SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: June 25, 1998
BOULDER CAPITAL OPPORTUNITIES III, INC.
(Exact name of registrant as specified in its charter)
Colorado 0-22273 84-1383888
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
NEW ADDRESS:
15662 Commerce Lane, Huntington Beach, CA 92649
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(714) 895-0944
2434 Vine Place, Boulder, Colorado 80304
(Former name or former address, if changed since last report.)
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Item 1. Changes in Control of Registrant
On June 17, 1998, Registrant entered into a Share
Exchange Agreement with Sonic Jet Performance, LLC
under which Registrant agreed to acquire all of the
assets, liabilities and business operations of Sonic
Jet Performance, LLC, a California Limited Liability
Company. The Agreement (attached as an Exhibit No. 7.1
hereto) required the issuance of five million
(5,000,000) shares of common stock to Sonic Jet
Performance, LLC, a California Limited Liability
Company. Sonic Jet Performance, LLC was owned as
follows:
1. 74% Sonic Jet Performance, Inc.
(Beneficially Albert Mardikian)
2. 24% Sheikh Mohammed Al Rashid
3. 2% Majed Al Rashid
Five Million shares constitutes 83.19%
of the total shares outstanding of Registrant.
Alex Mardikian has been appointed Vice President,
and it is anticipated that he will be appointed as a
Director upon compliance with Section 14f of the
Securities Exchange Act of 1934.
Item 2. Acquisition or Disposition of Assets
The descriptions contained herein of the
Agreements and the Acquisitions are qualified in their
entirety by reference to the Agreement, dated as of
June 17, 1998, by and among Registrant, Sonic Jet
Performance, LLC and the members of Sonic Jet
Performance, LLC, filed as Exhibits to this Form 8-K.
Registrant has acquired the assets and liabilities
of Sonic Jet Performance, LLC, a California Limited
Liability Company, in consideration of the issuance of
five million (5,000,000) shares of common stock of
Registrant. The transaction was entered on June 17,
1998.
Sonic Jet Performance, LLC was formed in May 1997
by acquisition of the Assets of Sonic Jet Performance,
Inc., a California corporation. Sonic Jet is engaged
in the sale, design, manufacture and assembly of "jet
ski" based rescue and fire watercraft, and in addition,
has designed a line of consumer jet ski watercraft for
the U.S. market, not currently in production or being
marketed.
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Item 3. Bankruptcy or Receivership
None.
Item 4. Changes in Registrants Certifying Accountant
None.
Item 5. Other Events
a. The Registrant withdrew its previous proposal to
Intervault Group, Inc. because Intervault never accepted, signed
or agreed to the terms of the proposed plan.
b. The address of the Company has been changed to 15662
Commerce Lane, Huntington Beach, California 92649.
c. New Business Plan
1. The former business of Sonic Jet Performance will
be operated by Registrant. Registrant is now engaged in the
manufacturing, sales and marketing of jet ski based fire/rescue
watercraft for quick response in confined and shallow water
areas, beaches, marinas and rivers. It currently has orders for
such craft totaling $300,000 plus additional potential
orders/commitments for $1,500,000 from various governmental
entities subject to governmental budget approvals. There is no
assurance that any or all of such orders will be funded.
The watercraft hulls are fabricated in China in a joint
venture with a chinese fiberglass lay-up entity. The hulls are
shipped to the U.S. to the company facility in Huntington Beach,
California for equipping and assembly with power drive systems,
controls and accessories.
Marketing and sales are conducted in trade shows, by
brochures, and by the company personnel.
Financial Statements of Sonic Jet Performance, LLC as of
December 31, 1997, are attached hereto as Exhibit F-1 through F-10.
2. On June 16, 1998, the Board adopted a Resolution
authorizing Series A Convertible Preferred Stock and Designation
of Rights and Preferences of Series A Convertible Preferred Stock
(Exhibit 7.4 attached hereto). Concurrent with the acquisition
of the assets of Sonic Jet, the Company negotiated and closed a
private placement of 1,600 shares of Series A Convertible
Preferred Stock for $1,500,000. The associated Agreements
provided for Registration of Common Shares for conversion of the
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Series A Preferred. A total of 800,000 common shares are
reserved for the conversion, however, the conversion may be
elected by Holder JNC Strategic Fund, LTD. and is linked to a
formula of $4.00 per share or the average of the five lowest
closing prices of common in the previous 20 days x 75%, whichever
is lower. If converted at $4.00 per share it would result in
375,000 common shares being issued. The conversion shall occur
at any time after 75 days at the election of the holder of the
Series A Preferred Shares (Exhibit 7.3 and 7.4 attached hereto).
d. United Stock Transfer, Inc. of Englewood, Colorado has
been appointed as the Transfer Agent for the Company.
e. The Company has entered into an agreement to repurchase
432,500 shares of common stock owned by Robert Soehngen and to
retire said shares into treasury upon the repurchase. The
purchase price is $161,082 and was a condition of the funding of
the Series A Preferred Stock placement (Exhibit 7.2 attached
hereto). $100,000 of such price has been paid, with balance due
on or before December 1, 1998.
The company now has issued and outstanding 6,010,000 shares
of common stock, and 1,600 shares of Series A Preferred Convertible
Stock which Series A was issued to JNC Strategic Fund, LTD.
Item 6. Resignation of Directors and Appointment of New Directors
It is anticipated that Alex Mardikian will be appointed as a
director after compliance with Section 14f of the Securities
Exchange Act of 1934.
Item 7. Financial Statements, Pro Forma Financial Statements & Exhibits
a. Financial Statements - Audited Financial Statements
of Sonic Jet Performance, LLC dated December 31, 1997.
b. Exhibits
7.1 Share Exchange Agreement
7.2 Purchase Agreement with Robert Soehngen
7.3 Securities Purchase Agreement
7.4 Certificate of Designation of Preferences and Rights
for Series A Preferred Stock
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: June 25, 1998 Boulder Capital Opportunities III, Inc.
By:/s/Alex Mardikian
Vice-President
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Exhibit 7.1
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SHARE EXCHANGE AGREEMENT
by and among
BOULDER CAPITAL OPPORTUNITIES III, INC.
a Colorado corporation
and
SONIC JET PERFORMANCE, LLC
a California Limited Liability Company
dated: June 15, 1998
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SHARE EXCHANGE AGREEMENT
BOULDER CAPITAL OPPORTUNITIES III, INC.
and
SONIC JET PERFORMANCE, LLC
This Share Exchange Agreement ("Agreement"), dated as of June 15, 1998,
among BOULDER CAPITAL OPPORTUNITIES III, INC. ("BCOIII"), a Colorado
Corporation, SONIC JET PERFORMANCE, LLC ("SJP") , a California Limited
Liability Company.
W I T N E S S E T H:
A. WHEREAS, BCOIII is a corporation duly organized under the laws of
the State of Colorado, and SJP is a Limited Liability Company organized in
California.
B. Plan of Exchange. It is the intention that the assets of SJP shall
be acquired by BCOIII and all liabilities and other obligations of SJP shall be
assumed in exchange solely for voting stock of BCOIII. For federal income
tax purposes it is intended that this exchange shall be treated under Sec.
351 of the Internal Revenue Code as may be applicable.
C. Exchange of Shares. SJP agrees that all of the assets of SJP shall
be exchanged with BCOIIIfor 5,000,000 common shares of BCOIII issued to SJP
fully paid and nonassessable, and that BCOIII shall assume all liabilities and
other obligations of SJP.
D. WHEREAS, the parties hereto wish to enter into this Agreement,
pursuant to the provisions of the Colorado Revised Statutes.
NOW, THEREFORE, it is agreed among the parties as follows:
ARTICLE I
The Consideration
1.1 Subject to the conditions set forth herein on the "Closing Date"
(as herein defined), SJP shall convey all of its assets by assignment or Bill of
Sale and BCOIII shall assume all liabilities of SJP by way of an assumption
agreement as such assets and liabilities are specified in the unaudited balance
sheet of SJP, dated as of May 31, 1998, attached hereto, and made a part hereof
by this reference, for 5,000,000 common shares of BCOIII common stock. The
transactions contemplated by this Agreement shall be completed at a closing
("Closing") on a closing date ("Closing Date") on or before June 5, 1998.
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On the Closing Date, all of the documents to be furnished to BCOIII and
SJP, including the documents to be furnished pursuant to Article VII of this
Agreement, shall be delivered to M.A. Littman, to be held in escrow until all
closing conditions hereunder have been met or the date of termination of this
Agreement, but no longer than 10 days after closing date, whichever first
occurs, and thereafter shall be promptly distributed to the parties as their
interests may appear.
1.2 Concurrent with the execution hereof, SJP shall deposit or cause to
be deposited to BCOIII $9,000 as a non-refundable consideration for this
agreement which will be used to pay accrued legal fees to Al Brennan and audit
costs for 1997 10-K.
1.3 For accounting purposes, the Agreement shall be effective as of
12:01 a.m., on the last day of the month preceding the Closing Date.
ARTICLE II
Issuance and Exchange of Shares
2.1 The shares of $.0001 par value common stock of BCOIII shall be
issued by it to SJP at closing.
2.2 BCOIII represents that no outstanding options or warrants for its
unissued shares exist, except as may be contained in an Encore Capital
Subscription Agreement now in negotiation.
2.3 No fractional shares of BCOIII stock shall be issued as a result of
the Agreement. Shares shall be rounded to nearest whole share.
ARTICLE III
Representations, Warranties
and Covenants of SONIC JET PERFORMANCE, LLC
No representations or warranties are made by any director, officer,
employee or shareholder of SJP as individuals, except as and to the extent
stated in this Agreement or in a separate written statement (the "SJP
Disclosure Statement"), if any. SJP hereby represents, warrants and
covenants to BCOIII except as stated in the SJP Disclosure Statement, as
follows:
3.1 SJP is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of California, and has
the power and authority to carry on its business as it is now being
conducted. The Articles of Organization and Operating Agreement of SJP are
complete and accurate, and the minute books of SJP contain a record, which is
complete and accurate in all material respects, of all meetings, and all
actions of the members and managers of SJP.
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3.2 SJP has complete and unrestricted power to enter into and, upon the
appropriate approvals as required by law, to consummate the transactions
contemplated by this Agreement.
3.3 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transactions
contemplated herein by SJP will conflict with or result in a breach or
violation of the Articles of Organization or Operating Agreement of SJP.
3.4 The execution, delivery and performance of this Agreement has been
duly authorized and approved by SJP's sole manager, Albert Mardikian, a
"MAJORITY OF MEMBERS" (as such term is defined in the operating agreement
for SJP).
3.5 Within 5 days SJP will deliver to BCOIII consolidated audited
financial statements of SJP, as of December 31, 1997 and an unaudited
balance sheet of SJP at May 31, 1998. All such statements, herein
sometimes called "SJP Financial Statements", are complete and correct in
all material respects and, together with the notes to these financial
statements, present fairly the financial position and results of operations
of SJP for the periods included. The statements will have been prepared in
accordance with generally accepted accounting principles.
3.6 Since the dates of the SJP Financial Statements, there have not
been any material adverse changes in the business or condition, financial or
otherwise of SJP.
3.7 There are no legal proceedings or regulatory proceedings involving
material claims pending, or to the knowledge of SJP, threatened against SJP or
affecting any of its assets or properties, and SJP is not in any material
breach or violation of or default under any contract or instrument to which
SJP is a party, and no event has occurred which with the lapse of time or
action by a third party could result in a material breach or violation of or
default by SJP under any contract or other instrument to which SJP is a party
or by which it or any of its properties may be bound or affected, or under
its respective Articles of Organization or Operating Agreement, nor is there
any court or regulatory order pending, applicable to SJP.
3.8 All liability of SJP has been properly provided for and is adequate
to comply with all regulatory requirements regarding same.
3.9 The representations and warranties of SJP shall be true and correct
as of the date hereof and as of the Closing Date.
3.10 SJP will deliver to BCOIII a copy of each of thefederal income tax
returns of SJP for the year ending
December 31, 1997, and for any additional open years. All returns and
information reports required or requested by federal, state, county, and
local tax authorities have been filed or supplied in a timely fashion, and
all such information is true and correct in all material respects. Provision
has been made for the payment of all taxes due to date by SJP,
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including taxes for the current year ending December 31, 1997. No federal
income tax return of SJP is currently under audit.
3.11 SJP has no employee benefit plan, including non-qualified stock
awards, options, and consulting fees for independent contractors, other than
as disclosed in the books and records and disclosure statement.
3.12 No representation or warranty by SJP in this Agreement, the SJP
Disclosure Statement or any certificate delivered pursuant hereto contains
any untrue statement of a material fact or omits to state any material fact
necessary to make such representation or warranty not misleading.
ARTICLE IV
Representations, Warranties and Covenants of BCOIII,
INC.
No representations or warranties are made by any director, officer,
employee or shareholder of BCOIIIas individuals, except as and to the extent
stated in this Agreement or in a separate written statement.
BCOIII hereby represents, warrants and covenants to SJP, except as stated
in the BCOIII Disclosure Statement, as follows:
4.1 BCOIII is a corporation duly organized, validly existing and in good
standing under the lawsof the State of Colorado, and has the corporate power
and authority to own or lease its properties and to carry on its business as it
is now being conducted.The Articles of Incorporation and Bylaws of BCOIII,
copies of which have been delivered to SJP, are complete and accurate, and
the minute books of BCOIII contain a record, which is complete and accurate in
all material respects, of all meetings, and all corporate actions of the
shareholders and Board of Directors of BCOIII.
4.2 The aggregate number of shares which BCOIII is authorized to issue
is 100,000,000 shares of common stock with a par value of $.001 per share, of
which approximately 1,010,000 shares of such common stock will be issued and
outstanding, fully paid andnon-assessable, prior to closing under this
agreement. BCOIII has no outstanding options, warrants or other rights to
purchase, or subscribe to, or securities convertible into or exchangeable for
any shares of capital stock.
4.3 BCOIII has complete and unrestricted power to enter into and, upon
the appropriate approvals asrequired by law, to consummate the transactions
contemplated by this Agreement.
4.4 Neither the making of nor the compliance with the terms and
provisions of this Agreement andconsummation of the transactions contemplated
herein
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by BCOIII will conflict with or result in a breach or violation of the
Articles of Incorporation or Bylaws of BCOIII.
4.5 The execution of this Agreement has been duly authorized and
approved by the BCOIII's Board of
Directors.
4.6 BCOIII has delivered to SJP financial statements of BCOIII dated
December 31, 1997. All such statements, herein sometimes called "BCOIII
Financial Statements" are (and will be) complete and correct in all material
respects and, together with the notes to these financial statements, present
fairly the financial position and results of operations of BCOIII of the
periods indicated. All statements of BCOIII will have been prepared in
accordance with generally accepted accounting principles.
4.7 Since the dates of the BCOIII Financial Statements, there have not
been any material adversechanges in the business or condition, financial or
otherwise, of BCOIII. BCOIII does not have anymaterial liabilities or
obligations, secured orunsecured except as shown on updated financials
(whether accrued, absolute, contingent or otherwise).
4.8 BCOIII has delivered to SJP a list and description of all pending
legal proceedingsinvolving BCOIII, none of which will materially adversely
affect them, and, except for theseproceedings, there are no legal proceedings or
regulatory proceedings involving material claims pending, or, to the
knowledge of the officers ofBCOIII, threatened against BCOIII or affecting
any ofits assets or properties, and BCOIII is not in any material breach or
violation of or default under any contract or instrument to which BCOIII is a
party, and noevent has occurred which with the lapse of time or action by a
third party could result in a material breach or violation of or default by
BCOIII under any contract or other instrument to which BCOIII is a party or
by which they or any of their respective properties may be bound or affected,
or under their respective Articles of Incorporation or Bylaws, nor is there
any court or regulatory order pending, applicable to BCOIII.
4.9 BCOIII shall not enter into or consummate any transactions prior to
the Closing Date other than inthe ordinary course of business and will pay no
dividend, or increase the compensation of officers and will not enter into
any agreement or transaction which would adversely affect its financial
condition.
4.10 BCOIII is not a party to any contract performable in the future.
4.11 The representations and warranties of BCOIII shall be true and
correct as of the date hereof and as of the Closing Date.
4.12 BCOIII has delivered to SJP, all of its corporate books and
records for review, true and correct copies of BCOIII's tax return since
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1996, if any. BCOIII will also deliver to SJP on or before the Closing Date
any reports relating to the financial and business condition of BCOIII which
occur after the date of this Agreement and any other reports sent generally
to its shareholders after the date of this Agreement.
4.13 BCOIII has no employee benefit plan in effect at this time.
4.14 No representation or warranty by BCOIII in this Agreement, the
BCOIII Disclosure Statement or anycertificate delivered pursuant hereto
contains anyuntrue statement of a material fact or omits to state any
material fact necessary to make such representation or warranty not misleading.
4.15 BCOIII agrees that all rights to indemnification now existing in
favor of the employees, agents, directors or officers of SJP and its
subsidiaries, as provided in the Articles of Incorporation or Bylaws or
otherwise in effect on the date hereof shall survive the transactions
contemplated hereby in accordance with their terms, and BCOIII expressly
assumes such indemnification obligations of SJP.
4.16 BCOIII has delivered, to SJP true and correct copies of the BCOIII
10-K and each of its other reports to shareholders and filing with the
Securities and Exchange Commission ("SEC") for the current year. BCOIII will
also deliver to SJP on or before the Closing Date any reports relating to the
financial and business condition of BCOIII which are filed with the SEC after
the date of this Agreement and any other reports sent generally to its
shareholdersafter the date of this Agreement.
4.17 BCOIII has duly filed all reports required to be filed by it under
the Securities Act of 1933, as amended,and the Securities Exchange Act of
1934, as amended,(the "Federal Securities Laws"). No such reports, or
any reports sent to the shareholders of BCOIII generally, contained any
untrue statement of material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements in such
report, in light of the circumstances under which they were made, not
misleading.
4.18 BCOIII hereby covenants that during the contract period, prior to
closing, it will not take any board action without Mardikian's approval in
writing, pending selection of new officers and directors at closing.
