Form 10-QSB for AMERICAN ACCESS TECHNOLOGIES, INC. filed on November 13, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[XX] Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the quarterly period ended
September 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to ________________
* * * * * * * * * * * * * * * * * * * * * *
Commission File No. 000-24575
AMERICAN ACCESS TECHNOLOGIES INC.
A Florida corporation
(Exact name of registrant as specified in charter, and state incorporated)
* * * * * * * * * * * * * * * * * * * * * *
Employer Identification No. 59-3410234
Altamonte Springs Florida 238 N. Westmonte Dr. Suite 210 32714
(Address of principal executive offices of registrant)
(407) 865-7696
(Registrant's telephone number, including area code)
* * * * * * * * * * * * * * * * * * * * * *
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X]. NO [ ].
The number of shares of AMERICAN ACCESS TECHNOLOGIES INC. Common Stock (Par
Value $0.001) outstanding at September 30, 1998 was 3,030,000
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American Access Technologies
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ACCESS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
Condensed from
UNAUDITED Audited Financial
Pro Forma Historical Statements
Consolidated Sept. 30, 1998 Dec. 31, 1997
----------------------------------------------------
<S> <C> <C> <C>
Current Assets:
CASH AND CASH EQUIVALENTS $5,314,507 $38,840 $442,555
NOTE RECEIVABLE 500,000 500,000
ACCRUED INTEREST RECEIVABLE 6,250 6,250
ACCOUNTS RECEIVABLE 864,295 139,538 11,436
INVENTORY 344,888 84,506 21,586
PREPAID EXPENSES 10,842 5,630 3,547
----------------------------------------------------
Total Current Assets 7,040,782 774,764 479,124
Property, Plant, and Equipment:
FURNITURE AND EQUIPMENT 2,787,073 46,072 41,903
ACCUMULATED DEPRECIATION (1,633,812) (14,984) (6,626)
----------------------------------------------------
Total Property, Plant, & Equip 1,153,261 31,088 35,277
Other Assets
PATENT COST 26,217 26,217 22,583
OTHER ASSETS 4,642 3,797 3,598
----------------------------------------------------
Total Other Assets 30,859 30,014 26,181
----------------------------------------------------
Total Assets $8,224,902 $835,866 $540,582
====================================================
Liabilities and Stockholders' Equity
Current Liabilities:
ACCOUNTS PAYABLE $300,146 $43,113 $17,705
ACCRUED EXPENSES 93,459 28,883 83,120
LOANS PAYABLE CURRENT 858,448 ----
----------------------------------------------------
Total Current Liabilities 1,252,053 71,996 100,825
Long Term Liabilities
LOANS PAYABLE LESS CURRENT PORTION 222,255
COMMITMENTS AND CONTINGENCIES ---- ----
Stockholders' Equity:
PREFERRED STOCK
$ .001 par value; authorized, 60,000 shares; 49,650 issued 4,965
COMMON STOCK
$ .001 par value; authorized 10,000,000 shares; issued &
outstanding, 3,030,000 shares at 9/30/98, 2,970,000 at 12/31/97 3,030 3,030 2,970
ADDITIONAL PAID IN CAPITAL 5,965,762 1,409,430 929,490
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE (648,590) (648,590) (492,703)
RETAINED EARNINGS 1,425,427
----------------------------------------------------
Total Stockholders' Equity 6,972,849 763,870 439,757
----------------------------------------------------
Total Liabilities and Stockholders' Equity $8,224,902 $835,866 $540,582
====================================================
</TABLE>
See accompanying notes to financial statements.
