the number of shares
of Common Stock outstanding immediately after such
issue. The resulting quotient shall be the adjusted
Conversion Price. Except for the Existing Option
Obligations, for purposes of this adjustment, the
issuance of any security of the Borrower carrying the
right to convert such security into shares of Common
Stock or of any warrant, right or option to purchase
Common Stock shall result in an adjustment to the
Conversion Price upon the issuance of shares of
Common Stock upon exercise of such conversion or
purchase rights.
(d) From and after the issuance date of this Note and for the
remaining period during which the conversion right exists,
Borrower will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the full conversion of this
Note. Borrower represents that upon issuance, such shares will
be duly and validly issued, fully paid and non-assessable.
Borrower agrees that its issuance of this Note shall
constitute full authority to its officers, agents and transfer
agents who are charged with the duty of executing and issuing
stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of
this Note.
23
2.2. METHOD OF CONVERSION. This Note may be converted by the Holder in whole
or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, if requested by the
Holder, a new Note containing the same date and provisions of this Note
shall be issued by the Borrower to the Holder for the remaining
principal balance of this Note and interest which shall not have been
converted or paid.
ARTICLE 3
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1. FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after the due date. The ten
(10) day period described in this Section 3.1 is the same ten (10) day
period described in Section 1.1 hereof.
3.2. BREACH OF COVENANT. The Borrower breaches any material covenant or
other term or condition of this Note in any material respect and such
breach, if subject to cure, continues for a period of seven (7) days
after written notice to the Borrower from the Holder.
3.3. BREACH OF REPRESENTATIONS AND WARRANTIES. Any material representation
or warranty of the Borrower made herein, in the Subscription Agreement
entered into by the Holder and Borrower in connection with this Note,
or in any agreement, statement or certificate given in writing pursuant
hereto or in connection therewith shall be false or misleading in any
material respect.
3.4. RECEIVER OR TRUSTEE. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5. JUDGMENTS. Any money judgment, writ or similar final process shall be
entered or filed against Borrower or any of its property or other
assets for more than $50,000, and shall remain unpaid, unvacated,
unbonded or unstayed for a period of forty-five (45) days.
3.6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or
any law for the relief of debtors shall be instituted by or against the
Borrower and if instituted against Borrower are not dismissed within
forty-five (45) days of initiation.
3.7. DEFAULT. A default by the Borrower, after applicable notice and cure
periods, under any one or more obligations in an aggregate monetary
amount in excess of $200,000.
3.8. STOP TRADE. A Securities and Exchange Commission stop trade order or
Principal Market trading suspension for longer than five (5) trading
days.
3.9. FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. Borrower's failure
to timely deliver Common Stock to the Holder pursuant to and in the
form required by this Note and Section 9 of the Subscription Agreement,
or if required, a replacement Note.
3.10. NON-REGISTRATION EVENT. The occurrence of a Non-Registration Event as
described in Section 10.4 of the Subscription Agreement.
24
ARTICLE 4
MISCELLANEOUS
4.1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
All rights and remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
4.2. NOTICES. Any notice herein required or permitted to be given shall be
in writing and may be personally served or sent by facsimile
transmission (with copy sent by regular, certified or registered mail
or by overnight courier). For the purposes hereof, the address and
facsimile number of the Holder is as set forth on the first page
hereof. The address and facsimile number of the Borrower shall be
▇▇▇▇▇▇ Aerospace Group, Ltd. (formerly Advanced Aerodynamics &
Structures, Inc.), ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇. Both Holder and Borrower may
change the address and facsimile number for notice by service of notice
to the other as herein provided. Notice of Conversion shall be deemed
given when made to the Company pursuant to the Subscription Agreement.
4.3. AMENDMENT PROVISION. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4. ASSIGNABILITY. This Note shall be binding upon the Borrower and its
successors and permitted assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the
Holder.
4.5. COST OF COLLECTION. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
4.6. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York. 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 New York County
in the State of New York. Both parties and the individual signing this
Agreement on behalf of the Borrower agree to submit to the jurisdiction
of such courts. The prevailing party shall be entitled to recover from
the other party its reasonable attorney's fees and costs.
4.7. MAXIMUM PAYMENTS. Nothing contained herein 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 required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum
shall be credited against amounts owed by the Borrower to the Holder
and thus refunded to the Borrower.
25
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on this ____ day of July, 2002.
▇▇▇▇▇▇ AEROSPACE GROUP, LTD.