ARTICLE V
Obligations of the Parties Pending the Closing Date
5.1 This Agreement shall be duly submitted to the members of SJP for
the purpose of considering and acting upon this Agreement in the manner
required by law at a meeting of members on a date selected by SJP, such date
to be the earliest practicable date or by majority written consent. The
manager of SJP, subject to its fiduciary obligations to members, shall use
its best efforts to obtain the requisite majority approval of SJP members of
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this Agreement and the transactions contemplated herein. SJP and BCOIII
shall take all reasonable and necessary steps and actions to comply with and
to secure SJP member approval of this Agreement.
5.2 At all times prior to the Closing Date during regular business
hours, each party will permit the other to examine its books and records and
the books and records of its subsidiaries and will furnish copies thereof on
request. It is recognized that, during the performance of this Agreement,
each party mayprovide the other parties with information which is confidential
or proprietary information. During the term of this Agreement, and for four
years following the termination of this Agreement, the recipient of such
information shall protect such information from disclosure to persons, other
than members of its own or affiliated organizations and its professional
advisers, in the same manner as it protects its own confidential or proprietary
information from unauthorized disclosure, and not use such information to the
competitive detriment of the disclosing party. In addition, if this Agreement
is terminated for any reason, each party shall promptly return or cause to be
returned all documents or other written records of such confidential or
proprietary information, together with all copies of such writings and, in
addition, shall either furnish or cause to be furnished, or shall destroy, or
shall maintain with such standard of care as is exercised with respect to its
own confidential or proprietary information, all copies of all documents or
other written records developed or prepared by such party on the basis
of such confidential or proprietary information. No information shall be
considered confidential or proprietary if it is (a) information already in
the possession of the party to whom disclosure is made, (b) information
acquired by the party to whom the disclosure is made from other sources,
or (c) information in the public domain or generally available to interested
persons or which at a later date passes into the public domain or becomes
available to the party to whom disclosure is made without any wrongdoing by
the party to whom the disclosure is made.
5.3 BCOIII and SJP shall promptly provide each other with information
as to any significant developments in the performance of this Agreement, and
shall promptly notify the other if it discovers that any of its
representations, warranties and covenants contained in this Agreement or in
any document delivered in connection with this Agreement was not true and
correct in all material respects or became untrue or incorrect in any material
respect.
5.4 All parties to this Agreement shall take all such action as may be
reasonably necessary and appropriate and shall use their best efforts in
order to consummate the transactions contemplated hereby as promptly as
practicable.
ARTICLE VI
Procedure for Exchange
6.1 At the Closing Date, the exchange shall be effected as set forth
in Colorado Revised Statutes with common stock certificates of BCOIII being
exchanged for SJP assets and the assumption by BCOIII of the liabilities and
other obligations of SJP, all as delineated above, together with delivery of
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Assignments and Bills of Sale for the assets transferred by SJP to BCOIII,
and an Assumption Agreement for the liabilities and other obligations assumed
by BCOIII.
ARTICLE VII
Conditions Precedent to the
Consummation of the Exchange
The following are conditions precedent to the consummation of the
Agreement on or before the Closing Date:
7.1 SJP shall have performed and complied with all of its respective
obligations hereunder which areto be complied with or performed on or before the
Closing Date and BCOIII and SJP shall provide one another at the Closing with
a certificate to theeffect that such party has performed each of the acts
and undertakings required to be performed by it on orbefore the Closing Date
pursuant to the terms of this Agreement.
7.2 This Agreement, the transactions contemplated herein shall have been
duly and validlyauthorized, approved and adopted by the manager of SJP in
accordance with the applicable laws.
7.3 No action, suit or proceeding shall have been instituted or shall
have been threatened beforeany court or other governmental body or by any public
authority to restrain, enjoin or prohibit the transactions contemplated herein,
or which mightsubject any of the parties hereto or their directors or
officers to any material liability, fine, forfeiture or penalty on the
grounds that thetransactions contemplated hereby, the parties hereto or their
directors or officers, have violated any applicable law or regulation or have
otherwise acted improperly in connection with the transactions contemplated
hereby, and the parties hereto have been advised by counsel that, in the
opinion of such counsel, such action, suit or proceeding raises substantial
questions of law or fact which could reasonably be decided adversely to any
party hereto or its directors or officers.
7.4 All actions, proceedings, instruments and documents required to
carry out this Agreement and the transactions contemplated hereby and the
form and substance of all legal proceedings and related matters shall have
been approved by counsel for SJP and BCOIII.
7.5 The representations and warranties made by SJP and BCOIII in this
Agreement shall be true as though such representations and warranties had been
made or given on and as of the Closing Date, except to the extent that such
representations and warranties may be untrue on and as of the Closing Date
because of (1) changes caused by transactions suggested or approved in
writing by SJP or (2) events or changes (which shall not, in the aggregate,
have materially and adversely affected the business, assets, or financial
<PAGE>
condition of BCOIII or SJP during or arising after the date of this Agreement.)
7.6 SJP shall have furnished BCOIII with:
(1) a certified copy of a resolution or resolutions duly adopted by a
"MAJORITY OF MEMBERS", as such term is defined in the operating
agreement for SJP, approving this Agreement and the transactions
contemplated by it;
(2) an opinion of its counsel dated as of the Closing Date in
accordance with 7.5 hereof;
(3) an agreement from each member "affiliate" of SJP as defined in the
rules adopted under the Securities Act of 1933, as amended, to the
effect that (a) the affiliate is familiar with SEC Rules 144
and 145; (b) none of the shares of BCOIII common stock will be
transferred by or through the affiliate in violation of the
Federal Securities Laws; (c) the affiliate will not sell or in any
way reduce his risk relative to any BCOIII common stock received
pursuant to this Agreement until such time as financial results
covering at least 30 days of post-closing date combined operations
shall have been published by BCOIII on SEC Form 10-Q or otherwise; and
(d) the affiliate acknowledges that BCOIII is under no obligation
to register the sale, transfer, or the disposition of BCOIII common
stock by the affiliate or to take any action necessary in order to
make an exemption from registration available to the affiliate, but
understands that BCOIII will satisfy the public information
requirements of Rules 144 and 145 during the three-year period
following the Closing Date.
7.7 BCOIII shall furnish SJP with a certified copy of a resolution or
resolutions duly adopted bythe Board of Directors of BCOIII, approving this
Agreement and the transactions contemplated by it.
7.8 All outstanding liabilities of BCOIII shall have been paid and
released prior to closing.
7.9 Encore Capital shall have delivered a fully executed Stock
Subscription Agreement between BCOIII and Encore Capital for a $1,500,000
investment in Preferred Convertible Stock.
7.10 BCOIII shall appoint, at closing, Albert Mardikian as President of
BCOIII and, subject tofiling a Form 14f with the SEC and mailing to
shareholders required thereby, shall appoint Mardikian as a director and such
other persons as Mardikian may direct.
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ARTICLE VIII
Termination and Abandonment
8.1 Anything contained in this Agreement to the contrary notwithstanding,
the Agreement may be terminated and abandoned at any time prior to the
Closing Date:
(a) By mutual consent of SJP and BCOIII;
(b) By SJP or BCOIII, if any condition set forth in Article VII
relating to the other party has not been met or has not been waived;
(c) By SJP or BCOIII, if any suit, action or other proceeding shall be
pending or threatened by the federal or a state government before
any court or governmental agency, in which it is sought to restrain,
prohibit or otherwise affect the consummation of the transactions
contemplated hereby;
(d) By any party, if there is discovered any material error,
misstatement or omission in the representations and warranties of
another party;
(e) By any party if the Agreement Closing Date is not within 30 days
from the date hereof; or
8.2 Any of the terms or conditions of this Agreement may be waived at
any time by the party which is entitled to the benefit thereof, by action
taken by its Board of Directors or Manager provided; however, that such
action shall be taken only if, in the judgment of the Board of Directors or
Manager taking the action, such waiver will not have a materially adverse
effect on the benefits intended under this Agreement to the party waiving
such term or condition.
ARTICLE IX
Termination of Representation and
Warranties and Certain Agreements
9.1 The respective representations and warranties of the parties hereto
shall expire with, and be terminatedand extinguished by consummation of the
Agreement; provided, however, that the covenants and agreements of the
parties hereto shall survive in accordance with their terms.
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ARTICLE X
Miscellaneous
10.1 This Agreement embodies the entire agreement between the parties,
and there have beenand are no agreements, representations or warranties
among the parties other than those set forth herein or those provided for
herein.
10.2 To facilitate the execution of this Agreement, any number of
counterparts hereof may be executed, and each such counterpart shall be
deemed to be an original instrument, but all such counterparts together shall
constitute but one instrument. Counterparts shall include the execution of
the Exchange Agreement and Representations by all shareholders.
10.3 All parties to this Agreement agree that if it becomes necessary
or desirable to execute further instruments or to make such other assurances
as are deemed necessary, the party requested to do so will use its best
efforts to provide such executed instruments or do all things necessary or
proper to carry out the purpose of this Agreement.
10.4 This Agreement may be amended upon approval of the Board of
Directors of each party provided that the shares issuable hereunder shall not
be amended without approval of SJP.
10.5 Any notices, requests, or other communications required or
permitted hereunder shall be delivered personally or sent by overnight courier
service, fees prepaid, addressed as follows:
To BCOIII, Inc.:
Robert Soehngen
1280 Centaur Village Drive, #10
Lafayette, CO 80026
copy to: Michael A. Littman
Attorney at Law
10200 W. 44th Ave., #400
#400 Wheat Ridge, CO 80033
<PAGE>
To Sonic Jet Performance, LLC
15662 Commerce Lane
Huntington Beach, CA 92649
copy to: Law Offices of Pasquale P. Caiazza
Attn: Christopher A. Morgan, J.D.
1625 West 22nd Street
Santa Ana, California 92706-2413
or such other addresses as shall be furnished in writing by any party, and
any such notice or communication shall be deemed to have been given as of the
date received.
10.6 No press release or public statement will be issued relating to the
transactions contemplated by this Agreement without prior approval of SJP and
BCOIII. However, either SJP or BCOIII may issue at any time any press release
or other public statement it believes on the advice of its counsel it is
obligated to issue to avoid liability under the law relating to disclosures,
but the party issuing such press release or public statement shall make a
reasonable effort to give the other party prior notice of and opportunity to
participate in such release or statement.
IN WITNESS WHEREOF, the parties have set their hands and seals this 15th
day of June, 1998.
BOULDER CAPITAL OPPORTUNITIES III, INC.
By:__________________________
President
Attest:________________________
Secretary
SONIC JET PERFORMANCE, LLC
By:___________________________
Manager
<PAGE>
Exhibit 7.2
<PAGE>
STOCK SALE AGREEMENT
This STOCK SALE AGREEMENT (the "Agreement"), dated as of
June 12, 1998, is made by and between Robert Soehngen, ("Seller")
and Boulder Capital Opportunities III, Inc. ("Buyer").
In consideration of One Hundred Thousand dollars and
no/100ths ($100,000.00) paid herewith, Seller hereby sells to
the Buyer, 100,000 shares (the "Shares") of common stock of
Boulder Capital Opportunities III, Inc. free and clear of liens
and encumbrances.
Further, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and for the purpose of defining
the terms and provisions of this Agreement and the Option hereby
granted, Seller and Buyer hereby agree as follows:
1. Terms of Exercise. The Option granted herein may be
exercised by Buyer in whole or in part at any time or times on or
before 5:00 p.m. as set forth in 2 c). Buyer may exercise the
Option from time to time by delivering to escrow agent the
amounts set forth in 2 below net to Seller for each Share (the
"Exercise Price") for which Buyer is exercising the Option.
Payment shall be made to Seller by bankcheck or wire transfer.
Upon receipt by Escrow Agent of Buyer's payment, Escrow Agent
shall transfer from the number of Shares so purchased upon the
exercise of the Option.
2. Purchase Schedule Conditions.
a) Shares shall be held by Michael A. Littman, Escrow
Agent who may transfer the shares purchased upon concurrent
payment of the purchase price to Escrow Agent.
b) Buyer must purchase the shares within the time
period specified below in order to maintain the option in force
and effect. Failure to exercise the purchase in the given time
period shall cause the option to be null and void.
c) 432,500 of the shares of Boulder Capital
Opportunities III, Inc. @ $.14123 per share on or before
December 1, 1998, by delivery of wired funds or cashier's check
to the Escrow Agent, who is hereby then instructed to deliver the
shares to Buyer or assigns.
3. Representations, Warranties and Covenants of Seller.
Seller hereby represents and warrants as follows:
a) None of the representations or warranties made by
Seller contains any untrue statement of material fact, or omits
to state any material fact necessary to make the statements made,
in the light of the circumstances under which they were made, not
misleading.
b) The shares are unencumbered by any lien or claim.
<PAGE>
4. Unregistered Securities. The Shares have not been
registered under the Securities Act of 1933, as amended (the
"Act"), however, the Shares may be sold or conveyed only pursuant
to Rule 144.
5. Notices. Any notice pursuant to this Agreement by
Seller or Buyer shall be in writing and shall be deemed to have
been duly given if delivered personally with written receipt
acknowledged or mailed by certified mail five days after mailing,
return receipt requested:
If to Seller:
If to Buyer:
Robert Soehngen
Any party hereto may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by
notice in accordance herewith to the other party.
6. This Option is conditional and shall not be exercisable
unless and until Boulder Capital Opportunities III, Inc. has
completed the acquisition of Sonic Jet Performance, LLC.
7. All the covenants and provisions of this Agreement by
or for the benefit of Buyer or Seller shall bind and inure to the
benefit of their respective successors and assigns hereunder.
8. Applicable Law. This Agreement shall be deemed to be a
contract made under the laws of the State of Colorado and for all
purposes shall be construed in accordance with the laws of said
State.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed, all as of the day and year first above
written.
Seller: Buyer:
Boulder Capital Opportunities III, Inc.
/s/Robert Soehngen By:/s/Robert Soehngen
Robert Soehngen President
<PAGE>
Exhibit 7.3
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as
of June 17, 1998, among BOULDER CAPITAL OPPORTUNITIES III, INC.,
a corporation organized under the laws of the State of Colorado
(the "Company"), SONIC JET PERFORMANCE, LLC, a limited liability
company organized under the laws of the State of California
("SJP") and the purchasers (the "Purchaser") set forth on the
execution page hereof (the "Execution Pages").
WHEREAS:
A. The Company, SJP and Purchaser are executing and
delivering this Agreement in connection with the reliance by the
Company and the Purchaser upon the exemption from securities
registration afforded by the provisions of Regulation D
("Regulation D"), as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "Securities Act").
B. The Company and SJP have executed and entered into that
certain Share Exchange Agreement, dated June 15, 1998 (the "Share
Exchange Agreement"), whereby the Company will acquire
substantially all of the assets and liabilities of SJP in
exchange for common stock of the Company (the "Transaction").
After completion of the Transaction the Company will change its
name to "Sonic JET Performance, Inc."
C. The Company desires to sell, and Purchaser desires to
purchase, upon the terms and conditions stated in this Agreement,
1,600 shares of the Company's Series A Convertible Preferred
Stock, no par value (the "Preferred Shares"), convertible into
shares of the Company's common stock, no par value (the "Common
Stock"). The rights, preferences and privileges of the Preferred
Shares, including the terms upon which such Preferred Shares are
convertible into shares of Common Stock, are set forth in the
form of Certificate of Designations, Preferences and Rights
attached hereto as Exhibit A (the "Certificate of Designation").
The shares of Common Stock issuable upon conversion of the
Preferred Shares or otherwise pursuant to the Certificate of
Designation are referred to herein as the "Conversion Shares".
The Preferred Shares, and the Conversion Shares are collectively
referred to herein as the "Securities" and each of them may
individually be referred to herein as a "Security."
D. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement, in the form attached hereto as
Exhibit B (the "Registration Rights Agreement"), pursuant to
which the Company has agreed to provide certain registration
rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
<PAGE>
NOW, THEREFORE, the Company, SJP and the Purchaser hereby
agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
(a) Purchase of Preferred Shares. On the Closing Date (as
defined below), subject to the satisfaction (or waiver) of the
conditions set forth in Section 7 and Section 8 below, the
Company shall issue and sell to Purchaser, and Purchaser shall
purchase from the Company, the Preferred Shares. The purchase
price (the "Purchase Price") shall be One Million Five Hundred
Thousand Dollars ($1,500,000.00) for the Preferred Shares.
(b) Form of Payment. On the Closing Date, Purchaser shall
pay the aggregate Purchase Price by wire transfer to the Company,
in accordance with the Company's written wiring instructions,
against delivery of duly executed certificates representing the
Preferred Shares being purchased by Purchaser and the Company
shall deliver such certificates against delivery of such
aggregate Purchase Price.
(c) Closing Date. Subject to the satisfaction (or waiver)
of the conditions thereto set forth in Section 7 and Section 8
below, the date and time of the issuance and sale of the
Preferred Shares pursuant to this Agreement (the "Closing") shall
be 12:00 noon, New York City time, on June 19, 1998, subject to a
two business day grace period at either party's option, but in
any event not later than June 26, 1998, or such other time as may
be mutually agreed upon by the Company and the Purchaser (the
"Closing Date"). The Closing shall occur at the offices of
Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, 1401 Walnut
Street, Philadelphia, Pennsylvania 19102.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants to the Company as follows:
(a) Purchase for Own Account, Etc. Purchaser is purchasing
the Preferred Shares for Purchaser's own account and not with a
present view towards the public sale or distribution thereof,
except pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales registered under
the Securities Act. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless
the Securities are registered pursuant to the Securities Act and
any applicable state securities or blue sky laws or an exemption
from such registration is available, and that the Company has no
present intention of registering the resale of any such
Securities other than as contemplated by the Registration Rights
Agreement. Notwithstanding anything in this Section 2(a) to the
contrary, by making the representations herein, the Purchaser
does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities
at any time in accordance with or pursuant to a registration
statement or an exemption from the registration requirements
under the Securities Act.
(b) Accredited Investor Status. Purchaser is an
"Accredited Investor" as that term is defined in Rule 501(a) of
Regulation D.
-2-
<PAGE>
(c) Reliance on Exemptions. Purchaser understands that the
Preferred Shares are being offered and sold to Purchaser in
reliance upon specific exemptions from the registration
requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of,
and Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Purchaser set
forth herein in order to determine the availability of such
exemptions and the eligibility of Purchaser to acquire the
Preferred Shares.