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AMERICAN ACCESS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months Cumulative
Ended Ended Ended Ended From
09/30/98 09/30/97 09/30/98 09/30/97 Inception
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income
Revenues $162,948 $4,533 $480,000 $173,545 $711,621
------------------------------------------------------------------------------
Costs and Expenses
DIRECT COSTS 57,376 610 192,091 47,160 257,572
MARKETING & PROMOTIONS 5,949 33,082 52,596 33,143 91,417
PRODUCT DEVELOPMENT 5,029 755 21,130 3,996 38,803
GENERAL & ADMINISTRATIVE 154,838 117,888 383,161 418,679 985,886
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Total Costs & Expenses 223,192 152,335 648,978 502,978 1,373,678
------------------------------------------------------------------------------
Operating Income (Loss) (60,244) (147,802) (168,978) (329,433) (662,057)
------------------------------------------------------------------------------
Other Income (Expense)
Interest Income 6,823 0 13,091 0 17,083
Interest Expense 0 0 0 (2,414) (3,621)
------------------------------------------------------------------------------
Total Other Income (Expense) 6,823 0 13,091 (2,414) 13,462
------------------------------------------------------------------------------
Income (Loss) from continuing operations (53,421) (147,802) (155,887) (331,847) (648,595)
Income from discontinued operations 0 0 0 0 4,606
------------------------------------------------------------------------------
Net Income ( Loss) ($53,421) (147,802) ($155,887) ($331,847) ($643,989)
==============================================================================
--------------------------------------------------------------
Net Income ( Loss) Per Common Share ($0.02) ($0.05) ($0.05) ($0.11)
==============================================================
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
AMERICAN ACCESS TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Nine Nine
Months Months Cumulative
Ended Ended from
9/30/98 9/30/97 Inception
------------------------------------------------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net income (loss) ($155,887) ($331,847) ($643,984)
------------------------------------------------
Adjustments to reconcile net income
(loss) to net cash provided by (use in)
operating activities:
Depreciation and amortization 8,358 4,427 14,984
Common stock issued for services 75,000
(Increase)/ decrease in assets:
Accounts receivable (128,102) 900 (139,538)
Interest receivable (6,250) 0 (6,250)
Inventory (62,920) (23,396) (84,506)
Prepaid expenses (2,083) (5,687) (5,630)
Other (3,834) (1,076) (7,432)
Increase (decrease) in liabilities:
Accounts payable
and accrued expenses: (28,829) 23,313 71,888
------------------------------------------------
Total adjustments (223,660) (1,519) (81,484)
------------------------------------------------
Net cash provided by (used in)
operating activities (379,547) (333,366) (725,468)
------------------------------------------------
Cash flows from investing activities:
Increase (decrease) note receivable (500,000) 0 (500,000)
Expenditures for development of patent (14,500)
Acquisition of property and equipment (41,903)
Purchase of furniture and fixtures (4,168) (27,772) (4,168)
Net cash provided by (used in)
------------------------------------------------
investing activities (504,168) (27,772) (560,571)
------------------------------------------------
Cash flows from financing activities:
Increase (decrease) notes payable 0 (101,000)
Proceeds from issuance of common stock and
exercise of warrants 480,000 669,177 1,330,777
Repayment of loan payable, stockholder (1,000)
Distribution to stockholder (4,606)
Other (400)
Net cash provided by (used in)
------------------------------------------------
financing activities 480,000 568,177 1,324,771
------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (403,715) 207,039 38,732
Cash and Cash equivalents, Beginning 442,555 61,761 108
------------------------------------------------
------------------------------------------------
Cash and Cash equivalents, Ending $38,840 $268,800 $38,840
================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $9,550
======
</TABLE>
See accompanying notes to financial statements.
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AMERICAN ACCESS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 Unaudited
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements at Sept.
30, 1998 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of financial position as of Sept. 30, 1998 and
results of operations for the nine months ended Sept. 30, 1998 and 1997 and
cumulative. All adjustments are of a normal recurring nature. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for a full year. The statements should be read in conjunction with
the consolidated financial statements and footnotes thereto for the year ended
December 31, 1997 included in the company's Registrations Statement Form SB-2
filing.
The accompanying pro forma balance sheet as of September 30, 1998 gives effect
to (a) receipt of the net proceeds of $4,965,000 from the private placement of
the convertible preferred stock, and (b) acquisition of the net assets of Omega
Metals, Inc., expected to be accounted for on the pooling of interests method,
as if these transactions had taken place on September 30, 1998.
2. Nature of Business and Summary of Significant Accounting Policies.
BUSINESS
American Access Technologies, Inc. develops specialized products for the
telecommunications industry. The company recently introduced its first
proprietary product, a Zone Cabling Termination Cabinet (the "Product") which it
plans to manufacture and distribute to the telecommunications industry. The
Product is a Device that is used in voice, computer and data transmission
systems throughout the world.
DEVELOPMENT STAGE ENTERPRISE
As noted above, the Company was incorporated on October 21, 1996. To date, the
Company has been principally engaged in organizational activities, the promotion
of its product and raising capital. Planned operations, as described above, have
commenced but revenue generated to date is not considered significant in
relation to the Company's business plan. Accordingly, the Company is considered
to be in the development stage, and the accompanying consolidated financial
statements represent those of a development stage enterprise.
COMMON STOCK
On June 30, 1998, 20,000 warrants were exercised, at $8.00 per warrant, which
resulted in 20,000 common stock shares being issued. On August 16, 1998 an
additional 40,000 warrants were exercised at $8.00 per share. The company has
remaining 570,000 warrants to purchase common stock at an exercise price of
$8.00 per share as of September 30, 1998.
NET LOSS PER COMMON SHARE
In 1997, the Company adopted Statements of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share" which requires the presentation of both basic and
diluted earnings (loss) per share.
Basic net loss per common share has been computed based upon the weighted
average number of shares of common stock outstanding during the periods. The
shares of common stock issued in connection with the stock split effected in
February 1997, have been considered outstanding for all periods. In addition,
the shares of common stock issued to a Director in February 1997, prior to an
initial registration of the Company's common stock and at a price at that time
have been treated as outstanding during the entire period, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins. The number of
shares used in the computation were 3,030,000 and 3,083,000 for 1998 and 1997
respectively. Diluted net loss per common share, assuming exercising of the
warrants granted, is not presented as the effect of conversion is anti-dilutive.