By:
----------------------------
L. ▇▇▇▇▇ ▇▇▇▇▇▇, Executive
Vice-President and
Chief Financial Officer
WITNESS:
----------------------------
26
NOTICE OF CONVERSION
--------------------
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by ▇▇▇▇▇▇ AEROSPACE GROUP,
LTD. on July ___, 2002 into Shares of Common Stock of ▇▇▇▇▇▇ AEROSPACE GROUP,
LTD. according to the conditions set forth in such Note, as of the date written
below.
Date of Conversion:
-------------------------------------------------------------
Conversion Price:
---------------------------------------------------------------
Shares To Be Delivered:
----------------------------------------------------------
Signature:
----------------------------------------------------------------------
Print Name:
---------------------------------------------------------------------
Address:
------------------------------------------------------------------------
--------------------------------------------------------------------------------
27
SCHEDULE B
DISCLOSURE SCHEDULE
FOR
▇▇▇▇▇▇ AEROSPACE GROUP, LTD.
This Disclosure Schedule of ▇▇▇▇▇▇ Aerospace Group, Ltd. (formerly
Advanced Aerodynamics & Structures, Inc.), a Delaware corporation (the
"Company"), is delivered pursuant to Section 2 of that certain Subscription
Agreement dated July ___, 2002 (the "Subscription Agreement") among the Company
and certain subscribers as set forth in the signature pages of the Subscription
Agreement. Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Subscription Agreement. This Disclosure
Schedule is arranged in paragraphs corresponding to the lettered paragraphs
contained in Section 2 of the Subscription Agreement; however, any information
disclosed herein under any paragraph number shall be deemed to be disclosed and
incorporated into any other paragraph number under the Subscription Agreement
where such disclosure would be appropriate. The word "None" when used herein
denotes that no exception is taken to the particular representation or warranty.
SECTIONS 2(b) AND (e): The Company has agreed to issue 1,000,000 shares
of Class A common stock to a public relations firm in exchange for services to
help the Company increase its exposure to the public and financial arenas.
Further, the Company has entered into a Consulting Agreement with a group of
consultants who will assist and consult with the Company regarding investment
banking and communications with existing shareholders, brokers, dealers and
other investment professionals. In return for their services, the Company has
agreed to issue Class A common stock in an amount equal to 12% of the issued and
outstanding common stock of the Company. The Company has agreed to issue and
deliver such shares to the consultants at the earlier of 75 days following the
Company's receipt of an amended Type Certificate from the Federal Aviation
Administration for its Jetcruzer 500 or by October 2003. The consultants may,
however, accelerate the final issue date one or more times, on not less than 10
days prior notice to the Company, as to some or all of the shares.
Certain investors ("Holders") who are holders of convertible notes and
Series A Preferred Stock of the Company ("Holders Securities") have entered into
a Lockup Agreement for the benefit of certain other investors in the Company
("Investors") who are also holders of convertible notes and Series A Preferred
Stock of the Company ("Investors Securities") pursuant to which the Holders have
agreed that they may not transfer, or exercise any conversion rights of, any of
the Holders Securities until the sooner of (i) the date one or more Holders have
purchased for $800,000, from the Investors, Investors Securities and/or, at the
election of each Investor, any other notes or preferred stock issued to
Investors by the Company having principal or stated value, as the case may be,
of $600,000, or (ii) the date that each Investor has exercised conversion rights
relating to the Investors Securities and has received the Company's Class A
common stock issuable upon exercise of such conversion rights in a certain
amount to be determined by multiplying the closing bid price on each conversion
date by the number of Class A common stock of the Company received by the
Investor on the conversion date, which certain amount may be increased by the
Proportionate Share (as defined in the Put Agreement noted below) for which the
Company may exercise its Put rights for each Investor. Notwithstanding the
above, Holders may convert Holders Securities in an amount equal to the Holder's
proportionate share, as defined in the Put Agreement discussed below, as of each
conversion date.
The Company has entered into a Put Agreement with certain investors who
hold convertible notes and preferred stock of the Company pursuant to which the
investors have granted to the Company the option of selling to each investor an
amount of convertible notes up to an aggregate maximum amount of $5,000,000,
28
subject to reduction in the event of future financings. The Company's right to
exercise the put shall expire October 25, 2002. The Put Agreement also places
certain restrictions on such investors' ability to sell Class A common stock of
the Company received on conversion of the Company securities held by such
investors. The Company has issued a put notice dated January 2002 for
approximately $1,300,000.