(d) Information. Purchaser and its counsel, if any, have
been furnished all materials relating to the business, finances
and operations of the Company and SJP and materials relating to
the offer and sale of the Preferred Shares which have been
specifically requested by Purchaser or its counsel. Purchaser
and its counsel have been afforded the opportunity to ask
questions of the Company and SJP. Neither such inquiries nor any
other investigation conducted by Purchaser or its counsel or any
of its representatives shall modify, amend or affect Purchaser's
right to rely on the Company's or SJP's representations and
warranties contained in Section 3 and Section 4 below. Purchaser
understands that Purchaser's investment in the Preferred Shares
involves a high degree of risk.
(e) Governmental Review. Purchaser understands that no
United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or
endorsement of the Preferred Shares.
(f) Transfer or Resale. Purchaser understands that (i)
except as provided in the Registration Rights Agreement, the sale
or resale of the Preferred Shares and the Conversion Shares have
not been and are not being registered under the Securities Act or
any state securities laws, and the Preferred Shares and the
Conversion Shares may not be transferred unless (a) the resale of
the Preferred Shares or the Conversion Shares, as applicable, has
been registered thereunder; or (b) Purchaser shall have delivered
to the Company an opinion of counsel (which opinion shall be in
form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that the Preferred Shares
or Conversion Shares to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; or
(c) the Preferred Shares or the Conversion Shares, as applicable,
are sold under Rule 144 promulgated under the Securities Act (or
a successor rule) ("Rule 144"); or (d) the Preferred Shares or
the Conversion Shares, as applicable, are sold or transferred to
an affiliate of Purchaser who agrees to sell or otherwise
transfer the Preferred Shares or the Conversion Shares, as
applicable, only in accordance with the provisions of this
Section 2(f) and who is an Accredited Investor; and (ii) neither
the Company nor any other person is under any obligation to
register such Preferred Shares or the Conversion Shares under the
Securities Act or any state securities laws (other than pursuant
to the Registration Rights Agreement). Notwithstanding the
foregoing or anything else contained herein to the contrary, the
Preferred Shares or the Conversion Shares may be pledged as
collateral in connection with a bona fide margin account or other
lending arrangement.
(g) Legends. Purchaser understands that the certificates
for the Preferred Shares and, until such time as the Conversion
Shares have been registered under the Securities Act (including
-3-
<PAGE>
registration pursuant to Rule 416 thereunder) as contemplated by
the Registration Rights Agreement or otherwise may be sold by
Purchaser under Rule 144, the certificates for the Conversion
Shares may bear a restrictive legend in substantially the
following form:
The securities represented by this certificate have
not been registered under the Securities Act of
1933, as amended, or the securities laws of
any state of the United States. The securities
represented hereby may not be offered, sold or
transferred in the absence of an effective
registration statement for the securities under
applicable securities laws unless offered, sold
or transferred under an available exemption from
the registration requirements of those laws.
The legend set forth above shall be removed and
the Company shall issue a certificate without such
legend to the holder of any Security upon which
it is stamped if, unless otherwise required by
state securities laws, (a) the sale of such Security
is registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as
contemplated by the Registration Rights Agreement;
(b) such holder provides the Company with an opinion
of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the
effect that a public sale or transfer of such Security
may be made without registration under the Securities
Act; or (c) such holder provides the Company with
reasonable assurances that such Security can be sold
under Rule 144. Purchaser agrees to sell all Securities,
including those represented by a certificate(s) from
which the legend has been removed, pursuant to an
effective registration statement or under an exemption
from the regitration requirements of the Securities Act.
In the event the above legend is removed from any
Security and thereafter the effectiveness of a registration
statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required
by applicable securities laws, then upon reasonable advance
notice to Purchaser the Company may require that the above
legend be placed on any such Security that cannot then be sold
pursuant to an effective registration statement or under Rule
144 and Purchaser shall cooperate in the replacement of such
legend. Such legend shall thereafter be removed when such
Security may again be sold pursuant to an effective registration
statement or under Rule 144.
(h) Authorization; Enforcement. This Agreement and
the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of Purchaser and
are valid and binding agreements of Purchaser enforceable
against Purchaser in accordance with their terms.
(i) Residency. Purchaser is a resident of the
jurisdiction set forth under Purchaser's name on the
Execution Page hereto executed by Purchaser.
-4-
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Purchaser
as follows:
(a) Organization and Qualification. The
Company and each of its subsidiaries is a corporation
duly organized and existing in good standing under the
laws of the jurisdiction in which it is incorporated,
and has the requisite corporate power to own its proper-
ties and to carry on its 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 every jurisdiction in
which its ownership of property or the nature of
the business conducted by it makes such qualification
necessary and where the failure so to qualify
would have a Material Adverse Effect. "Material
Adverse Effect" means any material adverse effect
on (i) the Securities, (ii) the ability of the
Company or SJP to perform its obligations hereunder
or under the Certificate of Designation or the
Registration Rights Agreement, (iii) the ability of
the Company or SJP to consummate the Transaction or
(iv) the business, operations, properties, prospects
or financial condition of the Company or SJP and
their subsidiaries, taken as a respective whole.
(b) Authorization; Enforcement. (i) The Company
has the requisite corporate power and authority to enter
into and perform its obligations under this Agreement and
the Registration Rights Agreement, to issue and sell
the Preferred Shares in accordance with the terms
hereof, to issue the Conversion Shares upon conversion
of the Preferred Shares in accordance with the terms of
the Certificate of Designation; (ii) the execution, delivery
and performance of this Agreement and the Registration
Rights Agreement by the Company and the consummation by
it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the
Preferred Shares and the issuance and reservation for
issuance of the Conversion Shares) have been duly
authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its
Board of Directors, any committee of the Board
of Directors or the Company's shareholders is
required, and (iii) this Agreement constitutes,
and, upon execution and delivery by the Company of
the Registration Rights Agreement, such agreements
will constitute, valid and binding obligations of
the Company enforceable against the Company in accordance
with their terms.
(c) Stockholder Authorization. The Company
believes that neither the execution, delivery or per-
formance of this Agreement or the Registration Rights
Agreement by the Company nor the consummation by
it of the transactions contemplated hereby or thereby
(including, without limitation, the Transaction, the
issuance of the Preferred Shares or the issuance,
reservation for issuance or listing of the Conversion
Shares) requires any consent, approval or authorization
of the Company's stockholders.
(d) Capitalization. The capitalization of the
Company as of the date hereof and the pro forma
capitalization of the Company assuming the
consummation of the Transaction, including the
authorized capital stock, the number of shares
issued and outstanding, the number of shares
issuable and reserved for issuance pursuant to the
Company's stock option plans, the number of
shares issuable and reserved for issuance
pursuant to securities (other than the Preferred Shares)
-5-
<PAGE>
exercisable or exchangeable for, or convertible
into, any shares of capital stock is set forth
on Schedule 3(d). All of such outstanding shares of
capital stock have been, or upon issuance in
accordance with the terms of any such warrants,
options or preferred stock, will be, validly
issued, fully paid and non-assessable. No
shares of capital stock of the Company (including
the Preferred Shares, the Conversion Shares) are
subject to preemptive rights or any other similar
rights of the stockholders of the Company or any
liens or encumbrances. Except for the Securities and
as set forth on Schedule 3(d), as of the date of
this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever
relating to, or securities or rights convertible
into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or
any of its subsidiaries is or may become bound to
issue additional shares of capital stock of the
Company or any of its subsidiaries, and (ii) there are
no agreements or arrangements under which the Company
or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the
Securities Act (except the Registration Rights
Agreement). Except as set forth on Schedule 3(d),
(i) there are no securities or instruments contain-
ing antidilution or similar provisions that will be
triggered by the issuance of the Securities in
accordance with the terms of this Agreement, the
Certificate of Designation, (ii) there are no
outstanding securities or instruments of the Company
or any ofits subsidiaries which contain any redemption
or similar provisions, and there are no contracts,
commitments, understandings or arrangements by
which the Company or any of its subsidiaries is or
may become bound to redeem a security of the Company
or any of its subsidiaries, and (iii) the Company
does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar
plan or agreement. The Company has furnished to
the Purchaser true and correct copies of the Company's
Certificate of Incorporation as in effect on the
date hereof ("Certificate of Incorporation"), the
Company's By-laws as in effect on the date hereof
(the "By-laws"), and all other instruments and
agreements governing securities convertible into or
exercisable or exchangeable for capital stock of the
Company. The Certificate of Designation, in the form
attached hereto, will be duly filed prior to Closing with
the Secretary of State of the State of Colorado
and, upon the issuance of the Preferred Shares
in accordance with the terms hereof, each Purchaser shall
be entitled to the rights set forth therein.
(e) Issuance of Shares. The Preferred
Shares are duly authorized and, upon issuance in
accordance with the terms of this Agreement,
will be validly issued, fully paid and non assessable,
and free from all taxes, liens, claims and encumbrances
and will not be subject to preemptive rights or other
similar rights of stockholders of the Company and will
not impose personal liability on the holders thereof.
The Conversion Shares are duly authorized and, in
accordance with the Certificate of Designation reserved
for issuance, and, upon conversion of the Preferred Shares
in accordance with the terms thereof, will be validly issued,
fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances and will not be subject to preemptive
rights or other similar rights of stockholders of the Company
and will not impose personal liability upon the holder thereof.
(f) No Conflicts. The execution, delivery and
performance of this Agreement and the Registration Rights
Agreement by the Company, the performance by the Company
of its obligations under the Certificate of Designation,
-6-
<PAGE>
and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without
limitation, the Transaction, the issuance and reservation
for issuance, as applicable, of the Preferred Shares and
Conversion Shares) will not (i) result in a violation
of the Certificate of Incorporation or By-laws or (ii)
conflict with, or constitute a default (or an event which,
with notice or lapse of time or both, would become a
default) under, or give to others any rights of
termination, amendment (including, without limitation,
the triggering of any anti-dilution provisions),
acceleration or cancellation of, any agreement, indenture
or instrument to which the Company or any of its subsidiaries
is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and
state securities laws and regulations and rules or
regulations of any self-regulatory organizations to which
either the Company or its securities are subject)
applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its
subsidiaries is bound or affected (except, with respect to
clause (ii), for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations that
would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its subsidiaries
is in violation of its Certificate of Incorporation, By-laws or
other organizational documents and neither the Company nor any
of its subsidiaries is in default (and no event has occurred
which, with notice or lapse of time or both, would put the
Company or any of its subsidiaries in default) under, nor has
there occurred any event giving others (with notice or lapse
of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is
a party, except for actual or possible violations, defaults
or rights that would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company
and its subsidiaries are not being conducted, and shall not be
conducted so long as Purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental
entity, except for possible violations the sanctions for which
either singly or in the aggregate would not have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and
the Registration Rights Agreement, the Company is not required to
obtain any consent, approval, authorization or order of, or make
any filing or registration with, any court or governmental agency
or any regulatory or self regulatory agency in order for it to
execute, deliver or perform any of its obligations under this
Agreement or the Registration Rights Agreement or to perform its
obligations under the Certificate of Designation, in each case in
accordance with the terms hereof or thereof.
(g) SEC Documents, Financial Statements. Since December
31, 1994, the Company has timely filed (within applicable
extension periods) all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (all of
the foregoing and all exhibits included therein and financial
statements and schedules thereto and documents incorporated
by reference therein, being hereinafter referred to herein
as the "SEC Documents"). The Company has delivered to the
Purchaser true and complete copies of the SEC Documents. As of
their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or
the Securities Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary
-7-
<PAGE>
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of
the statements made in any such SEC Documents is, or has been,
required to be amended or updated under applicable law (except for
such statements as have been amended or updated in subsequent filings
made prior to the date hereof). As of their respective dates, the
financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of
the SEC applicable with respect thereto. Such financial statements
have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), consistently applied, during
the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and
fairly present in all material respects the consolidated financial
position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to immaterial year-end audit adjustments). Except as set
forth in the financial statements of the Company included in the SEC
Documents filed prior to the date hereof, the Company has
no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date
of such financial statements, (ii) liabilities not required by GAAP to
be disclosed on a balance sheet prepared in accordance with GAAP,
and (iii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under GAAP to
be reflected in such financial statements, which liabilities and
obligations referred to in clauses (i), (ii) and (iii), individually
or in the aggregate, are not material to the financial condition
or operating results of the Company. Neither the Company nor any of
its subsidiaries or any of their officers, directors, employees or
agents have provided the Purchaser with any material, nonpublic
information.
(h) Absence of Certain Changes. Since December 31, 1997,
there has been no material adverse change and no material adverse
development in the business, properties, operations, prospects,
financial condition or results of operations of the Company and
its subsidiaries, taken as a whole, except as disclosed in Schedule
3(h) or in the SEC Documents filed prior to the date hereof.
(i) Absence of Litigation. Except as set forth on Schedule
3(i) and as expressly disclosed in the SEC Documents filed prior
to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened
against or affecting the Company, any of its subsidiaries, or
any of their respective directors or officers in their capacities
as such. There are no facts which, if known by a potential claimant
or governmental authority, could give rise to a claim or proceeding
which, if asserted or conducted with results unfavorable to the
Company or any ofits subsidiaries, could reasonably be expected to
have a Material Adverse Effect.
(j) Intellectual Property. Each of the Company and its
subsidiaries owns or is licensed to use all patents, patent
applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses,
permits, know-how (including trade secrets and other unpatented
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and/or unpatentable proprietary or confidential information,
systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct
of its business as now being conducted and as described in the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997. To the best knowledge of the Company, neither
the Company nor any subsidiary of the Company infringes or is in
conflict with any right of any other person with respect to any
Intangibles which, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries has received written notice of any pending conflict
with or infringement upon such third party Intangibles, which
alleged pending conflict or alleged infringement, if adversely
determined, would result in a Material Adverse Effect. Except as
disclosed in the SEC Documents filed prior to the date hereof,
the termination of the Company's ownership of, or right to use,
any single Intangible would not result in a Material Adverse Effect
on the Company. Neither the Company nor any of its subsidiaries
has entered into any consent agreement, indemnification agreement,
forbearance to sue or settlement agreement with respect to the
validity of the Company's or its subsidiaries' ownership or right
to use its Intangibles and, to the best knowledge of the Company,
there is no reasonable basis for any such claim to be successful.
The Intangibles are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or canceled or
is the subject of cancellation or other adversarial proceedings, and
all applications therefor are pending and in goodstanding. The
Company and its subsidiaries have complied, in all material respects,
with their respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best
knowledge of the Company, no person is infringing on or violating the
Intangibles owned or used by the Company or its subsidiaries.
(k) Foreign Corrupt Practices. Neither the Company, nor any of
its subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any subsidiary has, in the
course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity; made any
direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic
government official or employee. (l) Disclosure. All information
relating to or concerning the Company set forth in this Agreement
or provided to the Purchasers pursuant to Section 2(d) hereof or
otherwise in connection with the transactions contemplated hereby
is true and correct in all material respects and the Company has
not omitted to state any material fact necessary in order to make
the statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or circumstance
has occurred or exists with respect to the Company or its subsidiaries
or their respective businesses, properties, prospects, operations or
financial conditions, which has not been publicly disclosed but, under
applicable law, rule or regulation, would be required to be disclosed
by the Company in a registration statement filed on the date hereof by
the Company under the Securities Act with respect to the primary
issuance of the Company's securities.
-9-
(m) Acknowledgment Regarding Purchaser's Purchase of the
Preferred Shares. The Company acknowledges and agrees that the
Purchaser is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement
or the transactions contemplated hereby, the relationship between
the Company and the Purchaser is "arms length" and any statement made
by Purchaser or any of its representatives or agents in connection
with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to Purchaser's
purchase of the Preferred Shares and has not been relied upon by
the Company, its officers or its directors in any way. The Company
further acknowledges that the Company's decision to enter into this
Agreement has been based solely on an independent evaluation by the
Company and its representatives.
(n) Form SB-2 Eligibility. The Company is currently eligible
to register the resale ofits Common Stock on a registration statement
on Form SB-2 under the Securities Act. There exist no facts or
circumstances that would prohibit or delay the preparation and filing
of a registration statement on Form SB-2 with respect to the
Registrable Securities (as defined in the Registration Rights Agreement).
(o) No General Solicitation. Neither the Company nor any
distributor participating on the Company's behalf in the transactions
contemplated hereby (if any) nor any person acting for the Company,
or any such distributor, has conducted any "general solicitation," as
such term is defined in Regulation D, with respect to any of the
Securities being offered hereby.
(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 require registration of the Securities being offered hereby
under the Securities Act or cause this offering of Securities to be
integrated with any prior offering of securities of the Company for
purposes of the Securities Act or any applicable stockholder approval
provisions.
(q) No Brokers. Except for a consulting fee payable to CDC
Consulting, Inc. In the amount of 400,000 shares of Common Stock, the
Company has taken no action which would give rise to any claim
by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the
transactions contemplated hereby.
(r) Acknowledgment of Dilution. The number of Conversion
Shares issuable upon conversion of the Preferred Shares may increase
in certain circumstances, including if the trading price of the Common
Stock declines. The Company's executive officers have studied and fully
understand the nature of the Securities being sold hereunder. The Company
acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Shares in accordance with the Certificate
of Designation is absolute and unconditional, regardless of the dilution
that such issuance may have on the ownership interests of other
stockholders. Taking the foregoing into account, the Company's Board
of Directors has determined in its good faith business judgment that the
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issuance of the Preferred Shares hereunder and the consummation of the
other transactions contemplated hereby are in the best interests of the
Company and its stockholders.
(s) Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and
merchantable title to all personal property owned by them that is
material to the business of the Company and its subsidiaries, in
each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(s) or such as do not
materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property
by the Company and its subsidiaries. Any real property and facilities
held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as
are not material and do not materially interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries.
(t) Tax Status. Except as set forth on Schedule 3(t), the
Company and each of its subsidiaries has made or filed all foreign,
federal, state and local income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its
subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all
taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. Except as set forth on Schedule 3(t),
there are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not
executed a waiver with respect to any statute of limitations relating
to the assessment or collection of any federal, state or local tax.
Except as set forth on Schedule 3(t), none of the Company's tax returns
is presently being audited by any taxing authority.
(u) Environmental Laws. The Company and each of its
subsidiaries (i) are in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license
or approval.
(v) Regulatory Permits. The Company and each of its
subsidiaries possess all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses,
and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit.