3. Contingencies
5
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PENDING LITIGATION
The Company is a defendant in a suit filed in January 1998 in
the 18th Judicial Circuit Court of Florida by Steve R. Jones, the Company's
President from April to August 1997, which seeks damages of $17,000 and a
declaratory judgment as to the enforceability of a consulting agreement with the
Company. The Company is vigorously defending the case and does not believe it
has any liability to the plaintiff. The case is in the early stages, and there
can be no assurance of the ultimate outcome.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE
NINE MONTHS ENDED SEPTEMBER 30, 1997.
REVENUES
Revenues for the three months ended September 30, 1998 increased by
$158,415 to $162,948 as compared to $4,533 for the three months ended September
30, 1997. Revenues for the nine months ended September 30, 1998 increased by
$306,455 or 176.6% to $480,000 compared to $173,545 for the nine months ended
September 30, 1997. The initial distribution of the Company's product did not
occur until the second quarter of 1997, as the Company was primarily involved in
training distributor's personnel in the operation, functioning and marketing of
the Company's product.
COSTS AND EXPENSES
Direct costs represent the cost incurred by the Company to have its
product manufactured and assembled by outside contractors. These costs
represented 35.2% of revenues for the three months ended September 30, 1998,
13.5% of revenues for the three months ended September 30, 1997, 40.0% of
revenues for the nine months ended September 30, 1998 and 27.2% of revenues for
the nine months ended September 30, 1997.
Product development costs incurred in the three months ended September
30, 1998 was $5,029 and for the nine months ended September 30, 1998 was $21,130
as compared to $3,996 for the same nine month period in 1997. This increase in
costs occurred in the Company's continuing efforts to modify and update its
design to vendor specifications.
Marketing and Promotion expenses decreased by $27,133 to $5,949 for the
three months ended September 30, 1998 compared to $33,082 for the three months
ended September 30, 1997. The expenses of $52,596 for the nine months ended
September 30, 1998 was an increase of $19,453 over expenses for the same nine
months ended September 30, 1997, which only totaled $33,143. This was a result
of the company's effort to continue to develop and market their product.
General and Administrative expenses increased by $36,950 to $154,838
for the three months ended September 30, 1998 compared to $117,888 for the three
months ended September 30, 1997. This increase was the result of costs
associated with the continued development growth of the company including
efforts in the pending acquisition of Omega Metals, Inc. Expenses for the nine
months ended September 30, 1998 decreased by $35,518 to $383,161 as compared to
total expenses to $418,679 for the nine months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company required cash for the operating activities of $379,547
during the nine months ended September 30, 1998 as compared to $333,366 during
the nine months ended September 30, 1997. The major source of cash for the nine
months ended September 30, 1998 was funded from financing activities through the
exercising of warrants to purchase common stock of $480,000. The use of cash is
due primarily to support expenditures for start up operations and manufacture,
promotion and distribution of its products.
The Company's operating and capital requirements in connection with its
6
<PAGE>
operations have been and will continue to be significant. Based on its current
plans, the Company anticipates that revenues earned from product sales will be
the primary source of funds for operating activities. The Company believes that
revenues in addition to existing cash and cash equivalents remaining from
proceeds of it private offering, will be sufficient to meet its capital and
liquidity needs for the next 12 months. The Company also believes that cash
required to fulfill purchase orders will be available through bank borrowings or
factoring, if required. The company's primary customers are substantial
corporations with credit ratings that will support such credit arrangements.
The Company is still in the process of emerging from the development
stage and, therefore, has generated little revenue to date. As reflected in the
accompanying financial statements, the Company incurred a net loss of $53,421
for the quarter ended September 30, 1998 compared to a net 1oss of $147,802 for
the same quarter in 1997. Management's plans include the following:
1. The Company has arranged for marketing in association with
manufacturers and distributors of telecommunications equipment,
which will enable the Company to obtain orders for its products
with a minimal expenditure of the Company's resources. The Company
is presently organizing a manufacture's rep program to assist in
the distribution of their equipment.
2. The Company has arranged for manufacture of its products by an
outside supplier in order to minimize the financial requirements
necessary for production. The Company is intending to purchase
this manufacturer. The status of this acquisition is discussed in
the Other Matters note included in this filing.
3. The company believes that it can acquire working capital through
sale of additional securities (including exercise of outstanding
warrants), or borrowings, including bank borrowing, in view of the
nature of its customer base. Nevertheless, the Company continues
to be subject to a number of risk factors, including the
uncertainty of market acceptance for its product line, the need
for additional funds, competition, technological obsolescence and
the difficulties faced by start up companies in general.