SECTION 2(i) LITIGATION: On May 22, 2002, the Company received a demand
letter on behalf of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ asserting a claim for breach of an employment
agreement, sums due on a consulting agreement and demanding performance on an
aircraft sale agreement. The letter asserts that the Company agreed to employ
▇▇. ▇▇▇▇ for a period of one year at a base salary of $200,000. It claims that
the Company has wrongfully repudiated the agreement, entitling ▇▇. ▇▇▇▇ to
damages of $200,000. The letter further asserts that pending the time ▇▇. ▇▇▇▇
was to formally assume his employment position, the Company engaged ▇▇. ▇▇▇▇ as
a consultant at an agreed upon hourly rate of $125. It claims that the amount of
$10,625 is due and unpaid for 85 hours of consulting services. Lastly, the
letter asserts that the Company entered into an agreement with ▇▇. ▇▇▇▇ for the
sale of his private aircraft for $327,500. It claims that the Company desired to
use the aircraft as a demonstrator and then either find a qualified buyer for or
purchase the aircraft for itself by the end of calendar year 2002. While it
appears to concede that payment is not due on the aircraft at this time, this
claim is included in the letter and included in a settlement demand. The letter
claims the Company owes ▇▇. ▇▇▇▇ a total of $210,625, plus interest, as well as
the obligation to locate a qualified buyer or purchase the aircraft itself. It
also makes claim for statutory penalties in the form of additional wages in an
unstated amount under California Labor Code Sec. 203. It offers to resolve the
matter for a payment of $110,625 and the immediate buy-out of the aircraft (at
$327,500 minus hourly rental fees already paid to ▇▇. ▇▇▇▇ for any rental of the
aircraft to date pursuant to the agreement). It gives the Company until May 27,
2002 to respond, or threatens formal litigation and to file a wage claim with
the Labor Commissioner. On May 21, 2002, the Company was served with notice of a
lawsuit filed by a vendor to the Company, claiming damages in the amount of
approximately $50,000.
SECTION 2(o) DEFAULTS: As of March 31, 2002, the Company was in default
under certain convertible notes issued by the Company on March 27, 2001, June
27, 2001 and October 26, 2001 for failure to make required interest payments.
Pursuant to the terms of the notes, the holders have the right to demand
immediate repayment of the notes. As of March 31, 2002, the aggregate amount of
the principal and interest due on these notes was $2,636,000 for the March 27,
2001 notes; $1,210,000 for the June 27, 2001 note; $11,738,000 for the October
26, 2001 notes; $1,484,000 for the January 30, 2002 notes issued pursuant to the
October 26, 2001 Put Agreement; and $21,307,000 for the January 30, 2002 notes.
The Company is currently in default regarding various registration
rights provisions contained in agreements entered into by the Company and
various purchasers of securities which are convertible or exercisable into Class
A common stock of the Company. Under these registration rights provisions, the
Company was obligated to register the shares of Class A common stock into which
the securities are convertible or exercisable. Under these registration rights
provisions, the Company is to pay in cash as liquidated damages to each holder
of the securities which have not been registered, an amount equal to 1% per
thirty (30) days for the first thirty (30) days or part thereof and 2% for each
thirty (30) days or part thereof, thereafter, of the principal of the Note
issued, until registration is accomplished.
[Signature page follows]
29
IN WITNESS WHEREOF, the Company has executed this Disclosure Schedule
as of the date first written above.
Date: _____________, 2002 ▇▇▇▇▇▇ AEROSPACE GROUP, LTD.
By: ________________________________
L. ▇▇▇▇▇ ▇▇▇▇▇▇
Executive Vice-President
and Chief Financial Officer
30
EXHIBIT C
LEGAL OPINION
31
EXHIBIT D
FORM OF WARRANT
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 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 UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO ▇▇▇▇▇▇ AEROSPACE GROUP, LTD. THAT SUCH
REGISTRATION IS NOT REQUIRED.
Right to Purchase _________ shares of Common
Stock of ▇▇▇▇▇▇ Aerospace Group, Ltd.
(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. ____ Issue Date: July ____, 2002
▇▇▇▇▇▇ AEROSPACE GROUP, LTD., a corporation organized under the laws of
the State of Delaware (the "Company"), hereby certifies that, for value
received, ________________________________________ (the "Holder"), or assigns,
is entitled, subject to the terms set forth below, to purchase from the Company
from and after forty-five days after the Issue Date of this Warrant and at any
time or from time to time before 5:00 p.m., New York time, through five (5)
years after such date (the "Expiration Date"), up to ___________ fully paid and
nonassessable shares of Common Stock (as hereinafter defined), $.0001 par value
per share, of the Company, at a per share purchase price of $.30, which, as
adjusted from time to time as herein provided, is referred to as the "Purchase
Price". The number and character of such shares of Common Stock and the Purchase
Price are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include ▇▇▇▇▇▇ Aerospace Group, Ltd. and
any corporation which shall succeed or assume the obligations of ▇▇▇▇▇▇
Aerospace Group, Ltd. hereunder.