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<PAGE>
(w) No Other Agreements. The Company has not, directly or
indirectly, made any agreements with Purchaser relating to the
terms or conditions of the transactions contemplated by this
Agreement, the Certificate of Designation and the Registration
Rights Agreement except as set forth in such documents.
(x) Eligibility for Sale Under Rule 144. The Company's
Common Stock is eligible for resale under Rule 144 promulgated
under the Securities Act of 1933, as amended, without regard to
the status of any holder of such Common Stock as an affiliate
of the Company or any applicable holding period thereunder.
Upon consummation of the Transaction, Kapher Trust will not be
an affiliate of the Company. For the purposes of this Section
3(x), the term "affiliate" shall be defined as set forth in
section (a)(1) of Rule 144 promulgated under the Securities Act
("Rule 144").
4. REPRESENTATIONS AND WARRANTIES OF SJP.
SJP represents and warrants to each Purchaser as follows:
(a) Organization and Qualification. SJP and each of its
subsidiaries is a corporation duly organized and existing in good
standing under the laws of the jurisdiction in which it is
incorporated, and has the requisite corporate power to own its
properties and to carry on its business as now being conducted.
SJP and each of its subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary and where
the failure so to qualify would have a Material Adverse Effect.
(b) Authorization; Enforcement. (i) SJP has the requisite
corporate power and authority to enter into and perform its
obligations under this Agreement; (ii) the execution, delivery and
performance of this Agreement by SJP and the consummation by it of
the transactions contemplated hereby (including, without limitation,
the Transaction) have been duly authorized by SJP's Board of
Directors and no further consent or authorization of SJP, its Board
of Directors, any committee of the Board of Directors or SJP's
shareholders is required; and (iii) this Agreement constitutes valid
and binding obligations of SJP enforceable against SJP in accordance
with their terms.
(c) Stockholder Authorization. Neither the execution, delivery
or performance of this Agreement by SJP nor the consummation by it of
the transactions contemplated hereby (including, without limitation,
the Transaction) requires any consent, approval or authorization of SJP's
stockholders.
(d) Capitalization. The capitalization of SJP as of the date
hereof, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for
issuance pursuant to SJP's stock option plans, the number of shares
issuable and reserved for issuance pursuant to securities exercisable or
exchangeable for, or convertible into, any shares of capital stock is
set forth on Schedule 4(d). All of such outstanding shares of capital
stock have been, or upon issuance in accordance with the terms of
any such warrants, options or preferred stock, will be, validly issued,
fully paid and non-assessable. No shares of capital stock of SJP
are subject to preemptive rights or any other similar rights of the
stockholders of SJP or any liens or encumbrances. Except for the Securities
and as set forth on Schedule 4(d), as of the date of this Agreement,
(i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of SJP or any of
its subsidiaries, or arrangements by which SJP or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of
SJP or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which SJP or any of its subsidiaries is obligated
to register the sale of any of its or their securities under the
Securities Act. Except as set forth on Schedule 4(d), (i)there are no
securities or instruments containing antidilution or similar provisions
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<PAGE>
that will be triggered by the execution of this Agreement, (ii) there
are no outstanding securities or instruments of SJP or any of its
subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements
by which SJP or any of its subsidiaries is or may become bound to redeem a
security of SJP or any of its subsidiaries, and (iii) SJP does not have
any stock appreciation rights or "phantom stock" plans or agreements or
any similar plan or agreement. SJP has furnished to the Purchaser
true and correct copies of SJP's Certificate of Incorporation as in
effect on the date hereof ("Certificate of Incorporation"), SJP's
By-laws as in effect on the date hereof (the "By-laws"), and all other
instruments and agreements governing securities convertible into or
exercisable or exchangeable for capital stock of SJP.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by SJP and the consummation by SJP of the transactions
contemplated hereby and thereby (including, without limitation, the
Transaction) will not (i) result in a violation of the Certificate of
Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which, with notice or lapse of time or both, would
become a default) under, or give to others any rights of termination,
amendment (including, without limitation, the triggering of any
anti-dilution provisions), acceleration or cancellation of, any
agreement, indenture or instrument to which SJP or any of its subsidiaries
is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and rules or regulations of any self- regulatory organizations
to which either SJP or its securities are subject) applicable to SJP or any
of its subsidiaries or by which any property or asset of SJP or any of
its subsidiaries is bound or affected (except, with respect to clause
(ii), for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not, individually
or in the aggregate, have a Material Adverse Effect). Neither SJP nor any
of its subsidiaries is in violation of its Certificate of Incorporation,
By-laws or other organizational documents and neither SJP nor any of its
subsidiaries is in default (and no event has occurred which, with notice
or lapse of time or both, would put SJP or any of its subsidiaries in default)
under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration
or cancellation of, any agreement, indenture or instrument to which
SJP or any of its subsidiaries is a party, except for actual or possible
violations, defaults or rights that would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of SJP and its
subsidiaries are not being conducted, and shall not be conducted so
long as Purchaser owns any of the Securities, in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations the sanctions for which either singly or in the aggregate
would not have a Material Adverse Effect. Except as specifically
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<PAGE>
contemplated by this Agreement and the Registration Rights Agreement,
SJP is not required to obtain any consent, approval, authorization or order
of, or make any filing or registration with, any court or governmental
agency or any regulatory or self regulatory agency in order for it to
execute, deliver or perform any of its obligations under this Agreement
or the Registration Rights Agreement in accordance with the terms hereof
or thereof.
(f) Absence of Certain Changes. Since December 31, 1997, there has
been no material adverse change and no material adverse development in the
business, properties, operations, prospects, financial condition or results
of operations of SJP and its subsidiaries, taken as a whole, except as
disclosed in Schedule 4(f) or in the Disclosure Materials (as defined below).
(g) Absence of Litigation. Except as set forth on Schedule 4(g) and
as expressly disclosed in the Disclosure Materials (as defined below) filed
prior to the date hereof, there is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of SJP
or any of its subsidiaries, threatened against or affecting SJP, any of its
subsidiaries, or any of their respective directors or officers in
their capacities as such. There are no facts which, if known by a potential
claimant or governmental authority, could give rise to a claim or
proceeding which, if asserted or conducted with results unfavorable
to SJP or any of its subsidiaries, could reasonably be expected to have
a Material Adverse Effect.
(h) Intellectual Property. Each of SJP and its subsidiaries
owns or is licensed to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures) and other similar rights and proprietary knowledge
(collectively, "Intangibles") necessary for the conduct of its business as
now being conducted and as described in the Disclosure Materials (as
defined below). To the best knowledge of SJP, neither SJP nor any
subsidiary of SJP infringes or is in conflict with any right of any other
person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect. Neither SJP nor any of its
subsidiaries has received written notice of any pending conflict with or
infringement upon such third party Intangibles, which alleged pending
conflict or alleged infringement, if adversely determined, would result
in a Material Adverse Effect. Except as disclosed in the Disclosure
Materials (as defined below), the termination of SJP's ownership of, or
right to use, any single Intangible would not result in a Material Adverse
Effect on SJP. Neither SJP nor any of its subsidiaries has entered into
any consent agreement, indemnification agreement, forbearance to sue or
settlement agreement with respect to the validity of SJP's or its
subsidiaries' ownership or right to use its Intangibles and, to the best
knowledge of SJP, there is no reasonable basis for any such claim to be
successful. The Intangibles are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or canceled or is
the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and in good standing. SJP and its
subsidiaries have complied, in all material respects, with their respective
contractual obligations relating to the protection of the Intangibles
-14-
<PAGE>
used pursuant to licenses. To the best knowledge of SJP, no person
is infringing on or violating the Intangibles owned or used by SJP or its
subsidiaries.
(i) Foreign Corrupt Practices. Neither SJP, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of SJP or any subsidiary has, in the course of his
actions for, or on behalf of, SJP, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
(j) Disclosure. All information relating to or concerning SJP set
forth in this Agreement or provided to the Purchasers pursuant to Section
2(d) hereof or otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and SJP has not omitted to
state any material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists
with respect to SJP or its subsidiaries or their respective businesses,
properties, prospects, operations or financial conditions, which has not
been publicly disclosed but, under applicable law, rule or regulation,
would be required to be disclosed by SJP in a registration statement filed
on the date hereof by SJP under the Securities Act with respect to the
primary issuance of SJP's securities.
(k) Acknowledgment Regarding Purchaser's Purchase of the Preferred
Shares. SJP acknowledges and agrees that the Purchaser is not acting as a
financial advisor or fiduciary of SJP (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby, the
relationship between SJP and the Purchaser is "arms-length" and any
statement made by any Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
not advice or a recommendation and is merely incidental to Purchaser's
purchase of the Preferred Shares and has not been relied upon by SJP, its
officers or its directors in any way. SJP further acknowledges that SJP's
decision to enter into this Agreement has been based solely on an
independent evaluation by SJP and its representatives.
(l) No Brokers. Except for a consulting fee payable to CDC Consulting,
Inc. In the amount of 400,000 shares of Common Stock, SJP has taken no
action which would give rise to any claim by any person for brokerage
commissions, finder's fees or similar payments by any Purchaser
relating to this Agreement or the transactions contemplated hereby.
(m) Title. SJP and its subsidiaries have good and marketable
title in fee simple to all real property and good and merchantable title to
all personal property owned by them that is material to the business of SJP
and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 4(m)
or such as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by SJP and its subsidiaries. Any real property and facilities held
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<PAGE>
under lease by SJP and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material
and do not materially interfere with the use made and proposed to be made
of such property and buildings by SJP and its subsidiaries.
(n) Tax Status. Except as set forth on Schedule 4(n), SJP and each
of its subsidiaries has made or filed all foreign, federal, state and
local income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only to the extent
that SJP and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and
has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. Except as set forth on Schedule 4(n), there
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of SJP know of no basis
for any such claim. SJP has not executed a waiver with respect to any
statute of limitations relating to the assessment or collection of any
federal, state or local tax. Except as set forth on Schedule 4(n), none of
SJP's tax returns is presently being audited by any taxing authority.
(o) Environmental Laws. SJP and each of its subsidiaries (i) are
in compliance with any and all Environmental Laws, (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license or
approval.
(p) Regulatory Permits. SJP and each of its subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither SJP nor any such subsidiary has received
any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(q) No Other Agreements. SJP has not, directly or indirectly,
made any agreements with Purchaser relating to the terms or conditions of the
transactions contemplated by this Agreement, the Certificate of
Designation and the Registration Rights Agreement except as set forth in
such documents.
(r) Disclosure Materials. The financial statements of SJP dated
December 31, 1997 and any other financial statements delivered by SJP
to the Purchasers (the "Financial Statements" and, together with the
Schedules to this Agreement and other documents and information furnished
by or on behalf of SJP at any time prior to the Closing, the "Disclosure
Materials") comply in all material respects with applicable accounting
requirements. Such Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved, except as may be otherwise specified in such
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<PAGE>
Financial Statements or the notes thereto, and fairly present in all material
respects the financial position of SJP as of and for 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. There are not liabilities, contingent or otherwise, of SJP
involving material amounts not disclosed in said Financial Statements.
The Disclosure Materials do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since
December 31, 1997 there has been no event, occurrence or development that
has had or that could have or result in a Material Adverse Effect.
5 COVENANTS.
(a) Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 7 and Section 8 of this
Agreement.
(b) Form D: Blue Sky Laws. The Company shall file with the SEC a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale
to the Purchaser pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States or obtain exemption
therefrom, and shall provide evidence of any such action so taken to the
Purchasers on or prior to the Closing Date.
(c) Reporting Status. So long as any Purchaser beneficially
owns any of the Securities, the Company shall timely file all reports
required to be filed with the SEC pursuant to the Exchange Act, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination. In addition, the Company shall
take all actions necessary to continue to be eligible to register the
resale of its Common Stock on a registration statement on Form SB2 under the
Securities Act.
(d) Use of Proceeds. The Company shall use the proceeds from the
sale of the Preferred Shares as set forth in Schedule 5(d).
(e) Expenses. Except as otherwise provided herein and in Section 5 of
the Registration Rights Agreement, each party hereto shall be responsible for
its own expenses incurred in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith.
(f) Financial Information. The Company shall send the following
reports to Purchaser until Purchaser transfers, assigns or sells all of
its Securities: (i) within 10 days after the filing with the SEC, a copy
of its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB,
its proxy statements and any Current Reports on Form 8-K; (ii) within
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one day after release, copies of all press releases issued by the Company
or any of its subsidiaries; and (iii) copies of any notices and other
information made available or given to shareholders of the Company generally,
contemporaneously with making available or giving thereof to such
shareholders.
(g) Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the
outstanding Preferred Shares and issuance of the Conversion Shares in
connection therewith, subject to and as otherwise required by the
Certificate of Designation, as applicable.
(h) Listing. The Company shall promptly secure the listing of the
Conversion Shares upon the American Stock Exchange ("AMEX"), the New York
Stock Exchange ("NYSE"), the Nasdaq National Market ("NNM"), the Nasdaq
SmallCap Market ("SmallCap") or in the over-the-counter market on the
electronic bulletin board (the "Bulletin Board") and will comply in all
respects with the reporting, filing and other obligations under the
Listing Standards, Policies and Requirements of the AMEX and the bylaws or
rules of the NYSE and the National Association of Securities Dealers, Inc.,
as applicable and shall maintain, so long as Purchaser (or any of their
affiliates) own any Securities, such listing of all Conversion Shares from
time to time issuable upon conversion of the Preferred Shares, as applicable.
The Company shall promptly provide to each holder of Preferred Shares copies
of any notices it receives regarding the continued eligibility of the
Common Stock for trading on any securities exchange or automated quotation
system on which securities of the same class or series issued by the Company
are then listed or quoted, if any.
(i) Corporate Existence. So long as a Purchaser beneficially
owns any Securities, the Company shall maintain its corporate existence, and
in the event of a merger, consolidation or sale of all or substantially all
of the Company's assets, the Company shall ensure that the surviving or
successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the Certificate of Designation (except as otherwise
provided therein) and the agreements and instruments entered into in
connection herewith regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the conversion of all Preferred Shares
outstanding as of the date of such transaction and (ii) is a publicly traded
corporation whose common stock is listed for trading on the AMEX, NYSE,
NNM, SmallCap or the Bulletin Board. Notwithstanding the foregoing, the
Company covenants and agrees that it will not engage in any merger,
consolidation or sale of all or substantially all of its assets at any time
prior to the effectiveness of the registration statement required to be
filed pursuant to the Registration Rights Agreement without (A) providing
Purchaser with written notice of such transaction at least 60 days
prior to the consummation of such transaction, (B) obtaining the
written consent of the Purchaser on or before the 10th day after the
delivery of such notice by the Company, and (C) publicly announcing
such transaction.
(j) No Integrated Offerings. The Company shall not make any offers
or sales of any security (other than the Securities) under circumstances
that would require registration of the Securities being offered or sold
hereunder under the Securities Act or cause the offering of the Securities
-18-
<PAGE>
to be integrated with any other offering of securities by the Company for
purposes of any stockholder approval provision applicable to the Company
or its securities.
(k) Legal Compliance. The Company shall conduct its business and
the business of its subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except
where the failure to do so would not have a Material Adverse Effect.
(l) Filing of Form 8-K. On or before the first (1st) business day
following the Closing Date, the Company shall file a Current Report on Form
8-K with the SEC describing the terms of the transactions contemplated by
this Agreement, the Certificate of Designation and the Registration Rights
Agreement in the form required by the Exchange Act.
(m) Capital and Surplus; Special Reserves. The amount to be
represented in the capital account for the Series A Preferred Stock at all
times for each outstanding share of Series A Preferred Stock shall be
an amount equal to the Redemption Amount therefor.
(n) Additional Equity Capital; Right of First Offer. The Company and
SJP agree that during the period beginning on the date hereof and ending
on the date which is 180 days following the Closing Date (the "Lock-Up
Period"), the Company will not obtain additional financing in which any
equity or equity- linked securities are issued (including any debt
financing with an equity component) ("Future Offerings") without first
obtaining the written consent of the Purchaser. In addition, during the
period beginning on the date hereof and ending 180 days following the
expiration of the Lock-Up Period, the Company will not conduct a future
offering unless it shall have first delivered to Purchaser, at least ten
(10) business days prior to the closing of such Future Offering, written
notice describing the proposed Future Offering, including the terms and
conditions thereof, and providing Purchaser and its affiliates an option
during the ten (10) business day period following delivery of such
notice to purchase all of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering
(the limitation referred to in this Section 5(n) is referred to as the
"Capital Raising Limitation"). The Capital Raising Limitation shall not apply
to any transaction involving issuances of securities as consideration in
a merger, consolidation or acquisition of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is
not to raise equity capital), or as consideration for the acquisition of a
business, product or license by the Company. The Capital Raising Limitation
also shall not apply to (i) the issuance of securities pursuant to an
underwritten public offering, (ii) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or (iii) the grant
of additional options or warrants, or the issuance of additional securities,
under any duly authorized Company stock option or restricted stock plan for
the benefit of the Company's employees or directors.
(o) The Company shall have filed, within ten (10) days of the Closing
hereunder, a complete application on Form 211 with the National Association
of Securities Dealers seeking approval for the quotation of the Company's
Common Stock in the over
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<PAGE>
the counter market on the Electronic Bulletin Board by the National
Association of Securities Dealers, Inc.
6 TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall instruct its transfer agent to issue
certificates, registered in the name of each Purchaser or its nominee,
for the Conversion Shares in such amounts as specified from time to time by
such Purchaser to the Company upon conversion of the Preferred Shares, as
applicable.
(b) The Company warrants that no instruction other than such
instructions referred to in this Section 6, and stop transfer instructions
to give effect to Section 2(f) hereof in the case of the transfer of the
Conversion Shares prior to registration of the Conversion Shares under the
Securities Act or without an exemption therefrom, will be given by the
Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the
extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way each Purchaser's
obligations and agreement set forth in Section 2(g) hereof to resell the
Securities pursuant to an effective registration statement or under an
exemption from the registration requirements of applicable securities law.
(c) If a Purchaser provides the Company and the transfer agent with
an opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Preferred Shares to be sold or transferred may be sold
or transferred pursuant to an exemption from registration, or a
Purchaser provides the Company with reasonable assurances that such
Preferred Shares may be sold under Rule 144, the Company shall permit the
transfer and, in the case of the Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by Purchaser.