SUBSEQUENT EVENTS
On November 11, 1998 the company completed purchase of all the issued
common stock of Omega Metals, Inc. The company utilizes Omega Metals, Inc. as
its source of most of its manufactured products. The transaction included an
exchange of 226,470 restricted common stock shares being issued.
Since October 1, 1998 and to November 13, 1998, the company has had a
private placement of its Series A 10% Senior Convertible Preferred Stock in
process. There are 60,000 shares authorized at a par value $.001. During this
period 49,650 shares have been sold for $4,965,000. The series A Preferred shall
be valued at $100.00 per share ("convertible value"), and, if converted, the
series A Preferred shall be converted into common (the "Conversion Stock") at
the price per share equal to the then applicable Conversion Price. The holders
of Series A Preferred shall have the right, at their option, to convert any or
all of such shares into conversion stock at any time on or after the earlier of
(i) the four month anniversary of the earliest Issuance Date of any share of
Series A Preferred or (ii) first date upon which the shelf registration
statement registering the conversion stock is declared effective by the
Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
From October 1, through November 13, 1998 Registrant sold
49,650 shares of Series A 10% Senior Convertible Preferred Stock and received
net proceeds of $4,456,297. Filed as Exhibit 4.1 hereto is the Articles of
Amendment of Amended and Restated Articles of Incorporation of American Access
Technologies, Inc, including the terms in which such preferred stock is
convertible into common stock. The shares were placed by Merrill Webber
Securities, Inc. and Capital International Securities Group, Inc., members NASD,
and such firms were issued warrants to purchase 99,300 shares of the
Registrant's common stock at $25 per share, subject to adjustment in certain
circumstances. The shares were sold to accredited investor pursuant to exemption
from registration pursuant to Rule 506 of Regulation D.
ITEM 5. OTHER INFORMATION
-----------------
7
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On November 11, 1998 Registrant acquired all of the outstanding shares
of stock of Omega Metals, Inc. of Keystone Heights, Florida, in exchange for
226,470 shares of Registrant's common stock pursuant to an Agreement and plan of
Reorganization which is filed as an exhibit hereto. Omega Metals, Inc. is a
specialty metals manufacturer and is the supplier for Registrant's zone cabling
termination cabinets products.
ITEM 6. EXHIBITS AND REPORTS
--------------------
As of the date of this filing, it is impractical for Registrants to
provide the Financial Statements and their entirety and pro forma financial
information required to be filed in connection with the acquisition of Omega
Metals, Inc. and such Financial Statements and pro forma financial information
will be filed by amendment no later than sixty days after filing hereto.
However, we have included the pro forma Balance Sheet under the following
provisions:
(b) EXHIBITS
The following exhibits are being filed as part of this report:
Exhibit No. Description
---------- -----------
2.1 Agreement and plan of reorganization dated November 11, 1998
relating to the acquisition of the outstanding stock of
Omega Metals, Inc.
4.1 Articles of Amendment of Amended and Restated Articles of
Incorporation of American Access Technologies, Inc.
27.0 Financial Data Schedule
( c ) Reports on Form 8-K: There were no reports on form 8-K filed for
the period reported.
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: November 13, 1998
AMERICAN ACCESS TECHNOLOGIES, INC.
(Registrant)
By: /s/ Bobby E. Story
----------------------------------------
Bobby E. Story
Secretary/Treasurer
Chief Financial Officer
By: /s/ Victor E. Murray
----------------------------------------
Victor E. Murray
President
8
Exhibit 2.1 AGREEMENT AND PLAN OF REORGANIZATION
- ----------- ------------------------------------
AGREEMENT, made this 11th day of November, 1998, by and among AMERICAN
ACCESS TECHNOLOGIES, INC., a Florida corporation ("Buyer")and persons executing
this agreement (referred to collectively as "Shareholders" and individually as
"Shareholder") who own 100% of the outstanding shares of OMEGA METALS, INC., a
Florida corporation (the "Company").
WHEREAS, Buyer desires to acquire all of the issued and outstanding
shares of common stock of the Company in exchange for unissued shares of the
common stock of Buyer; and
WHEREAS, Shareholders desire to exchange all of their shares of Company
common stock for Buyer common stock ("Common Stock").
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
representations contained herein, the parties hereto agree as follows:
ARTICLE 1
---------
EXCHANGE OF SECURITIES
----------------------
1.1 Issuance of Shares. Subject to all of the terms and conditions of
this Agreement, Buyer agrees to exchange 226,470 shares of its Common Stock in
exchange for all of the outstanding Company common stock with the Shareholders
as set forth in Exhibit l.l hereto.
1.2 Exemption from Registration. The parties hereto intend that the
Common Stock to be issued by the Company to the Shareholders shall be exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Act"), and pursuant to applicable state statutes.
1.3 Tax Free Exchange. The parties hereto intend that the exchange
herein be tax-free reorganization pursuant to Section 368(a)(1)(B) of the
Internal Revenue Code of 1986. No revenue ruling or opinion of counsel is being
sought in this regard and such tax treatment is not a condition to closing
herein.