(b) The term "Common Stock" includes (a) the Company's Class A Common
Stock, $.0001 par value per share, as authorized on the date of the Subscription
Agreement referred to in Section 9 hereof, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or after
such date, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even if the right so to vote has been suspended by the
happening of such a contingency) and (c) any other securities into which or for
which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
32
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after
the date hereof through and including the Expiration Date, the holder hereof
shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this Warrant in
part in accordance with subsection 1.3, shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.
1.2. FULL EXERCISE. This Warrant may be exercised in full by
the holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such holder and surrender of the original Warrant within seven (7)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. PARTIAL EXERCISE. This Warrant may be exercised in part
(but not for a fractional share) by surrender of this Warrant in the manner and
at the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request, the number of shares of Common Stock for
which such Warrant may still be exercised.
1.4. FAIR MARKET VALUE. Fair Market Value of a share of Common
Stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Common Stock. Fair Market Value of a
share of Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an
exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap
Market, then the closing or last sale price, respectively, reported for the last
business day immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an
exchange or on the NASDAQ National Market System or the NASDAQ SmallCap Market
but is traded in the over-the-counter market, then the mean of the closing bid
and asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the
Company's Common Stock is not publicly traded, then as the Holder and the
Company agree or in the absence of agreement by arbitration in accordance with
the rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided.
33
(d) If the Determination Date is the date of a
liquidation, dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all amounts to
be payable per share to holders of the Common Stock pursuant to the charter in
the event of such liquidation, dissolution or winding up, plus all other amounts
to be payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of
the exercise of the Warrant, upon the request of the holder hereof acknowledge
in writing its continuing obligation to afford to such holder any rights to
which such holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant. If the holder shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such holder any such rights.
1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or
trust company shall have been appointed as trustee for the holders of the
Warrants pursuant to Subsection 3.2, such bank or trust company shall have all
the powers and duties of a warrant agent (as hereinafter described) and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within seven (7) days thereafter, the Company at its expense (including
the payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct in compliance with
applicable securities laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
2.2. CASHLESS EXERCISE.
(a) Payment may be made either in (i) cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of Warrants, Common Stock and/or
Common Stock receivable upon exercise of the Warrants in accordance with Section
(b) below or (iii) by a combination of any of the foregoing methods, for the
number of Common Shares specified in such form (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the holder per the terms of this Warrant) and the holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities)
determined as provided herein.
(b) Notwithstanding any provisions herein to the contrary, if
the Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, upon consent of the Company, the holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
34
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Subscription Form in
which event the Company shall issue to the holder a number of shares of Common
Stock computed using the following formula:
X=Y (A-B)
-------
A
Where X= the number of shares of Common Stock to be
issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the Fair Market Value of one share of the
Company's Common Stock (at the date of such
calculation)
B= Purchase Price (as adjusted to the date of
such calculation)
(c) The cashless exercise feature of this Warrant may be
employed only commencing on the first anniversary of the Issue Date of the
Warrant and then only if a Non-Registration Event (as defined in the
Subscription Agreement) has occurred and is continuing on such date or occurs
after such date.
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. DISSOLUTION. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the holders of the Warrants after the
effective date of such dissolution pursuant to this Section 3 to a bank or trust
company having its principal office in New York, NY, as trustee for the holder
or holders of the Warrants.
3.3. CONTINUATION OF TERMS. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
35
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transaction described in this Section 3, then only in such
event will the Company's securities and property (including cash, where
applicable) receivable by the holders of the Warrants be delivered to the
Trustee as contemplated by Section 3.2.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock or (c) combine its outstanding shares of the Common Stock
into a smaller number of shares of the Common Stock, then, in each such event,
the Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 4. The number
of shares of Common Stock that the holder of this Warrant shall thereafter, on
the exercise hereof as provided in Section 1, be entitled to receive shall be
increased to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 12 hereof).