7 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Shares to Purchaser at the Closing is subject to the satisfaction,
at or before the Closing, of each of the following conditions, provided that
such conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing prior written
notice to each Purchaser.
(a) The Purchaser shall have executed this Agreement and the
Registration Rights Agreement, and delivered executed copies to the Company.
(b) The Purchaser shall have delivered the Purchase Price for the
Preferred Shares in accordance with Section 1(b) above.
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<PAGE>
(c) The representations and warranties of the Purchaser shall be
true and correct as of the date when made and as of the date and time of such
closing as though made at that time (except for representations and
warranties that relate to a different date, which shall be true and
correct as of such date), and the Purchaser shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the Closing Date.
(d) No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby that prohibits the consummation of any of the
transactions contemplated by this Agreement.
8 CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of Purchaser hereunder to purchase the Preferred
Shares to be purchased by it at the Closing and the payment of the Purchase
Price is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that such conditions are for
Purchaser's sole benefit and may be waived by Purchaser at any time in
such Purchaser's sole discretion:
(a) The Company and SJP shall have executed this Agreement and the
Company shall have executed the Registration Rights Agreement, and
each shall have delivered executed copies to Purchaser.
(b) The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of Colorado and a copy thereof
certified by the Secretary of State of the State of Colorado shall have
been delivered to Purchaser.
(c) The Company shall have delivered to Purchaser duly executed
certificates (each in such denominations as Purchaser shall request)
representing the Preferred Shares being so purchased by Purchaser in
accordance with Section 1(b) above.
(d) The Common Stock shall be authorized for quotation and listed on
the AMEX, the NYSE, the NNM, the SmallCap or the Bulletin Board and
trading in the Common Stock (or the AMEX, the NYSE, the NNM, the SmallCap
generally or the Bulletin Board) shall not have been suspended by the SEC, the
AMEX, the NYSE, the NNM, the SmallCap or the Bulletin Board, as applicable,
and the Conversion Shares shall be listed on the AMEX, the NYSE, the NNM,
the SmallCap or the Bulletin Board, as applicable.
(e) The representations and warranties of the Company and SJP shall be
true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties
that relate to a different date, which shall be true and correct as of such
date) and the Company and SJP shall have performed, satisfied and complied
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<PAGE>
with the covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Company or SJP, as
applicable at or prior to the Closing Date. Such Purchaser shall have
received certificates, executed by the Chief Executive Officer of the
Company and of SJP, dated as of the Closing Date to the foregoing effect
and as to such other matters as Purchaser may reasonably request.
(f) No litigation, statute, rule, regulation, executive order,
decree, ruling, injunction, action or proceeding shall have been
enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self regulatory organization
having authority over the matters contemplated hereby that questions the
validity of, or challenges or prohibits the consummation of, any of the
transactions contemplated by this Agreement.
(g) Purchaser shall have received an opinions of the Company's dated
as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit C
attached hereto. Purchaser shall be entitled to receive, and rely upon, an
opinion of SJP's counsel, dated as of the closing of the Transaction, in
form, scope and substance reasonably satisfactory to the Purchaser in
connection with the consummation of the Transaction.
(h) The Company shall have delivered evidence reasonably
satisfactory to the Purchaser that the Company's transfer agent has agreed to
act in accordance with irrevocable instructions in the form attached hereto
as Exhibit D.
(i) There shall have been no material adverse changes and no material
adverse developments in the business, properties, operations, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, or SJP and its subsidiaries, taken as a
whole, since the date hereof, and no information, of which the
Purchasers are not currently aware, shall come to the attention of the
Purchaser that is materially adverse to the Company or SJP.
(j) The Board of Directors of the Company and the Board of Directors
of SJP shall have adopted resolutions consistent with Section 3(b) (ii) and
Section 4(b)(ii) above, respectively, and in a form reasonably acceptable to
such Purchaser.
(k) The Company and SJP shall have delivered to Purchaser
certificates evidencing the incorporation and good standing of the Company
and each of its subsidiaries and of SJP and each of its subsidiaries in such
corporation's state of incorporation issued by the Secretary of State of
such state of incorporation as of a date within ten days of the Closing Date.
(l) The Company and SJP shall have delivered to Purchaser certified
copies of their respective Articles of Incorporation as certified by the
Secretary of State of their respective states of incorporation within
ten days of the Closing Date.
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<PAGE>
(m) The Company and SJP shall have delivered to Purchaser secretary's
certificates, dated as of the Closing Date, as to (i) the resolutions
described in Section 7(j), (ii) their respective Certificates of
Incorporation and (iii) their respective Bylaws, each as in effect at
the Closing.
(n) SJP shall have obtained and delivered to Purchaser written
evidence of the consent of each member of SJP to the Transaction, and the
Transaction shall have been consummated in accordance with the Share
Exchange Agreement. The Purchaser and its counsel shall have the right to
review and approve, in their sole and absolute discretion, all documentation
and matters related thereto. SJP and the Company shall have delivered to the
Purchaser copies of an executed Bill of Sale and an executed Assumption
Agreement, or similar documents evidencing the consummation of the
Transaction.
(o) All of the "CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE"
set forth in Section 8 that certain Securities Purchase Agreement, dated as
of June 17, 1998, among the Purchaser and Kapher Trust shall have been
satisfied.
(p) The Company shall have cancelled or retired to treasury at least
400,000 shares of Common Stock as set forth on Schedule 3(d) hereto.
a GOVERNING LAW; MISCELLANEOUS.
(a) Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of Colorado
applicable to contracts made and to be performed in the State of Colorado.
The Company and SJP irrevocably consent to the jurisdiction of the
United States federal courts and the state courts located in the State of
Colorado in any suit or proceeding based on or arising under this Agreement
and irrevocably agree that all claims in respect of such suit or
proceeding may be determined in such courts. The Company and SJP
irrevocably waive the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company and SJP further agree that service of
process mailed by first class mail shall be deemed in every respect
effective service of process in any such suit or proceeding. Nothing
herein shall affect the right of Purchaser to serve process in any other
manner permitted by law. The Company and SJP agree that a final non-
appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party,
may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering
this Agreement.
(c) Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of,
this Agreement.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in
any other jurisdiction.
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<PAGE>
(e) Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the Purchasers, the
Company, SJP, their affiliates and persons acting on their behalf with
respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company, SJP nor
Purchaser makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived other
than by an instrument in writing signed by the party to be charged with
enforcement and no provision of this Agreement may be amended other than by an
instrument in writing signed by the Company, SJP and Purchaser.
(f) Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier or by
confirmed facsimile, and shall be effective upon receipt or refusal of
receipt, if delivered personally or by courier or confirmed facsimile, in
each case addressed to a party. The addresses for such communications
shall be:
If to the Company:
BOULDER CAPITAL OPPORTUNITIES III, INC.
2434 Vine Place
4750 Table Mesa Drive
Boulder, CO 80304
Facsimile:
Attn: Robert Soehngen
with a copy simultaneously transmitted by like means to:
Michael A. Littman, Esquire
10200 W. 44th Avenue, #400
Wheat Ridge, CO 80033
Facsimile: (303) 422-7796
If to SJP:
SONIC JET PERFORMANCE, LLC
15662 Commerce Lane
Huntington Beach, CA 92649
Facsimile:
Attn: Albert Mardikian
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<PAGE>
with a copy simultaneously transmitted by like means to:
Law Offices of Pasquale P. Caiazza
1625 West 22nd Street
Santa Ana, CA 92706-2413 Facsimile:
(714) 543-2971
Attn: Christopher A. Morgan, J.D.
If to Purchaser, to such address set forth under Purchaser's name on the
Execution Page hereto executed by Purchaser.
Each party shall provide notice to the other parties of any change in
address.
(g) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns,
including, but not limited to, the corporation which is the surviving
entity in the Transaction. Except as provided herein or therein, neither
the Company, SJP nor any Purchaser shall assign this Agreement or the
Registration Rights Agreement or any rights or obligations hereunder
or thereunder. Notwithstanding the foregoing, Purchaser may assign its rights
hereunder to any of its "affiliates" (as that term is defined under the
Exchange Act) who are Accredited Investors without the consent of the
Company (provided such assignees agree to be bound by all of the terms and
conditions hereof), or to any other person or entity with the consent of the
Company, which consent shall not be unreasonably withheld. This provision
shall not limit Purchaser's right to transfer the Securities pursuant to the
terms of the Certificate of Designation and this Agreement or to assign such
Purchaser's rights hereunder or thereunder to any such transferee.
(h) Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
(i) Survival. The representations, warranties, agreements and covenants
of the Company and SJP set forth in Sections 3, 4, 5, 6 and 9 hereof shall
survive the Closing notwithstanding any investigation conducted by or on
behalf of Purchaser. None of the representations and warranties made by the
Company or SJP, as applicable, herein shall act as a waiver of any
rights or remedies Purchaser may have under applicable federal or state
securities laws. The Company and/or SJP, as applicable, shall indemnify and
hold harmless Purchaser and each Purchaser's officers, directors,
employees, partners, members, agents and affiliates for all losses or damages
arising as a result of or related to any breach or alleged breach by
the Company and/or SJP, as applicable, of any of its representations or
covenants set forth herein, including advancement of reasonable expenses as
they are incurred.
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<PAGE>
(j) Publicity. The Company and each Purchaser shall have the right
to review before issuance any press releases, SEC filings, filings
with the AMEX, NYSE, the NNM, the SmallCap or the Bulletin Board, as
applicable, or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior review of the Purchasers, to make any press release, SEC
filings or filings with the AMEX, NYSE, the NNM, the SmallCap or the
Bulletin Board, as applicable, with respect to such transactions as is
required by applicable law and regulations (although the Purchaser shall
be consulted by the Company in connection with any such press release and
filing prior to its release and shall be provided with a copy thereof).
(k) Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have
occurred on or before June __, 1998, unless the parties agree otherwise,
this Agreement shall terminate at the close of business on such date.
Notwithstanding any termination of this Agreement, any party not in
breach of this Agreement shall preserve all rights and remedies it may
have against another party hereto for a breach of this Agreement prior to
or relating to the termination hereof.
(m) Joint Participation in Drafting. Each party to this Agreement
has participated in the negotiation and drafting of this Agreement, the
Certificate of Designation and the Registration Rights Agreement. As
such, the language used herein and therein shall be deemed to be the
language chosen by the parties hereto to express their mutual intent, and
no rule of strict construction will be applied against any party to
this Agreement.
(n) Equitable Relief. The Company and SJP, respectively,
acknowledge that a breach by it of its obligations hereunder will cause
irreparable harm to Purchaser by vitiating the intent and purpose of
the transactions contemplated hereby. Accordingly, the Company and SJP,
respectively, acknowledge that the remedy at law for a breach of its obligations
hereunder (including, but not limited to, its obligations pursuant to Section
6 hereof) will be inadequate and agree, in the event of a breach or
threatened breach by the Company or by SJP of the provisions of this
Agreement (including, but not limited to, its obligations pursuant to
Section 5 hereof), that Purchaser shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and
requiring immediate issuance and transfer of the Securities, without the
necessity of showing economic loss and without any bond or other
security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
BOULDER CAPITAL OPPORTUNITIES, INC.
By:
Name:
Title:
SONIC JET PERFORMANCE, LLC.
By:
Name:
Title:
PURCHASER:
JNC STRATEGIC FUND LTD.
By:
Name:
Title:
RESIDENCE: Cayman Islands
ADDRESS: c/o Olympia Capital (Cayman) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Telecopy: (441) 295-2305
Attention: Thomas Davis
with copies of all notices to:
Encore Capital
Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Telecopy: (703) 476-7711)
Attn: Neil T. Chau
<PAGE>
Exhibit 7.4
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
BOULDER CAPITAL OPPORTUNITIES III, INC.
(Pursuant to Section 7-106-102 of the Colorado Business Corporation Act)
Boulder Capital Opportunities III, Inc., a corporation organized and
existing under the laws of the State of Colorado (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of
Directors of the Corporation pursuant to authority of the Board of Directors
as required by Section 7-5-101 of the Colorado Business Corporation Act.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Certificate of
Incorporation and Bylaws, each as amended and restated through the date
hereof, the Board of Directors hereby authorizes a series of the
Corporation's previously authorized Preferred Stock, no par value (the
"Preferred Stock"), and hereby states the designation and number of shares,
and fixes the relative rights, preferences, privileges, powers and
restrictions thereof as follows:
<PAGE>
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 1,600 shares of
Preferred Stock, is the Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and the face amount shall be One Thousand U.S. Dollars
($1,000.00) per share (the "Face Amount").
II. NO DIVIDENDS
The Series A Preferred Stock will bear no dividends, and the holders of
the Series A Preferred Stock shall not be entitled to receive dividends on
the Series A Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following
terms shall have the following meanings:
A. "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on,the principal securities exchange or
trading market where such security is listed or traded as reported by
Bloomberg Financial Markets or a comparable reporting service of national
reputation selected by the Corporation and reasonably acceptable to
holders of a majority of the then outstanding shares of Series A
Preferred Stock if Bloomberg Financial Markets is not then reporting
closing bid prices of such security (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation
Bureau, Inc., in each case for such date, if such date was not a trading
date for such security, on the next preceding date which was a trading
date. If the Closing Bid Price cannot be calculated for such security
as of either date on any of the foregoing bases, the Closing Sale Price
of such security on such date shall be the fair market value as reasonably
determined by an investment banking firm selected by the Corporation
and reasonably acceptable to holders of a majority of the then
outstanding shares of Series A Preferred Stock, with the costs of such
appraisal to be borne by the Corporation.
B. "Conversion Date" means, for any Conversion, the date specified
in the notice of conversion in the form attached hereto (the "Notice of
Conversion"), so long as the copy of the Notice of Conversion is faxed
(or delivered by other means resulting in notice) to the Corporation before
11:59 p.m., New York City time, on the Conversion Date indicated in the Notice
of Conversion. If the Notice of Conversion is not so faxed or otherwise
delivered before such time, then the Conversion Date shall be the date the
holder faxes or otherwise delivers the Notice of Conversion to the
Corporation.
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<PAGE>
C. "Conversion Price" means the lower of the Fixed Conversion
Price and the Variable Conversion Price, each in effect as of such
date and subject to adjustment as provided herein.
D. "First Conversion Date" means the earliest of (i) the 75th day
following the Issuance Date, (ii) the date the Corporation makes a
public announcement that it intends to merge or consolidate with any other
entity (other than a merger in which the Corporation is the surviving or
continuing entity and the voting capital stock of the Corporation immediately
prior to such merger represents at least 50% of the voting power of the
capital stock of the Corporation after the merger) or to sell or transfer
all or substantially all of the assets of the Corporation, (iii) the
date any person, group or entity (including the Corporation) publicly
announces a tender offer, exchange offer or another transaction to purchase
50% or more of the Corporation's outstanding Common Stock or otherwise
publicly announces an intention to replace a majority of the Corporation's
Board of Directors by waging a proxy battle or otherwise, (iv) the date on
which the Registration Statement required to be filed by the Corporation
pursuant to Section 2(a) of that certain Registration Rights by and among the
Corporation and the other signatories thereto dated June 16, 1998 (the
"Registration Rights Agreement") is declared effective by the United
States Securities and Exchange Commission (the "SEC") or (v) the date on
which a Redemption Event described in Article VIII.A(vi) occurs.
E. "Fixed Conversion Price" means $4.00 and shall be subject to
adjustment as provided herein.
F. "Issuance Date" means the date of the closing under the Securities
Purchase Agreement by and among the Corporation and the purchasers named
therein with respect to the initial issuance of the Series A Preferred
Stock (the "Securities Purchase Agreement").
G. "N" means the number of days from, but excluding, the Issuance Date.
H. "Premium" means an amount equal to (.08) x (N/365) x (1,000).
I. "Variable Conversion Price" means, as of any date of
determination, in the event the average of the Closing Bid Prices for the
Common Stock during the, twenty (20) consecutive trading days immediately
preceding such date of determination is less than the Fixed Conversion
Price (subject to equitable adjustment for any stock splits, stock,
dividends, reclassifications or similar events during such 20 trading day
period), the amount obtained by multiplying 0.75 by the average of the
five lowest Closing Bid Prices for the Common Stock during the twenty
(20) consecutive trading days immediately preceding such date of
determination and shall be subject to adjustment as provided herein.
Otherwise, the Variable Conversion Price shall be equal to the Fixed
Conversion Price.
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<PAGE>
IV. CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to the
limitations on conversions contained in Paragraph C of this Article IV, each
holder of shares of Series A Preferred Stock may, at any time and from
time to time on or after the First Conversion Date, convert (an "Optional
Conversion") each of its shares of Series A Preferred Stock into a number
of fully paid and nonassessable shares of Common Stock determined in
accordance with the following formula:
1,000
Conversion Price
or in accordance with the following formula if the Corporation does not
timely redeem the Premium thereon in accordance with subparagraph (ii) below:
1,000 + the Premium
Conversion Price
(ii) (a) The Corporation shall have the right, in its sole
discretion, upon receipt of a Notice of Conversion or in the event of a Required
Conversion at Maturity, to redeem any portion of the Premium subject to such
conversion for a sum of cash equal to the amount of the Premium being so
redeemed. All cash redemption payments hereunder shall be paid in lawful
money of the United States of America at such address for the holder as
appears on the record books of the Corporation (or at such other address as
such holder shall hereafter give to the Corporation by written notice). In
the event the Corporation so elects to redeem all or any portion of the
Premium in cash and fails to pay such holder the applicable redemption amount to
which such holder is entitled by depositing a check in the U.S. Mail to such
holder within three (3) business days of receipt by the Corporation of a
Notice of Conversion (in the case of a redemption in connection with an
Optional Conversion) or the Maturity Date (in the case of a redemption in
connection with a Required Conversion at Maturity), the Corporation shall
thereafter forfeit its right to redeem such Premium in cash and such Premium
shall thereafter be converted into shares of Common Stock in accordance with
Article IV.A(i).