ARTICLE 2
---------
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS
----------------------------------------------------------
The Shareholders hereby represent and warrant to Buyer that:
2.1 Organization. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of Florida, has all necessary
corporate powers to own its properties and to carry on its business as now owned
and operated by it, and is duly qualified to do business and is in good standing
in each of the states where its business requires qualification.
2.2 Capital. The authorized capital stock of Company consists of 7,500
shares of Common Stock, $1.00 par value, of which 2,000 shares are currently
issued and outstanding. The shares currently outstanding are owned by the
shareholders of Company as set forth in Exhibit 1.1 hereto. All of the issued
and outstanding shares of Company are duly and validly issued, fully paid, and
nonassessable. There are no outstanding subscriptions, options, rights,
warrants, debentures, instruments, convertible securities, or other agreements
or commitments obligating Company to issue or to transfer from treasury any
additional shares of its capital stock of any class.
2.3 Subsidiaries. As of the date of this Agreement, Company does not
have any subsidiaries or own any interest in any other enterprise (whether or
not such enterprise is a corporation) other than the following Subsidiaries:
1
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Corporation State of Incorporation Percent Owned
----------- ---------------------- -------------
None
2.4 Directors and Officers. Exhibit 2.4 to this Agreement, the text of
which is hereby incorporated herein by reference, contains the names and titles
of all directors and officers of Company and the Subsidiaries as of the date of
this Agreement.
2.5 Financial Statements. The financial statements of the Corporation
made available to Buyer are correct and fairly represent the financial position
of Company as of the date of the last balance sheet included in the financial
statements, and the results of operation for the periods indicated and such
statements were prepared in accordance with generally accepted accounting
principles consistently applied.
2.6 Absence of Changes. Since the date of the most recent financial
statements included in Exhibit 2.5, there has not been any change in the
financial condition or operations of Company, except for changes in the ordinary
course of business, which changes have not in the aggregate been materially
adverse.
2.7 Absence of Undisclosed Liabilities. As of the date of its most
recent balance sheet, Company did not have any material debt, liability, or
obligation of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, that is not reflected in such balance sheet.
2.8 Tax Returns. Within the times and in the manner prescribed by law,
Company and its subsidiaries have filed all federal, state and local tax returns
required by law and has paid all taxes, assessments and penalties due and
payable. The provisions for taxes, if any, reflected in the balance sheet are
adequate for any and all federal, state, county and local taxes for the periods
ending on the date of the balance sheet and for all prior periods, whether or
not disputed. There are no present disputes as to taxes of any nature payable by
Company.
2.9 Investigation of Financial Condition. Without in any manner
reducing or otherwise mitigating the representations contained herein, Buyer
and/or its attorneys shall have the opportunity to meet with accountants and
attorneys to discuss the financial condition of Company. Company shall make
available to Buyer and/or its attorneys all books and records of Company. If the
transaction contemplated hereby is not completed, all documents received by
Buyer and/or its attorneys shall be returned to Company and all information so
received shall be treated as confidential.
2.10 Compliance with Laws. Company has complied with, and is not in
violation of, all applicable federal, state or local statutes, laws and
regulations (including, without limitation, any applicable building, zoning,
environmental or other law, ordinance or regulation and the Federal Food and
Drug Administration regulations) affecting its properties, products or the
operation of its business, except for matters which would not have a material
affect on Company or its properties.
2.11 Litigation. Company is not a party to any suit, action,
arbitration or legal, administrative or other proceeding, or governmental
investigation pending or, to the best knowledge of Company, threatened against
or affecting Company or its business, assets or financial condition, except for
matters which would not have a material affect on Company or its properties.
Company is not in default with respect to any order, writ, injunction or decree
of any federal, state, local or foreign court, department, agency or
instrumentality applicable to it. Company is not engaged in any lawsuits to
recover any material amount of monies due to it.
2.12 Ownership of Shares. The delivery of the Company common stock as
contemplated herein will result in Buyer's immediate acquisition of record and
beneficial ownership of all of the Company's capital stock, free and clear of
all liens and encumbrances.
2.13 Ability to Carry Out Obligations. The execution and delivery of
this Agreement by the Shareholders and the performance by the Shareholders of
the obligations hereunder in the time and manner contemplated will not cause,
constitute or conflict with or result in (a) any material breach or violation of
any of the provisions of or constitute a material default under any license,
indenture, mortgage, charter, instrument, articles of incorporation, by-laws, or
other agreement or instrument to which Company is a party, or by which it may be
bound, nor will any consents or authorizations of any party other than those
hereto be required, (b) an event that would permit any party to any material
2
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agreement or instrument to terminate it or to accelerate the maturity of any
indebtedness or other obligation of Company, or (c) an event that would result
in the creation or imposition of any material lien, charge, or encumbrance on
any asset of Company.