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT;
FINANCIAL STATEMENTS. From and after forty-five (45) days after the Issue Date
of this Warrant, the Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form") and together with evidence reasonably
36
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes) will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and Subscriber of
the Company's 8% Convertible Notes at or prior to the issue date of this
Warrant. The terms of the Subscription Agreement are incorporated herein by this
reference. Upon the occurrence of a Non-Registration Event, as defined in the
Subscription Agreement, in the event the Company is unable to issue Common Stock
upon exercise of this Warrant that has been registered in the Registration
Statement described in Section 10.1(ii) of the Subscription Agreement, within
the time periods described in the Subscription Agreement, which Registration
Statement must be effective for the periods set forth in the Subscription
Agreement, then upon written demand made by the Holder, the Company will pay to
the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to
the closing price of the Company's Common Stock on the Principal Market (as
defined in the Subscription Agreement) or such other principal trading market
for the Company's Common Stock on the trading date immediately preceding the
date notice is given by the Holder, less the Purchase Price, for each share of
Common Stock designated in such notice from the Holder.
10. CALL OPTION. The Company shall have the option to "call" the
Warrants (the "Warrant Call"), in accordance with and governed by the following:
(a) The Company shall exercise the Warrant Call by giving to
each Warrant Holder a written notice of call (the "Call Notice") during the
period in which the Warrant Call may be exercised.
(b) The Company's right to exercise the Warrant Call shall
commence with the actual effective date of the registration statement described
in Section 10.1(ii) of the Subscription Agreement and thereafter, shall be
coterminous with the exercise period of the Warrants for a maximum of fifty
percent (50%) of the Common Stock issuable upon the exercise of this Warrant
(the "Warrant Shares"), provided, that the registration statement is effective
at the date the Call Notice is given and through the period ending fourteen (14)
business days thereafter. In no event may the Company exercise the Warrant Call
at any time unless the Warrant Shares to be delivered upon exercise of the
Warrant, will be upon delivery, immediately resalable, without restrictive
legend and upon such resale freely transferable on the transfer books of the
Company.
(c) Unless otherwise agreed to by the Holder of this Warrant,
the Call Notice must be given to all Warrant Holders who receive Warrants
similar to this Warrant (in terms of exercise price and other principal terms)
on or about the same issue date as this Warrant in proportion to the amounts of
Common Stock which can be purchased by the respective Warrant Holders in
accordance with the respective Warrant held by each.
37
(d) The Company may give a Call Notice in connection with up
to twenty-five percent (25%) of the Common Stock issuable upon exercise of this
Warrant provided the closing bid price of the Common Stock, as reported on the
NASD OTC Bulletin Board, NASDAQ National Market, NASDAQ SmallCap Market,
American Stock Exchange or New York Stock Exchange (whichever of the foregoing
is, at the time, the principal trading exchange or market for the Common Stock,
the "Principal Market"), of if not then trading on a Principal Market, such
other principal market or exchange where the Common Stock is listed or traded
for the thirty (30) trading days prior to but not including the date of the Call
Notice, for each trading day during the thirty (30) trading days prior to the
giving of the Call Notice ("Lookback Period") is two hundred percent (200%) of
the Purchase Price and the average daily trading volume of the Common Stock
during the Lookback Period is not less than one hundred fifty thousand (150,000)
Common Shares.
(e) The Company may give a Call Notice in connection with up
to fifty percent (50%) of the Common Stock issuable upon exercise of this
Warrant provided the closing bid price of the Common Stock, as reported for the
Principal Market, of if not then trading on a Principal Market, such other
principal market or exchange where the Common Stock is listed or traded for the
thirty (30) trading days prior to but not including the date of the Call Notice
for each trading day during the Lookback Period is two hundred percent (200%) of
the Purchase Price and the average daily trading volume of the Common Stock
during the Lookback Period is not less than two hundred fifty thousand (250,000)
Common Shares.
(f) The respective Warrant Holders shall exercise their
Warrant rights and purchase the appropriate Warrant Shares and pay for same
within fourteen (14) business days of the date of the Call Notice. If the
Warrant Holder fails to timely pay the funds required by the Warrant Call, the
Company may elect to cancel a corresponding amount of this Warrant.
(g) The Company may not exercise the right to Call this
Warrant or any part of it after the occurrence of a Non-Registration Event, as
defined in the Subscription Agreement, unless same was subject to cure and cured
during the stated cure period.
(h) Only one Warrant Call may be given in connection with this
Warrant.
11. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date, 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 Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common Stock
of the Company on such date. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 4.99%. The
restriction described in this paragraph may be revoked upon seventy-five (75)
days prior notice from the Holder to the Company. The Holder may allocate which
of the equity of the Company deemed beneficially owned by the Subscriber shall
be included in the 4.99% amount described above and which shall be allocated to
the excess above 4.99%.
38
12. WARRANT AGENT. The Company may, by written notice to the each
holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
13. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
14. NOTICES. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
15. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
39
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
▇▇▇▇▇▇ AEROSPACE GROUP, LTD.
By:
----------------------------
L. ▇▇▇▇▇ ▇▇▇▇▇▇, Executive
Vice-President and Chief
Financial Officer
Witness:
---------------------------
40
EXHIBIT A TO WARRANT
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: ▇▇▇▇▇▇ Aerospace Group, Ltd.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such
Warrant pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ______________________________________________________
whose address is _______________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________ ____________________________________________
(Signature must conform to name of holder as
specified on the face of the Warrant)
____________________________________________
____________________________________________
(Address)
41
EXHIBIT B TO WARRANT
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of ▇▇▇▇▇▇ Aerospace Group, Ltd. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of ▇▇▇▇▇▇ Aerospace Group, Ltd. with full power of substitution in the premises.
-------------------------- --------------------------- -------------------------
TRANSFEREES PERCENTAGE TRANSFERRED NUMBER TRANSFERRED
-------------------------- --------------------------- -------------------------
-------------------------- --------------------------- -------------------------
-------------------------- --------------------------- -------------------------
Dated: __________, ___________ ____________________________________________
(Signature must conform to name of holder as
specified on the face of the warrant)
Signed in the presence of:
_______________________________ ___________________________________________
(Name) ___________________________________________
(address)
ACCEPTED AND AGREED:
[TRANSFEREE]
_______________________________ ___________________________________________
(Name) ___________________________________________
(address)
42
SCHEDULE E - FINDERS FEES
-------------------------
---------------------------------- -------------------------------- ------------
UNSECURED FINDERS CONVERTIBLE
FINDERS NOTE WARRANTS
---------------------------------- -------------------------------- ------------
$30,000.00 (cash) 85,714
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ #▇
▇▇▇▇▇ ▇'▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
---------------------------------- -------------------------------- ------------
---------------------------------- -------------------------------- ------------
TOTALS $30,000.00 85,714
---------------------------------- -------------------------------- ------------
43
EXHIBIT F
---------
▇▇▇▇▇▇ AEROSPACE GROUP, LTD.
FINDER'S INVESTMENT REPRESENTATION LETTER
-----------------------------------------
In connection with the offering of ▇▇▇▇▇▇ Aerospace Group, Ltd., a
Delaware corporation (the "Company"), to issue secured convertible notes (the
"Notes") and warrants to purchase Class A common stock (the "Warrants") to
investors ("Subscribers") in exchange for up to Ten Million Dollars
($10,000,000) pursuant to that certain Subscription Agreement by and among the
Company and the Subscribers, dated ________________ (the "Subscription
Agreement"), the undersigned finder (the "Finder") is set forth on Schedule E to
the Subscription Agreement (the "Schedule of Finders Fees") and has provided
certain services to the Company in exchange for either a (i) cash fee, (ii) the
issuance to the Finder of an unsecured convertible note substantially similar to
the Notes, except as to the security interest granted in the Notes (the
"Finder's Note"), (iii) the issuance to the Finder of a Warrant (the "Finder's
Warrant"), or (iv) a combination of (i), (ii) and (iii) above, as set forth in
the Schedule of Finders Fees.
As a condition to the issuance of either a Finder's Note or a Finder's
Warrant, or both, the Finder hereby makes the representations, warranties and
covenants to the Company as set forth in the following sections of the
Subscription Agreement (substituting the term "Subscriber" with "Finder" for
purposes hereof), which shall include the related subsections thereto and are
incorporated herein by reference, and agrees to be bound by such provisions:
Subscription Agreement sections 1, 7.2, 8, 10.3, 10.5, 10.6, and 11; and as to
the Finder's Note only, Subscription Agreement sections 9.3 and 9.6.
Dated: ____________________
FINDER:
Finder Name: _____________________________________
Finder Signature: __________________________________
If Finder is a not an individual, Name and Title of Signatory:
______________________________________________________________
ACCEPTED BY:
▇▇▇▇▇▇ AEROSPACE GROUP, LTD.
a Delaware corporation
By: /S/: L. ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------
L. ▇▇▇▇▇ ▇▇▇▇▇▇, Executive
Vice-President and
Chief Financial Officer
Dated: ___________________
44