(b) Each holder of Series A Preferred Stock shall have the
right to require the Corporation to provide advance notice to such
holder stating whether the Corporation will elect to redeem all or any
portion of the Premium in cash pursuant to the Corporation's redemption rights
discussed in subparagraph (a) of this Article IV.A(ii). A holder may
exercise such right from time to time by sending notice (an "Election Notice")
to the Corporation, by facsimile, requesting that the Corporation
disclose to such holder whether the Corporation would elect to redeem any
portion of the Premium for cash in lieu of issuing shares of Common Stock
therefor if such holder were to exercise its right of conversion pursuant to
this Article IV.A. The Corporation shall, no later than the close of
business on the next business day following receipt of an Election
Notice, disclose to such holder whether the Corporation would elect to
redeem any portion of a Premium in connection with a conversion pursuant
to a Notice of Conversion delivered over the subsequent five (5) business
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day period. If the Corporation does not respond to such holder within
such one (1) business day period via facsimile, the Corporation shall,
with respect to any conversion pursuant to a Conversion Notice delivered
within the subsequent five (5) business day period, forfeit its right to
redeem such Premium in accordance with subparagraph (a) of this Article
IV.A(ii) and shall be required to convert such Premium into shares of Common
Stock.
B. Mechanics of Conversion. In order to effect an Optional
Conversion, a holder shall: (x) fax (or otherwise deliver) a copy of
the fully executed Notice of Conversion to the Corporation or the transfer
agent for the Common Stock and (y) surrender or cause to be surrendered
the original certificates representing the Series A Preferred Stock being
converted (the "Preferred Stock Certificates"), duly endorsed, along with a
copy of the Notice of Conversion as soon as practicable thereafter to the
Corporation or the transfer agent. Upon receipt by the Corporation of a
facsimile copy of a Notice of Conversion from a holder, the Corporation shall
immediately send, via facsimile, a confirmation to such holder stating that
the Notice of Conversion has been received, the date upon which the
Corporation expects to deliver, subject to Article IV.E, the Common Stock
issuable upon such conversion and the name and telephone number of a contact
person at the Corporation regarding the conversion. The Corporation
shall not be obligated to issue shares of Common Stock upon a conversion
unless either the Preferred Stock Certificates are delivered to the
Corporation or the transfer agent as provided above, or the holder
notifies the Corporation or the transfer agent that such certificates have
been lost, stolen or destroyed and delivers the documentation to the
Corporation required by Article XIV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates from a holder of Series A
Preferred Stock accompanied by a Notice of Conversion, the Corporation shall,
subject to Article IV.E, no later than the later of (a) the second business
day following the Conversion Date and (b) the business day following
the date of such surrender (or, in the case of lost, stolen or
destroyed certificates, after provision of indemnity pursuant to Article
XIV.B) (the "Delivery Period"), issue and deliver to the holder or its
nominee (x) that number of shares of Common Stock issuable upon conversion
of such shares of Series A Preferred Stock being converted and (y) a
certificate representing the number of shares of Series A Preferred Stock
not being converted, if any. If the Corporation's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, and so long as the certificates therefor do not
bear a legend and the holder thereof is not then required to return
such certificate for the placement of a legend thereon, the Corporation
shall cause its transfer agent to electronically transmit the Common Stock
issuable upon conversion to the holder by crediting the account of the
holder or its nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DTC Transfer"). If the aforementioned conditions to a
DTC Transfer are not satisfied, the Corporation shall deliver to the
holder physical certificates representing the Common Stock issuable upon
conversion. Further, a holder may instruct the Corporation to deliver
to the holder physical certificates representing the Common Stock issuable
upon conversion in lieu of delivering such shares by way of DTC Transfer.
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(ii) Taxes. The Corporation shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of the Series A Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series A
Preferred Stock would result in the issuance of a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion of the Series A Preferred
Stock shall be the next higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number
of shares of Common Stock as are not disputed in accordance with
subparagraph (i) above. If such dispute involves the calculation of the
Conversion Price, the Corporation shall submit the disputed calculations to
an independent outside accountant reasonably acceptable to the holder of
Series A Preferred Stock being converted via facsimile within two business
days of receipt of the Notice of Conversion. The accountant, at the
Corporation's sole expense, shall audit the calculations and notify
the Corporation and the holder of the results no later than two business
days from the date it receives the disputed calculations. The accountant's
calculation shall be deemed conclusive, absent manifest error. The
Corporation shall then issue the appropriate number of shares of Common
Stock in accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series
A Preferred Stock shall be subject to the following limitations (each of
which limitations shall be applied independently):
(i) Cap Amount. If, notwithstanding the representations and
warranties of the Corporation contained in Section 3(c) of the Securities
Purchase Agreement, dated as of June 17, 1998, between the Corporation and
the purchasers of the Series A Preferred Stock named therein, the
Corporation is prohibited by the rules or regulations of any securities
exchange or quotation system on which the Common Stock is then listed or
traded, from listing or issuing a number of shares of Common Stock in
excess of a prescribed amount (the "Cap Amount") without the approval of the
Corporation's shareholders, then the Corporation shall not be required
to list or issue, as applicable, shares in excess of the Cap Amount
unless the Corporation has obtained the approval of its shareholders.
Assuming solely for purposes of this paragraph C that such prohibition
is applicable, the Cap Amount shall be 1,121,439 shares [19.99% of total
shares outstanding on Issuance Date]. The Cap Amount shall be allocated
pro rata to the holders of Series A Preferred Stock as provided in Article
XIV.C. In the event the Corporation is prohibited from listing or issuing
shares of Common Stock as a result of the operation of this subparagraph
(i), the Corporation shall comply with Article VII.
(ii) No Five Percent Holders. Unless a holder of shares of
Series A Preferred Stock delivers a waiver in accordance with the
last sentence of this subparagraph (ii), except in connection with a
Required Conversion at Maturity, in no event shall a holder of shares of
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Series A Preferred Stock be entitled to receive shares of Common Stock upon
a conversion to the extent that the sum of (x) the number of shares of
Common Stock beneficially owned by the holder and its affiliates
(exclusive of shares issuable upon conversion of the unconverted portion of
the shares of Series A Preferred Stock or the unexercised or
unconverted portion of any other securities of the Corporation subject to
alimitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series A Preferred Stock with respect to
which the determination of this subparagraph is being made, would result in
beneficial ownership by the holder and its affiliates of more than 4.99%
of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13 D-G thereunder, except as otherwise provided in clause
(x) above. Except as provided in the immediately succeeding sentence, the
restriction contained in this subparagraph (ii) shall not be altered,
amended, deleted or changed in any manner whatsoever unless the holders of a
majority of the outstanding shares of common Stock and each holder of
outstanding shares of Series A Preferred Stock shall approve such
alteration, amendment, deletion or change. Notwithstanding the foregoing,
a holder of shares of Series A Preferred Stock may, by providing written
notice to the Corporation, adjust the restriction set forth in this
subparagraph (ii) so that the limitation on beneficial ownership of 4.99% of
the outstanding shares of Common Stock referred to above shall be increased
to 9.99%, which adjustment shall not take effect until the 61st day after
the date of such notice.
D. Required Conversion at Maturity. Subject to the limitations
set forth in Paragraph C(i) of this Article IV, and provided all shares of
Common Stock issuable upon conversion of all outstanding shares of Series A
Preferred Stock are then (i) authorized and reserved for issuance, (ii)
registered under the Securities Act of 1933, as amended (the "Securities
Act"), for resale by the holders of such shares of Series A Preferred Stock
and (iii) eligible to be traded on either the American Stock Exchange
(the "AMEX"), the New York Stock Exchange (the "NYSE"), the Nasdaq National
Market (the "NNM"), the Nasdaq SmallCap Market (the "SmallCap") or in the
over-the-counter market on the electronic Bulletin Board (the "Bulletin
Board") and provided no Redemption Event has occurred, each share of Series
A Preferred Stock issued and outstanding on the fifth (5th) anniversary
of the Issuance Date (the "Maturity Date") automatically shall be converted
into shares of Common Stock on such date in accordance with the conversion
formulas set forth in Paragraph A of this Article IV (the "Required
Conversion at Maturity"). If the Required Conversion at Maturity occurs, the
Corporation and the holders of Series A Preferred Stock shall follow the
applicable conversion procedures set forth in Paragraph B of this Article IV
and/or the applicable redemption procedures set forth in Paragraph E
of this Article IV; provided, however, that the holders of Series A Preferred
Stock are not required to deliver a Notice of Conversion to the Corporation
or its transfer agent. If the Required Conversion at Maturity does not
occur, each holder of Series A Preferred Stock shall thereafter have
the option, exercisable in whole or in part at any time and from time to time by
delivery of a Redemption Notice (as defined in Article VIII.C) to the
Corporation, to require the Corporation to purchase for cash, at an amount
per share equal to the Redemption Amount (as defined in Article VIII.B), the
holder's Series A Preferred Stock. If the Corporation fails to redeem any
of such shares within five (5) business days after the day on which the
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Corporation receives such Redemption Notice, then such holder shall be
entitled to the remedies provided in Article VIII.C and VIII.D.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of
Series A Preferred Stock, the Corporation shall reserve 800,000 shares [200%
of number of shares which would be issuable if converted in its entirety on
the Issuance Date based on the Variable Conversion Price] of the authorized
but unissued shares of Common Stock for issuance upon conversion of the
Series A Preferred Stock and thereafter the number of authorized but
unissued shares of Common Stock so reserved (the "Reserved Amount")
shall not be decreased and shall at all times be sufficient to provide
for the conversion of the Series A Preferred Stock outstanding at the
then current Conversion Price thereof. The Reserved Amount shall be
allocated to the holders ofSeries A Preferred Stock as provided in Article
XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any
three consecutive trading days (the last of such three trading days being
the "Authorization Trigger Date") shall be less than 135% of the number of
shares of Common Stock issuable upon conversion of the then outstanding
shares of Series A Preferred Stock, the Corporation shall immediately
notify the holders of Series A Preferred Stock of such occurrence and shall
take immediate action (including, if necessary, seeking shareholder
approval to authorize the issuance of additional shares of Common Stock) to
increase the Reserved Amount to 200% of the number of shares of Common
Stock then issuable upon conversion of the outstanding Series A Preferred
Stock. In the event the Corporation fails to so increase the Reserved
Amount within 90 days after an Authorization Trigger Date, each holder of
Series A Preferred Stock shall thereafter have the option, exercisable in
whole or in part at any time and from time to time by delivery of a Redemption
Notice (as defined in Article VIII.C) to the Corporation, to require the
Corporation to purchase for cash, at an amount per share equal to the
Redemption Amount (as defined in Article VIII.B), a portion of the holder's
Series A Preferred Stock such that, after giving effect to such purchase, the
holder's allocated portion of the Reserved Amount exceeds 135% of the total
number of shares of Common Stock issuable to such holder upon conversion of
its Series A Preferred Stock. If the Corporation fails to redeem any of
such shares within five (5) business days after its receipt of such
Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
C. Adjustment to Conversion Price. If the Corporation is prohibited,
at any time, from issuing shares of Common Stock upon conversion of Series A
Preferred Stock to any holder because the Corporation does not then have
available a sufficient number of authorized and reserved shares of Common
Stock, then the Fixed Conversion Price in respect of any shares of Series A
Preferred Stock held by any holder (including shares of Series A Preferred
Stock submitted to the Corporation for conversion, but for which shares of
Common Stock have not been issued to any such holder) shall be adjusted as
provided in Article VI.A.
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VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults; Adjustments to Conversion Price. The
following shall constitute a "Conversion Default": (i) following the
submission by a holder of shares of Series A Preferred Stock of a Notice of
Conversion, the Corporation fails for any reason (other than because of an
event described in clause (iii) below) to deliver, on or prior to the
fourth business day following the expiration of the Delivery Period for such
conversion, such number of freely tradeable shares of Common Stock to which
such holder is entitled upon such conversion, (ii) the Corporation provides
notice to any holder of Series A Preferred Stock at any time of its intention
not to issue freely tradeable shares of Common Stock upon exercise by any
holder of its conversion rights in accordance with the terms of this
Certificate of Designation (other than because of an event described
in clause (iii) below), or (iii) the Corporation is prohibited, at any
time, from listing shares of Common Stock or from issuing shares of Common
Stock upon conversion of Series A Preferred Stock to any holder because
the Corporation (A) does not have available a sufficient number of
authorized and reserved shares of Common Stock or (B) such listing or
issuance would exceed the then unissued portion of such holder's Cap Amount. In
the case of a Conversion Default described in clause (i) or (iii) above, the
Fixed Conversion Price in respect of any shares of Series A Preferred Stock
held by such holder (including shares of Series A Preferred Stock
submitted to the Corporation for conversion, but for which shares of Common
Stock have not been issued to such holder) shall thereafter be the lesser of
(x) the Fixed Conversion Price on the date of the Conversion Default and
(y) the lowest Conversion Price in effect during the period beginning on,
and including, such date through and including (A) in the case of a
Conversion Default referred to in clause (i) above, the earlier of (1) the day
such shares of Common Stock are delivered to the holder and (2) the day on
which the holder regains its rights as a holder of Series A Preferred
Stock with respect to such unconverted shares of Series A Preferred Stock
pursuant to the provisions of Article XIV.F hereof, and (B) in the case of
a Conversion Default referred to in clause (iii) above, the date on which the
prohibition on listing or issuance of Common Stock terminates. In the case
of a Conversion Default described in clause (ii) above, the Fixed Conversion
Price with respect to any conversion thereafter shall be the lowest
Conversion Price in effect at any time during the period beginning on,
and including, the date of the occurrence of such Conversion Default
through and including the Default Cure Date (as defined below). Following
any adjustment to the Fixed Conversion Price pursuant to this Article
VI.A, the Fixed Conversion Price shall thereafter be subject to
further adjustment for any events described in Article XI. Upon the
occurrence of each reset of the Fixed Conversion Price pursuant to this
Paragraph A, the Corporation, at its expense, shall promptly compute the
new Fixed Conversion Price and prepare and furnish to each holder of
Series A Preferred Stock a certificate setting forth such new Fixed Conversion
rice and showing in detail each Conversion Price in effect during such
reset period.
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (i) of its definition, the date the Corporation effects
the conversion of the full number of shares of Series A Preferred Stock,
(ii) with respect to a Conversion Default described in clause (ii) of its
definition, the date the Corporation issues freely tradeable shares of
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Common Stock in satisfaction of all conversions of Series A Preferred Stock
in accordance with Article IV.A, and (iii) with respect to a
Conversion Default described in clause (i) or clause (ii) of its definition,
the date on which the Corporation redeems shares of Series A Preferred
Stock held by such holder pursuant to paragraph C of this Article VI.
B. Buy-In Cure. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of
Conversion that the Corporation is unable to honor conversions, if (i) (a)
the Corporation fails for any reason to deliver during the Delivery Period
shares of Common Stock to a holder upon a conversion of shares of Series A
Preferred Stock or (b) there shall occur a Legend Removal Failure (as
defined in Article VIII.A(iii) below) and (ii) thereafter, such holder
purchases (in an open market transaction or otherwise) shares of Common Stock
to make delivery in satisfaction of a sale by such holder of the
unlegended shares of Common Stock (the "Sold Shares") which such holder
anticipated receiving upon such conversion (a "Buy-In"), the Corporation
shall pay such holder (in addition to any other remedies available to the
holder) the amount by which (x) such holder's total purchase price (including
brokerage commissions, ifany) for the unlegended shares of Common Stock
so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to shares of Common Stock it sold for $10,000, the
Corporation will be required to pay the holder $1,000. A holder shall
provide the Corporation written notification and supporting documentation
indicating any amounts payable to such holder pursuant to this Paragraph
B. The Corporation shall make any payments required pursuant to this
Paragraph B in accordance with and subject to the provisions of Article
XIV.E.
C. Redemption Right. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof inwriting by the holder, for any reason (other than
because such issuance would exceed such holder's allocated portion of the
Reserved Amount or Cap Amount, for which failures the holders shall have
the remedies set forth in Articles V and VII, respectively) to issue shares
of Common Stock within 10 business days after the expiration of the
Delivery Period with respect to any conversion of Series A Preferred
Stock, then the holder may elect at any time and from time to time prior to
the Default Cure Date for such Conversion Default, by delivery of a
Redemption Notice to the Corporation, to have all or any portion of such
holder's outstanding shares of Series A Preferred Stock purchased by the
Corporation for cash, at an amount per share equal to the Redemption Amount
(as defined in Article VIII.B). If the Corporation fails to redeem any of
such shares within five business days after its receipt of such Redemption
Notice, then such holder shall be entitled to the remedies provided in
Article VIII.C.
D. Void Notice of Conversion. If for any reason a holder has not
received all of the shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion
of Series A Preferred Stock, then the holder, upon written notice to
the Corporation's transfer agent, with a copy to the Corporation, may
void its Notice of Conversion with respect to, and retain or have
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returned, as the case may be, any shares of Series A Preferred Stock that
have not been converted pursuant to such holder's Notice of Conversion;
provided that the voiding of a holder's Notice of Conversion shall not
affect such holders rights and remedies which have accrued prior to
the date of such notice pursuant to Article VI hereof or otherwise.
VII. INABILITY TO LIST OR CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time the then unissued portion of
any holder's Cap Amount is less than 135% of the number of shares of Common
Stock then issuable upon conversion of such holder's shares of Series A
Preferred Stock (a "Trading Market Trigger Event"), the Corporation shall
immediately notify the holders of Series A Preferred Stock of such
occurrence and shall take immediate action (including, if necessary, seeking
the approval of its shareholders to authorize the listing or issuance of
the full number of shares of Common Stock which would be issuable upon
the conversion of the then outstanding shares of Series A Preferred Stock but
for the Cap Amount) to eliminate any prohibitions under applicable law or the
rules or regulations of any stock exchange, interdealer quotation system or
other selfregulatory organization with jurisdiction over the Corporation or
any of its securities on the Corporation's ability to list or issue shares
of Common Stock in excess of the Cap Amount ("Trading Market
Prohibitions"). In the event the Corporation fails to eliminate all such
Trading Market Prohibitions within 90 days after the Trading Market Trigger
Event, then each holder of Series A Preferred Stock shall thereafter have
the option, exercisable in whole or in part at any time and from time to time
until such date that all such Trading Market Prohibitions are eliminated,
by delivery of a Redemption Notice (as defined in Article VIII.C) to the
Corporation, to require the Corporation to purchase for cash, at an amount per
share equal to the Redemption Amount, a number of the holder's shares of
Series A Preferred Stock such that, after giving effect to such redemption,
the then unissued portion of such holder's Cap Amount exceeds 135% of the
total number of shares of Common Stock issuable upon conversion of such
holder's shares of Series A Preferred Stock. If the Corporation fails to
redeem any of such shares within five (5) business days after its receipt of
such Redemption Notice, then such holder shall be entitled to the
remedies provided in Articles VII.B and VIII.C.