2.14 Full Disclosure. None of the representations and warranties made
by Company herein, or in any exhibit, certificate or memorandum furnished or to
be furnished by Company, or on its behalf, contains or will contain any untrue
statement of material fact, or omit any material fact the omission of which
would be misleading.
2.15 Assets. Company has good and marketable title to all of its
property and such property free and clear of all liens and encumbrances.
2.16 Material Contracts. Except as listed in Exhibit 2.16 hereto, or as
otherwise disclosed herein, Company has no material contracts to which it is a
party or by which it is bound.
2.17 Indemnification. Shareholders agree to defend and hold Buyer
harmless against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties, and reasonable attorney fees, that it shall incur
or suffer, which arise out of, result from or relate to any breach of, or
failure by Shareholders to perform any of its respective representations,
warranties, covenants and agreements in this Agreement or in any exhibit or
other instrument furnished or to be furnished by Shareholders under this
Agreement.
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Company that:
3.1 Organization. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of Florida, has all necessary
corporate powers to own properties and to carry on business.
3.2 Capital. The authorized capital stock of Buyer consists of
10,000,000 shares of $0.001 par value Common Stock of which 3,030,000 shares of
Common Stock are currently issued and outstanding and 60,000 shares of Preferred
Stock of which 31,150 shares are currently outstanding and approximately 20,000
shares to be issued in the private placement. All of the issued and outstanding
shares are duly and validly issued, fully paid and nonassessable. There are no
outstanding subscriptions, options, rights, warrants, convertible securities, or
other agreements or commitments obligating Buyer to issue or to transfer from
treasury any additional shares of its capital stock of any class other than
outstanding options and warrants to acquire 610,000 shares of Buyer's common
stock and the provisions of the Company's Series A 10% Senior Convertible
Preferred Stock which have been provided to the Shareholders.
3.3 Subsidiaries. Buyer does not have any subsidiaries or own any
interest in any other enterprise (whether or not such enterprise is a
corporation).
3.4 Directors and Officers. Exhibit 3.4, annexed hereto and hereby
incorporated herein by reference, contains the names and titles of all directors
and officers of Buyer as of the date of this Agreement.
3.5 Financial Statements. The financial statements of Buyer presented
to the Shareholders have been prepared in accordance with generally accepted
accounting principles and practices consistently followed by Buyer throughout
the period indicated, and are correct and fairly present the financial position
of Buyer as of the dates of the balance sheets included in the financial
statements, and the results of operations for the period indicated.
3.6 Absence of Changes. Since the date of the most recent financial
statements, there has not been any change in the financial condition or
operations of Buyer, except for changes in the ordinary course of business,
which changes have not in the aggregate been materially adverse.
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3.7 Absence of Undisclosed Liabilities. Buyer did not have any material
debt, liability, or obligation of any nature, whether accrued, absolute,
contingent, or otherwise, and whether due or to become due, that is not
reflected in Buyer's latest balance sheet or subsequently incurred in the
ordinary course of business or otherwise disclosed herein.
3.8 Tax Returns. Within the times and the manner prescribed by law,
Buyer has filed all federal, state and local tax returns required by law and has
paid all taxes, assessments and penalties due and payable. There are no present
disputes as to taxes of any nature payable by Buyer.
3.9 Investigation of Financial Condition. Without in any manner
reducing or otherwise mitigating the representations contained herein, Company
shall have the opportunity to meet with Buyer's accountants and attorneys to
discuss the financial condition of Buyer. Buyer shall make available to Company
all books and records of Buyer.
3.10 Compliance with Laws. Buyer has complied with, and is not in
violation of, all applicable federal, state or local statutes, laws and
regulations (including, without limitation, any applicable building, zoning,
environmental or other law, ordinance, or regulation) affecting its properties
or the operation of its business.
3.11 Litigation. Buyer is not a party to any suit, action, arbitration,
or legal, administrative, or other proceeding, or governmental investigation
pending or, to the best knowledge of Buyer, threatened against or affecting
Buyer or its business, assets, or financial condition. Buyer is not in default
with respect to any order, writ, injunction, or decree of any federal, state,
local, or foreign court, department agency, or instrumentality.
3.12 Authority. The Board of Directors of Buyer has authorized the
execution of this Agreement and the transactions contemplated herein, and Buyer
has full power and authority to execute, deliver and perform this Agreement and
this Agreement is the legal, valid and binding obligation of Buyer, is
enforceable in accordance with its terms and conditions, except as may be
limited by bankruptcy and insolvency laws and by other laws affecting the rights
of creditors generally. The approval of Buyer's shareholders is not necessary
for this transaction.