B. Remedies. If the Corporation fails to redeem any shares of
Series A Preferred Stock pursuant to Article VII.A within five business
days after its receipt of such Redemption Notice, and thereafter the
Corporation is prohibited, at any time, from listing shares of Common
Stock or from issuing shares of Common Stock upon conversion of Series A
Preferred Stock to any holder because such listing or issuance would exceed
the then unissued portion of such holder's Cap Amount because of
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction
over the Corporation or its securities, any holder who is so prohibited
from converting its Series A Preferred Stock because the shares of Common
Stock underlying such Series A Preferred Stock may not be listed or
issued, may elect either or both of the following additional remedies:
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(i) to require, with the consent of holders of at least fifty
percent (50%) of the outstanding shares of Series A Preferred Stock
(including any shares of Series A Preferred Stock held by the requesting
holder), the Corporation to terminate the listing of its Common Stock on the
AMEX or the NYSE (or any other stock exchange) or the quotation of prices for
the Common Stock in the NNM or SmallCap (or any other interdealer quotation
system or trading market) and to cause its Common Stock to be eligible for
trading on the over-the- counter electronic bulletin board; or
(ii) to require the Corporation to issue shares of Common
Stock in accordance with such holder's Notice of Conversion at a
conversion price equal to the average of the Closing Sale Prices for
the Common Stock during the five consecutive trading days ending on
the trading day immediately preceding the date of the holder's written
notice to the Corporation of its election to receive shares of Common
Stock pursuant to this subparagraph (ii) (subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or
similar events during such five trading day period).
C. Adjustment to Conversion Price. If the Corporation is prohibited,
at any time, from listing shares of Common Stock or from issuing shares of
Common Stock upon conversion of Series A Preferred Stock to any holder
because [such listing or issuance would exceed the then unissued portion
of such holder's Cap Amount because] of applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
selfregulatory organization with jurisdiction over the Corporation or its
securities, then the Fixed Conversion Price in respect of any shares of
Series A Preferred Stock held by any holder (including shares of Series A
Preferred Stock submitted to the Corporation for conversion, but for which
shares of Common Stock have not been issued) shall be adjusted as provided
in Article VI.A.
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described
in clauses (i)-(vi) below after expiration of the applicable cure period
(if any) being a "Redemption Event"):
(i) the Common Stock (including any of the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock) is suspended
from trading on any of, or is not listed (and authorized) for trading on at
least one of, the AMEX, the NYSE, the NNM, SmallCap or Bulletin Board for
an aggregate of 10 trading days in any nine month period;
(ii) the Registration Statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement
has not been declared effective by the 180th day following the Registration
Deadline (as defined in the Registration Rights Agreement) or such
Registration Statement, after being declared effective, cannot be utilized by
the holders of Series A Preferred Stock for the resale of all of their
Registrable Securities (as defined in the Registration Rights Agreement)
for an aggregate of more than 30 days;
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(iii) the Corporation fails to remove any restrictive
legend on any certificate or any shares of Common Stock issued to the
holders of Series A Preferred Stock upon conversion of the Series A
Preferred Stock as and when required by this Certificate of Designation,
the Securities Purchase Agreement or the Registration Rights Agreement (a
"Legend Removal Failure"), and any such failure continues uncured for five
business days after the Corporation has been notified thereof in writing by
the holder;
(iv) the Corporation provides notice to any holder of Series A
Preferred Stock, including by way of public announcement, at any
time, of its intention not to issue, or otherwise refuses to issue, shares of
Common Stock to any holder of Series A Preferred Stock upon conversion in
accordance with the terms of this Certificate of Designation (other than
due to the circumstances contemplated by Article V or VII for which the
holders shall have the remedies set forth in such Articles);
(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially
all of its assets (the presentation of any such transaction for stockholder
approval being conclusive evidence that such transaction involves the sale
of all or substantially all of the assets of the Corporation);
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation
of the Corporation and other than pursuant to a merger in which the
Corporation is the surviving or continuing entity and the voting capital
stock of the Corporation immediately prior to such merger represents at
least 50% of the voting power of the capital stock of the Corporation after
the merger) and its capital stock is unchanged; or
(c) have fifty percent (50%) or more of the voting
power of its capital stock owned beneficially by one person, entity
or "group" (as such term is used under Section 13(d) of the Securities
Exchange Act of 1934, as amended); or
(vi) the Corporation otherwise shall breach any material term
hereunder or under the Securities Purchase Agreement or the Registration
Rights Agreement and, to the extent curable, such breach continues uncured,
or any penalties or damages payable by the Corporation therefor remaining
unpaid, for 10 business days after the Corporation has been notified thereof
in writing by the holder;
then, upon the occurrence of any such Redemption Event, each holder of
shares of Series A Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by
delivery of a Redemption Notice (as defined in Paragraph C below) to the
Corporation while such Redemption Event continues, to require the
Corporation to purchase for cash any or all of the then outstanding shares of
Series A Preferred Stock held by such holder for an amount per share equal
to the Redemption Amount (as defined in Paragraph B below) in effect at the
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time of the redemption hereunder. For the avoidance of doubt,
the occurrence of any event described in clauses (i), (ii), (iv) or (v)
above shall immediately constitute a Redemption Event and there shall be no
cure period. Upon the Corporation's receipt of any Redemption Notice
hereunder (other than during the three trading day period following the
Corporation's delivery of a Redemption Announcement (as defined below) to
all of the holders in response to the Corporation's initial receipt of a
Redemption Notice from a holder of Series A Preferred Stock), the Corporation
shall immediately (and in any event within one business day following
such receipt) deliver a written notice (a "Redemption Announcement") to all
holders of Series A Preferred Stock stating the date upon which the
Corporation received such Redemption Notice and the amount of Series A
Preferred Stock covered thereby. The Corporation shall not redeem any
shares of Series A Preferred Stock during the three trading day period
following the delivery of a required Redemption Announcement hereunder.
At any time and from time to time during such three trading day period, each
holder of Series A Preferred Stock may request (either orally or in writing)
information from the Corporation with respect to the instant redemption
(including, but not limited to, the aggregate number of shares of Series A
Preferred Stock covered by Redemption Notices received by the Corporation)
and the Corporation shall furnish (either orally or in writing) as soon as
practicable such requested information to such requesting holder.
B. Definition of Redemption Amount. The "Redemption Amount" with
respect to a share of Series A Preferred Stock means an amount equal to:
(i) V x M
C P
where:
"V" means the Face Amount thereof;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Redemption Notice; and
"M" means (i) the highest Closing Bid Price of the Corporation's
Common Stock during the period beginning on the date on which the
Corporation receives the Redemption Notice in the case of a redemption
pursuant to Article IV.D or clauses (i), (ii), (iii), (iv) or (vi) of Article
VIII.A, and ending on the date immediately preceding the date of payment
of the Redemption Amount and (ii) with respect to redemptions pursuant to
clause (v) of Article VIII.A, the greater of (a) the amount determined
pursuant to clause (i) of this definition or (b) the fair market value, as
of the date on which the Corporation receives the Redemption Notice, of
the consideration payable to the holder of a share of Common Stock
pursuant to the transaction which triggers the redemption. For purposes of
this definition, "fair market value" shall be determined by the mutual
agreement of the Corporation and holders of a majority-in-interest of the
shares of Series A Preferred Stock then outstanding, or if such agreement
cannot be reached within five business days prior to the date of redemption,
by an investment banking firm selected by the Corporation and reasonably
acceptable to holders of a majority-in-interest of the then outstanding
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shares of Series A Preferred Stock, with the costs of such appraisal to be
borne by the Corporation; provided however, that in the event that the
Common Stock at the time of such redemption (i.e. the Common Stock is
neither being traded on the AMEX or the NYSE nor quoted on the NNM, SmallCap
or Bulletin Board) then Redemption Amount means an amount equal to:
V x 1.33.
C. Redemption Defaults. If the Corporation fails to pay any holder
the Redemption Amount with respect to any share of Series A Preferred Stock
within five business days after its receipt of a notice (a "Redemption
Notice") requiring such redemption, then each such holder (i) shall be
entitled to interest on the Redemption Amount at a per annum rate equal to
the lower of twenty-four percent (24%) and the highest interest rate
permitted by applicable law from the date on which the Corporation
receives the Redemption Notice until the date of payment of the Redemption
Amount, and (ii) shall have the right, at any time and from time to time,
to require the Corporation, upon written notice, to immediately convert
(in accordance with the terms of Paragraph A of Article IV) all or any
portion of the Redemption Amount, plus interest as aforesaid, into shares
of Common Stock at the lowest Conversion Price in effect during the period
beginning on the date on which the Corporation receives the Redemption
Notice and ending on the date on which the Corporation receives such
written notice with respect to the conversion of such Redemption Amount.
In the event the Corporation is not able to redeem all of the shares of
Series A Preferred Stock subject to Redemption Notices delivered prior to
the date upon which such redemption is to be effected, the Corporation
shall redeem shares of Series A Preferred Stock from each holder pro rata,
based on the total number of shares of Series A Preferred Stock outstanding at
the time of redemption included by such holder in all Redemption Notices
delivered prior to the date upon which such redemption is to be effected
relative to the total number of shares of Series A Preferred Stock
outstanding at the time of redemption included in all of the Redemption
Notices delivered prior to the date upon which such redemption is to be
effected.
D. Void Redemption. In the event that the Corporation does not
pay the Redemption Amount within the time period set forth in Article IV.D
or Article VIII.A, at any time thereafter and until the Corporation pays such
unpaid applicable Redemption Amount in full, a holder of Series A Preferred
Stock shall have the option (the "Void Optional Redemption Option") to, in
lieu of redemption, require the Corporation to promptly return to such holder
any or all of the shares of Series A Preferred Stock that were submitted for
redemption by such holder under this Article VIII and for which the
applicable Redemption Amount (together with any interest thereon) has not
been paid, by sending written notice thereof to the Corporation via
facsimile (the "Void Optional Redemption Notice"). Upon the Corporation's
receipt of such Void Optional Redemption Notice, the Notice of Redemption
shall be null and void with respect to those shares of Series A Preferred
Stock subject to the Void Optional Redemption Notice, (ii) the Corporation
shall immediately return any shares of Series A Preferred Stock subject to
the Void Optional Redemption Notice, (iii) the Fixed Conversion Price of such
returned shares of Series A Preferred Stock shall be adjusted to the lesser
of (A) the Fixed Conversion Price as in effect on the date on which the
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Void Optional Redemption Notice is delivered to the Corporation and (B)
the lowest Conversion Price in effect during the period beginning on the
date on which the Notice of Redemption is delivered to the Corporation
and ending on the date on which the Void Optional Redemption Notice is
delivered to the Corporation.
IXA RANK
All shares of the Series A Preferred Stock shall rank (i) prior to the
Corporation's Common Stock; (ii) prior to any class or series of capital
stock of the Corporation hereafter created (unless, with the consent of the
holders of Series A Preferred Stock obtained in accordance with Article
XIII hereof, such class or series of capital stock specifically, by its
terms, ranks senior to or pari passu with the Series A Preferred Stock)
(collectively with the Common Stock, "Junior Securities"); (iii) pari
passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred
Stock obtained in accordance with Article XIII hereof) specifically ranking,
by its terms, on parity with the Series A Preferred Stock (the "Pari Passu
Securities"); and (iv) junior to any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Series A
Preferred Stock obtained in accordance with Article XIII hereof) specifically
ranking, by its terms, senior to the Series A Preferred Stock (collectively,
the "Senior Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to
pay its debts generally as they become due, or if a decree or order for
relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency
or similar law resulting in the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and any such decree or order shall
be unstayed and in effect for a period of 60 consecutive days and, on
account of any such event, the Corporation shall liquidate, dissolve or wind up,
or if the Corporation shall otherwise liquidate, dissolve or wind up, including,
but not limited to, the sale or transfer of all or substantially all of the
Corporation's assets in one transaction or in a series of related
transactions (a "Liquidation Event"), no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than
Senior Securities) upon liquidation, dissolution or winding up unless prior
thereto the holders of shares of Series A Preferred Stock shall have
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received the Liquidation Preference with respect to each share. If, upon
the occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series A Preferred Stock and holders
of Pari Passu Securities shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire
assets and funds of the Corporation legally available for distribution to
the Series A Preferred Stock and the Pari Passu Securities shall be
distributed ratably among such shares in proportion to the ratio that the
Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
B. The purchase or redemption by the Corporation of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof,
be regarded as a liquidation, dissolution or winding up of the Corporation.
Neither the consolidation or merger of the Corporation with or into any
other entity nor the sale or transfer by the Corporation of less than
substantially all of its assets shall, for the purposes hereof, be deemed
to be a liquidation, dissolution or winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series A
Preferred Stock means an amount equal to the Face Amount thereof. The
Liquidation Preference with respect to any Pari Passu Securities shall
be as set forth in the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustmen from time to time as
follows: Aa Stock Splits, Stock Dividends, Etc. If, at any time on or
after the Issuance Date, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, combination, reclassification
or other similar event, the Fixed Conversion Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased
by a reverse stock split, combination or reclassification of shares, or
other similar event, the Fixed Conversion Price shall be proportionately
increased. In such event, the Corporation shall notify the Corporation's
transfer agent of such change on or before the effective date thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time
after the Issuance Date, there shall be (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), (ii) any
consolidation or merger of the Corporation with any other entity (other than
a merger in which the Corporation is the surviving or continuing entity
and its capital stock is unchanged), (iii) any sale or transfer of all or
substantially all of the assets of the Corporation or (iv) any share exchange
pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property (each of (i) - (iv) above
being a "Corporate Change"), then the holders of Series A Preferred Stock
shall thereafter have the right to receive upon conversion, in lieu of the
shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in
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such Corporate Change with respect to or in exchange for the number of shares
of Common Stock which would have been issuable upon conversion (without
giving effect to the limitations contained in Article IV.C) had such
Corporate Change not taken place, and in any such case, appropriate
provisions (in form and substance reasonably satisfactory to the holders of a
majority of the Series A Preferred Shares then outstanding) shall be made
with respect to the rights and interests of the holders of the Series A
Preferred Stock to the end that the economic value of the shares of Series
A Preferred Stock are in no way diminished by such Corporate Change and
that the provisions hereof (including, without limitation, in the case of
any such consolidation, merger or sale in which the successor entity or
purchasing entity is not the Corporation, an immediate adjustment of the
Fixed Conversion Price so that the Fixed Conversion Price immediately
after the Corporate Change reflects the same relative value as compared to
the value of the surviving entity's common stock that existed between the
Fixed Conversion Price and the value of the Corporation's Common Stock
immediately prior to such Corporate Change and an immediate revision to
the Variable Conversion Price so that it is determined as provided in
Article III.I but based on the price of the common stock of the surviving entity
and the market in which such common stock is traded) shall thereafter be
applicable, as nearly as maybe practicable in relation to any shares of
stock or securities thereafter deliverable upon the conversion thereof. The
Corporation shall not effect any Corporate Change unless (i) each holder of
Series A Preferred Stock has received written notice of such transaction at
least 75 days prior thereto, but in no event later than 20 days prior to the
record date for the determination of shareholders entitled to vote with
respect thereto provided in no event shall such notice be given to holders of
Series A Preferred Stock prior to the Corporation publicly announcing the
proposed corporate change, and (ii) the resulting, successor or acquiring
entity (if not the Corporation) assumes by written instrument (in form and
substance reasonably satisfactory to the holders of a majority of the Series
A Preferred Shares then outstanding) the obligations ofthis Certificate of
Designation. The above provisions shall apply regardless of whether or not
there would have been a sufficient number of shares of Common Stock
authorized and available for issuance upon conversion of the shares of
Series A Preferred Stock outstanding as of the date of such transaction, and
shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
C. Adjustment Due to Major Announcement. In the event the Corporation
at any time after the Issuance Date (i) makes a public announcement
that it intends to consolidate or merge with any other entity (other than a
merger in which the Corporation is the surviving or continuing entity and
its capital stock is unchanged) or to sell or transfer all or substantially
all of the assets of the Corporation or (ii) any person, group or entity
(including the Corporation) publicly announces a tender offer, exchange
offer or another transaction to purchase 50% or more of the Corporation's
Common Stock or otherwise publicly announces an intention to replace a
majority of the Corporation's Board of Directors by waging a proxy battle or
otherwise (the date of the announcement referred to in clause (i) or (ii) of
this Paragraph C is hereinafter referred to as the "Announcement Date"),
then the Conversion Price shall, effective upon the Announcement Date and
continuing through the tenth trading day following the earlier of the
consummation of the proposed transaction or tender offer, exchange offer or
another transaction or the Abandonment Date (as defined below), be equal to
the lower of (x) the Conversion Price which would have been applicable
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for an Optional Conversion occurring on the Announcement Date and (y) the
Conversion Price determined in accordance with Article III.C on the
Conversion Date set forth in the Notice of Conversion for the Optional
Conversion. After the tenth trading day following the Abandonment Date, the
Conversion Price shall be determined as set forth in Article III.C.
"Abandonment Date" means with respect to any proposed transaction or tender
offer, exchange offer or another transaction for which a public announcement as
contemplated by this Paragraph C has been made, the date upon which the
Corporation (in the case of clause (i) above) or the person, group or entity
(in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer, exchange offer or
another transaction which caused this Paragraph C to become operative.