3.13 Ability to Carry Out Obligations. The execution and delivery of
this Agreement by Buyer and the performance by Buyer or conflict with or result
in (a) any material breach or violation of any of the provisions of or
constitute a default under any license, indenture, mortgage, charter,
instrument, certificate of incorporation, bylaw, or other agreement or
instrument to which Buyer is a party, or by which it may be bound, nor will any
consents or authorizations of any party other than those hereto be required, (b)
an event that would permit any party to any material agreement or instrument to
terminate it or to accelerate the maturity of any indebtedness or other
obligation of Buyer, or (c) an event that would result in the creation or
imposition of any material lien, charge, or encumbrance on any asset of Buyer.
3.14 Validity of Buyer Shares. The shares of Buyer Common Stock to be
delivered pursuant to this Agreement, when issued in accordance with the
provisions of this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable.
3.15 Full Disclosure. None of the representations and warranties made
by Buyer herein, or in any exhibit, certificate or memorandum furnished or to be
furnished by Buyer, or on its behalf, contains or will contain any untrue
statement of material fact, or omit any material fact the omission of which
would be misleading.
3.16 Assets. Buyer has good and marketable title to all of its property
free and clear of any and all liens, claims and encumbrances.
3.17 Indemnification. Buyer agrees to indemnify, defend and hold
Shareholders harmless against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including interest, penalties, and reasonable attorney fees, that
they shall incur or suffer, which arise out of, result from or relate to any
breach of, or failure by Buyer to perform any of its representations,
warranties, covenants or agreements in this Agreement or in any schedule,
certificate, exhibit or other instrument furnished or to be furnished by Buyer
under this Agreement.
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ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
----------------------------------------------
4.1 Share Ownership. The Shareholders hold shares of Company's common
stock as set forth in Exhibit 1.1 hereto. Such shares are owned of record and
beneficially by each holder thereof, and such shares are not subject to any
lien, encumbrance or pledge. Each Shareholder holds authority to exchange such
shares pursuant to this Agreement.
4.2 Investment Intent. Each Shareholder understands and acknowledges
that the shares of Buyer Common Stock (the "Buyer Shares") are being offered for
exchange in reliance upon the exemption provided in Section 4(2) of the
Securities Act of 1933 (the "Securities Act") for nonpublic offerings; and each
Shareholder makes the following representations and warranties with the intent
that the same may be relied upon in determining the suitability of each
Shareholder as a purchaser of securities.
(a) The Buyer Shares are being acquired solely for the account
of each Shareholder, for investment purposes only, and not with a view to, or
for sale in connection with, any distribution thereof and with no present
intention of distributing or reselling any part of the Buyer Shares.
(b) Each Shareholder agrees not to dispose of his Buyer Shares
or any portion thereof unless and until counsel for Buyer shall have determined
that the intended disposition is permissible and does not violate the Securities
Act or any applicable state securities laws, or the rules and regulations
thereunder.
(c) Each Shareholder acknowledges that Buyer has made all
documentation pertaining to all aspects of the Exchange Offer available to him
and to his qualified representatives, if any, and has offered such person or
persons an opportunity to discuss the Exchange Offer with the officers of Buyer.
(d) Each Shareholder is knowledgeable and experienced in
making and evaluating investments of this nature and desires to accept the
Exchange Offer on the terms and conditions set forth.
(e) Each Shareholder is able to bear the economic risk of an
investment, as a result of the Exchange Offer, in the Buyer Shares.
(f) Each Shareholder understands that an investment in the
Buyer shares is not liquid, and each Shareholder has adequate means of providing
for current needs and personal contingencies and has no need for liquidity in
this investment.
4.3 Legend. Each Shareholder agrees that the certificates evidencing
the Buyer Shares acquired pursuant to this Agreement will have a legend placed
thereon stating that the securities have not been registered under the Act or
any state securities laws and setting forth or referred to the restrictions on
transferability and sales of the Shares.
4.4 Registration. Buyer will file a registration statement with the
Securities and Exchange Commission covering resale of 50,000 Buyer Shares within
60 days from the closing herein. If such registration has not become effective
by the 150th day after closing, then Buyer will pay to the Shareholders a
registration delay penalty equal to 1% of the fair market value of such 50,000
shares for each 30 days that the registration statement is not effective after
such 150th day.
ARTICLE 5
---------
COVENANTS
---------
5.1 Investigative Rights. From the date of this Agreement until the
Closing Date, each party shall provide to the other party, and such other
party's counsels, accountants, auditors, and other authorized representatives,
full access during normal business hours and upon reasonable advance written
notice to all of each party's properties, books, contracts, commitments, and
records for the purpose of examining the same. Each party shall furnish the
other party with all information concerning each party's affairs as the other
party may reasonably request.
5.2 Conduct of Business. Prior to the Closing, Buyer and Company shall
each conduct its business in the normal course, and shall not sell, pledge, or
assign any assets, without the prior written approval of the other party, except
in the regular course of business. Neither Buyer or Company shall amend its
Articles of Incorporation or Bylaws, declare dividends, redeem or sell stock or
other securities (except Buyer may sell up to 60,000 shares of its Preferred
Stock), incur additional or newly-funded liabilities, acquire or dispose of
fixed assets, change employment terms, enter into any material or long-term
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contract, guarantee obligations of any third party, settle or discharge any
balance sheet receivable for less than its stated amount, pay more on any
liability than its stated amount, or enter into any other transaction other than
in the regular course of business.