D. Adjustment Due to Distribution. If, at any time after the
Issuance Date, the Corporation shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise
(including any dividend or distribution to the Corporation's shareholders
in cash or shares (or rights to acquire shares) of capital stock of a
subsidiary (i.e. a spin-off)) (a "Distribution"), then the holders of Series
A Preferred Stock shall be entitled, upon any conversion of shares of
Series A Preferred Stock after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such
assets which would have been payable to the holder with respect to the shares
of Common Stock issuable upon such conversion (without giving effect to the
limitations contained in Article IV.C) had such holder been the holder of
such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
E. Intentionally omitted.
F. Purchase Rights. If, at any time after the Issuance Date, the
Corporation issues any securities which are convertible into or exchangeable
for Common Stock, or rights to purchase stock, warrants, securities or other
property (the "Purchase Rights") pro rata to the record holders of any
class of Common Stock, then the holders of Series A Preferred Stock will
be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series A Preferred Stock (without giving
effect to the limitations contained in Article IV.C) immediately before
the date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series A Preferred
Stock a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder
of Series A Preferred Stock, furnish to such holder a like certificate
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setting forth (i) such adjustment or readjustment, (ii) the Conversion
Price at the time in effect and (iii) the number of shares of Common Stock
and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Series A Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Colorado Business
Corporation Act (the "Business Corporation Act"), in this Article
XII and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder
of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). If the Corporation takes a record of its shareholders for
the purpose of determining shareholders entitled to (a) receive payment of
any dividend or other distribution, any right to subscribe for, purchase
or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property,
or to receive any other right, or (b) to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets
of the Corporation, or any proposed merger, consolidation, liquidation,
dissolution or winding up of the Corporation, the Corporation shall mail
a notice to each holder, at least 20 days prior to the record date specified
therein (or 75 days prior to the consummation of the transaction or event,
whichever is earlier, but in no event earlier than public announcement of
such proposed transaction), of the date on which any such record is to be
taken for the purpose of such vote, dividend, distribution, right or other
event, and a brief statement regarding the amount and character of such vote,
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the Business Corporation Act the vote of
the holders of the Series A Preferred Stock, voting separately as a class
or series, as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at least a
majority of the then outstanding shares of the Series A Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of the holders of at least a majority of the then outstanding
shares of Series A Preferred Stock (except as otherwise may be
required under the Business Corporation Act) shall constitute the approval
of such action by the class. To the extent that under the Business
Corporation Act holders of the Series A Preferred Stock are entitled to vote
on a matter with holders of Common Stock, voting together as one class, each
share of Series A Preferred Stock shall be entitled to a number of votes
equal to the number of shares of Common Stock into which it is then
convertible (subject to the limitations contained in Article IV.C(ii)) using
the record date for the taking of such vote of shareholders as the date as
of which the Conversion Price is calculated.
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XIII. PROTECTION PROVISIONS
So long as any shares of Series A Preferred Stock are outstanding,
the Corporation shall not without first obtaining the approval (by vote or
written consent, as provided by the Business Corporation Act) of all of
the holders of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges
of the Series A
Preferred Stock;
(b) alter or change the rights, preferences or privileges
of any capital stock of the Corporation so as to affect adversely the
Series A Preferred Stock;
(c) create any new class or series of capital stock having
a preference over the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously
defined in Article IX hereof, "Senior Securities");
(d) create any new class or series of capital stock ranking
pari passu with the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously
defined in Article IX hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of Series A
Preferred Stock;
(f) issue any shares of Senior Securities or Pari Passu
Securities;
(g) issue any shares of Series A Preferred Stock other than
pursuant to the Securities Purchase Agreement;
(h) redeem, or declare or pay any cash dividend or
distribution on, any Junior Securities; or
(i) increase the par value of the Common Stock.
Notwithstanding the foregoing, no change pursuant to this Article XIII
shall be effective to the extent that, by its terms, it applies to less than
all of the holders of shares of Series A Preferred Stock then outstanding.
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XIV. MISCELLANEOUS
A. Cancellation of Series A Preferred Stock. If any shares of Series
A Preferred Stock are converted pursuant to Article IV, the shares so
converted shall be canceled, shall return to the status of authorized, but
unissued preferred stock of no designated series, and shall not be issuable
by the Corporation as Series A Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation
of (i) evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificate(s) and (ii) (y) in the case of loss, theft or
destruction, of indemnity (without any bond or other security) reasonably
satisfactory to the Corporation, or (z) in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the
Corporation shall execute and deliver new Preferred Stock Certificate(s)
of like tenor and date. However, the Corporation shall not be obligated to
reissue such lost or stolen Preferred Stock Certificate(s) if the holder
contemporaneously requests the Corporation to convert such Series A Preferred
Stock.
C. Allocation of Cap Amount and Reserved Amount. The initial Cap
Amount and Reserved Amount shall be allocated pro rata among the holders of
Series A Preferred Stock based on the number of shares of Series A Preferred
Stock issued to each holder. Each increase to the Cap Amount and the Reserved
Amount shall be allocated pro rata among the holders of Series A
Preferred Stock based on the number of shares of Series A Preferred
Stock held by each holder at the time of the increase in the Cap Amount or
Reserved Amount. In the event a holder shall sell or otherwise transfer
any of such holder's shares of Series A Preferred Stock, each transferee
shall be allocated a pro rata portion of such transferor's Cap Amount and
Reserved Amount. Any portion of the Cap Amount or Reserved Amount which
remains allocated to any person or entity which does not hold any Series A
Preferred Stock shall be allocated to the remaining holders of shares of
Series A Preferred Stock, pro rata based on the number of shares of Series
A Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar
quarter beginning in the quarter in which the initial registration statement
required to be filed pursuant to Section 2(a) of the Registration Rights
Agreement is declared effective and thereafter so long as any shares of Series A
Preferred Stock are outstanding, the Corporation shall deliver (or cause
its transfer agent to deliver) to each holder a written report notifying
the holders of any occurrence which prohibits the Corporation from
issuing Common Stock upon any such conversion. The report shall also specify
(i) the total number of shares of Series A Preferred Stock outstanding as
of the end of such quarter, (ii) the total number of shares of Common
Stock issued upon all conversions of Series A Preferred Stock prior to the
end of such quarter, (iii) the total number of shares of Common Stock which
are reserved for issuance upon conversion of the Series A Preferred Stock as
of the end of such quarter and (iv) the total number of shares of Common
Stock which may thereafter be listed or issued by the Corporation upon
conversion of the Series A Preferred Stock before the Corporation would
exceed the Cap Amount and the Reserved Amount. The Corporation (or its
transfer agent) shall deliver the report for each quarter to each holder
prior to the tenth day of the calendar month following the quarter to
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which such report relates. In addition, the Corporation (or its transfer
agent) shall provide, within 15 days after delivery to the Corporation of a
written request by any holder, any of the information enumerated in clauses
(i) - (iv) of this Paragraph D as of the date of such request.
E. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (upon
redemption or otherwise), such cash payment shall be made to the holder
within five business days after delivery by such holder of a notice
specifying that the holder elects to receive such payment in cash and the
method (e.g., by check, wire transfer) in which such payment should be made.
If such payment is not delivered within such five business day period, such
holder shall thereafter be entitled to interest on the unpaid amount at a
per annum rate equal to the lower of twenty-four percent (24%) and the highest
interest rate permitted by applicable law until such amount is paid in
full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion
by a holder of Series A Preferred Stock, (i) the shares covered thereby
(other than the shares, if any, which cannot be issued because their listing
or issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount) shall be deemed converted into shares of Common Stock
and (ii) the holder's rights as a holder of such converted shares of Series
A Preferred Stock shall cease and terminate, excepting only the right to
receive certificates for such shares of Common Stock and to any remedies
provided herein or otherwise available at law or in equity to such holder
because of a failure by the Corporation to comply with the terms of this
Certificate of Designation. Notwithstanding the foregoing, if a holder has
not received certificates for all shares of Common Stock prior to the tenth
business day after the expiration of the Delivery Period with respect to a
conversion of Series A Preferred Stock for any reason, then (unless the holder
otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation within five business days after the expiration
of such 10 business day period) the holder shall regain the rights of a
holder of Series A Preferred Stock with respect to such unconverted shares
of Series A Preferred Stock and the Corporation shall, as soon as
practicable, return such unconverted shares to the holder. In all cases, the
holder shall retain all of its rights and remedies (including, without
limitation, the right to have the Conversion Price with respect to
subsequent conversions determined in accordance with Article VI.A) for the
Corporation's failure to convert Series A Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Certificate
of Designation shall be cumulative and in addition to all other remedies
available under this Certificate of Designation, at law or in equity
(including a decree of specific performance and/or other injunctive
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relief), and nothing herein shall limit a holder's right to pursue actual
damages for any failure by the Corporation to comply with the terms of
this Certificate of Designation. The Corporation acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the holders
of Series A Preferred Stock and that the remedy at law for any such breach
may be inadequate. The Corporation therefore agrees, in the event of any
such breach or threatened breach, that the holders of Series A Preferred
Stock shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Certificate of Designation is executed
and adopted on behalf of the Corporation this 12 day of June, 1998.
BOULDER CAPITAL OPPORTUNITIES III, INC.
By:/s/ Robert Soehngen
Name: Robert Soehngen
Title: President
<PAGE>
Independent Auditor's Report
The Members of
Sonic Jet Performance, LLC:
I have audited the accompanying balance sheet of Sonic Jet
Performance, LLC. as of December 31, 1997, and the related
statement of operations, shareholders' equity and cash flow for
the year then ended. These financial statements are the
responsibility of the Company's management. My responsibility is
to express an opinion on these financial statements based on my
audit.
I conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Sonic
Jet Performance, LLC. at December 31, 1997, and results of its
operations and its cash flow for the year then ended in
conformity with generally accepted accounting principles.
Wayne L. Voigt
Certified Public
Accountant
June 1, 1998
F-1
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SONIC JET PERFORMANCE, LLC.
Balance Sheet
December 31, 1997
ASSETS
Current assets:
Cash $ 663,300
Accounts receivable 172,639
Inventories (note 1) 1,789,866
Related party receivable (note 3) 37,766
Total current assets 2,663,571
Investment in joint venture(note 1) 840,130
Property, plant and equipment, net (notes 1 and 2) 2,685,233
Other assets 1,200
$ 6,190,134
See accompanying notes to financial statements.
F-2
<PAGE>
SONIC JET PERFORMANCE, LLC.
Balance Sheet
December 31, 1997
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $118,936
Accrued interest (note 3) 27,667
Other payables 91,074
Total current liabilities 237,677
Related party payable (note 3) 600,000
Total liabilities 837,677
Members' equity
Capital (note 1) 5,765,234
Accumulated deficit (412,777)
Total members' equity 5,352,457
Commitments and contingencies (note 5)
$ 6,190,134
See accompanying notes to financial statements.
F-3
<PAGE>
SONIC JET PERFORMANCE, LLC.
Statement of Operations
For the Year Ended December 31, 1997
Sales $235,083
Costs and expenses:
Cost of sales 88,166
Rent 31,815
General and administrative 175,240
Research and development 175,980
Depreciation (notes 1 and 2) 95,232
Total costs and expenses 566,433
Operating loss (331,350)
Interest income 9,021
Interest expense (note 3) (36,946)
Loss from joint venture (note 1) (52,702)
Loss before income taxes (411,977)
Income taxes (note 4) 800
Net loss $(412,777)
See accompanying notes to financial statements.
F-4
<PAGE>
[CAPTION]
<TABLE>
SONIC JET PERFORMANCE, LLC.
Statement of Members' Equity
For the Year Ended December 31, 1997
<S> <C> <C> <C>
Total
Accumulated
Members'
Capital Deficit Equity
Investment by members (note 1) 5,765,234 5,765,234
Net loss (412,777) (412,777)
Balance, December 31, 1997 5,765,234 (412,777) 5,352,457
See accompanying notes to financial statements.
F-5
</TABLE>
<PAGE>
SONIC JET PERFORMANCE, LLC.
Statement of Cash Flow
For the Year Ended December 31, 1997
Cash flows from operating activities:
Net loss $(412,777)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 95,232
Changes in assets and liabilities:
Increase in accounts receivable (172,639)
Increase in inventory (309,557)
Increase in related party receivable (28,666)
Increase in other assets (1,200)
Increase in accounts payable 37,575
Increase in accrued interest 15,439
Increase in other payables 44,080
Net cash used in operating activities (732,513)
Cash flows used in investing activities:
Purchase of property, plant and equipment (16,071)
Investment in joint venture (137,425)
Net cash used in investing activities (153,496)
Cash flows from financing activities:
Proceeds from related party debt 600,000
Payment of related party payables (550,691)
Investment by members 1,500,000
Net cash provided by financing activities 1,549,309
Net increase in cash 663,300
Cash at beginning of year 0
Cash at end of year 663,300
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $13,279
Income taxes $ 0
See accompanying notes to financial statements.
F-6
<PAGE>
SONIC JET PERFORMANCE, LLC.
Notes to Financial Statements
December 31, 1997
(1) Summary of Significant Accounting Policies and Practices
Description of Business
Sonic Jet Performance, LLC (the "Company") was organized in
California with the filing of the Articles of Organization
on May 8, 1997 as a Limited Liability Company ("LLC"). The
Operating Agreement was entered into with a commencement
date of May 31, 1997 with a subsequent Letter Agreement on
July 15, 1997. The primary purpose of the Company is the
owning and operating of a business producing personal
watercraft, jet boats, trailers, cars and accessories. The
principal executive office is located in Huntington Beach,
California.
On August 9, 1997, the Company entered into a joint venture
agreement with China Guangxi Nanning Shipyard of Nanning,
Guangxi, China to form the Nanning Sonic Jet Limited
Liability Company, a contractual limited liability company
organized under the law of the People's Republic of China.
The Joint Venture was formed to design, manufacture and sell
a series of watercraft jet products to be sold internationally
and in China. The Company's investment is to include tooling,
molds and production line and cash equivalent to $ 1,500,000 USD.
The Company is responsible for providing technical personnel and
training.
The Company shall receive 85% of the profits and shall share
85% of the risks and losses. These percentages were subsequently
changed to 70%.
Accounting Method
The Company's financial statements have been prepared on the
accrual basis of accounting, which is in accordance with
generally accepted accounting principles.
Inventories
Inventories consist of parts for the manufacture of personal
watercraft and work in progress with a limited amount of
finished products. Inventories are stated at the lower of
cost or market. Inventories were also obtained in the
agreement discussed at note 1, whereby the Company received
certain assets and assumed certain liabilities in exchange
for Company interests.
Continued
F-7
<PAGE>
2
SONIC JET PERFORMANCE, LLC.
Notes to Financial Statements
Investment in Joint Venture
The investment in Joint Venture is accounted for by the
equity method. Such investment is stated at cost minus the
Company's proportionate share of losses. The Company's
proportionate share of losses from the joint venture
aggregating $ 52,702 is included in other revenues in the
accompanying statement of operations.
Property, Plant and Equipment
Property, plant and equipment are stated at cost or at the
value per the Operating Agreement discussed at note 1.
These assets are depreciated on a straight-line basis over
the following estimated useful lives.
Furniture, fixtures and equipment 5 to 7 years
Tooling and molds 15 to 20 years
Member Interest for Net Assets
On May 31, 1997, the Company commenced an Operating
Agreement whereby substantially all of the assets of a
related party Corporation were transferred to the Company,
subject to certain debt, in exchange for a 43% interest in
the Company. Commencing January 1, 1998 this percentage was
changed to 74% due to a reduced contribution by another
member. The net assets obtained are as follows:
Inventory $ 1,553,369
Related party receivable 9,100
Property, plant and equipment(net) 3,315,550
Trade payables (54,860)
Accrued interest (12,228)
Lines of credit payable (46,994)
Notes payable (215,000)
Related party payables (550,691)
Net assets contributed $3,998,246
=========
These assets and liabilities were contributed and given a
value to the Company based on the net book value per the
contributing member's financial records as of May 31, 1997.
Another member contributed cash in exchange for membership
interest in the Company.
(Continued)
F-8
<PAGE>
3
SONIC JET PERFORMANCE, LLC.
Notes to Financial Statements
(2) Property, Plant and Equipment
A summary of property, plant and equipment follows:
Machinery and equipment $ 119,185
Tooling 66,389
Office furniture, equipment and fixtures 4,889
Tooling, molds and jigs for personal watercraft 843,350
Tooling, molds and jigs for exotic automobiles 1,710,000
Leasehold improvements 4,249
Vehicles 32,403
$ 2,780,465
Less accumulated depreciation (95,232)
$ 2,685,233
=========
The tooling, molds and jigs for exotic automobiles are not
being utilized in current production activity. The Company
anticipates that production utilizing these items will commence
in mid to late 1999. The majority of the tooling, molds and jigs
for personal watercraft also are not currently being utilized.
The Company anticipates production activity in the watercraft
area to expand in late 1998.
(3) Related Party Transactions
The Company entered into transactions with Company members.
The transactions have resulted in both related party
receivables and payables. The receivables are unsecured, do
not have due dates and are not interest bearing.
A summary of related party debt follows:
Note payable, bearing simple interest at 10% per annum;
annual payments are to commence July 18, 2001 in an
amount equal to 60% of available distributable cash for
the nearest preceding accounting period; all unpaid
principal is due July 18, 2003; the note is secured by
Company assets $600,000
=======
The Company acquired certain assets, subject to certain debt
from a related party (note 1).
(Continued)
F-9
<PAGE>
4
SONIC JET PERFORMANCE, LLC.
Notes to Financial Statements
(4) Income Taxes
For income tax reporting purposes, the Company utilizes the
accrual basis of accounting on a calendar year end. The
Company has filed an extension for 1997 tax reporting. The
Company is an Limited Liability Company and elects to be
taxed as a partnership.
(5) Commitments and Contingencies
Leases
The Company leases its location under an operating lease
agreement. Future minimum lease payments are as follows:
Year Ending
December 31,
1998 54,540
1999 54,540
$ 109,080
=======
Rental expense was approximately $ 32,000 for the year ended
December 31, 1997.
Employment Agreements
As part of the Letter Agreement of July 18, 1997 the Company
entered into an employment agreement with a member of the
Company. The agreement is for eighteen months. During this
period the salary is accrued and is to be paid upon
unanimous agreement of the members. Thereafter, the salary
is to be paid bi-monthly. The salary will increase to $
120,000 per annum once the sales and financial forecast is
met.
Royalty Agreement
Per the Letter Agreement of July 18, 1997, the Company is to
pay a royalty for various patents. The royalty is 2% of
total Company sales calculated quarterly commencing after
eighteen calendar months. The minimum royalty is to be $
4,166 per month for months nineteen through thirty and $
8,333 per month thereafter. If total Company sales exceed $
1,000,000 during any twelve month period, the higher minimum
or the 2% will be paid for that twelve month period and
thereafter.
F-10