5.3 Each of the Shareholders agree that for a period of five years from
the Closing, he will not directly or indirectly solicit business from, engage in
business with, or divert or seek to divert business from any of Company's
current or future customers, and that he will not participate as a shareholder,
partner, employee or otherwise in any enterprise engaging in activities that
would violate this paragraph if engaged in by him directly. Each Shareholder
acknowledges and confirms that this covenant is made to induce Buyer to enter
into this Agreement and is required by Buyer for the purpose of preserving the
business and goodwill of Company for the benefit of Buyer. The parties represent
and confirm that no part of the Buyer shares to be issued under this Agreement
have been allocated to this covenant and that no separate consideration or value
for this covenant has been otherwise agreed upon by the parties, and they agree
that they will not take any position in their federal income tax returns that is
inconsistent with this representation.
ARTICLE 6
---------
CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
-------------------------------------------
6.1 Conditions. Buyer's obligations hereunder shall be subject to the
satisfaction, at or before the Closing, of all the conditions set forth in this
Article 6. Buyer may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by Buyer of any other condition of or any of Buyer's
other rights or remedies, at law or in equity, if Shareholders shall be in
default of any of their representations, warranties, or covenants under this
Agreement.
6.2 Accuracy of Representations. Except as otherwise permitted by this
Agreement, all representations and warranties by Shareholders in this Agreement
or in any written statement that shall be delivered to Buyer by Shareholders
under this Agreement shall be true and accurate on and as of the Closing Date as
though made at that time.
6.3 Performance. Shareholders shall have performed, satisfied, and
complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by it, on or before the Closing Date.
6.4 Absence of Litigation. No action, suit, or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened against Company on or before the Closing Date.
6.5 Acceptance by Company Shareholders. The holders of an aggregate of
not less than 100% of the issued and outstanding shares of common stock of
Company shall have agreed to exchange their shares for shares of Buyer Common
Stock.
6.6 Certificate. Shareholders shall have delivered to Buyer a
certificate, dated the Closing Date, certifying that each of the conditions
specified in Sections 6.2 through 6.5 hereof have been fulfilled.
6.7 Cash Balance. At the closing, the company shall have a balance in
the cash operating account of at least $100,000.
ARTICLE 7
---------
CONDITIONS PRECEDENT TO SHAREHOLDERS' PERFORMANCE
-------------------------------------------------
7.1 Conditions. Shareholders' obligations hereunder shall be subject to
the satisfaction, at or before the Closing, of all the conditions set forth in
this Article 7. Shareholders may waive any or all of these conditions in whole
or in part without prior notice; provided, however, that no such waiver of a
condition shall constitute a waiver by Shareholders of any other condition of or
any of Shareholders' rights or remedies, at law or in equity, if Buyer shall be
in default of any of its representations, warranties, or covenants under this
Agreement.
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7.2 Accuracy of Representations. Except as otherwise permitted by this
Agreement, all representations and warranties by Buyer in this Agreement or in
any written statement that shall be delivered to Shareholders by Buyer under
this Agreement shall be true and accurate on and as of the Closing Date as
though made at that time.
7.3 Performance. Buyer shall have performed, satisfied, and complied
with all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by it, on or before the Closing Date.
7.4 Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened against Buyer on or before the Closing Date.
7.5 Officers' Certificate. Buyer shall have delivered to Shareholders a
certificate, dated the Closing Date and signed by the President of Buyer
certifying that each of the conditions specified in Sections 7.2 through 7.4
have been fulfilled.
ARTICLE 8
---------
CLOSING
-------
8.1 Closing. The Closing of this transaction shall be held at the
offices of Buyer, or such other place as shall be mutually agreed upon, on such
date on or prior to November 15, 1998, as shall be specified by Buyer. At the
Closing:
(a) Each Shareholder shall present the certificates
representing his shares of Company being exchanged to Buyer, and such
certificates will be duly endorsed.
(b) Each Shareholder shall receive a certificate or
certificates representing the number of shares of Buyer Common Stock for which
the shares of Company common stock shall have been exchanged.
(c) Buyer shall deliver an officer's certificate, as described
in Section 7.5 hereof, dated the Closing Date, that all representations,
warranties, covenants and conditions set forth in this Agreement on behalf of
Buyer are true and correct as of, or have been fully performed and complied with
by, the Closing Date.
(d) Buyer shall deliver a signed consent and/or Minutes of the
Directors of Buyer approving this Agreement and each matter to be approved by
the Directors of Buyer under this Agreement.
(e) Shareholder shall deliver a certificate, as described in
Section 6.6 hereof, dated the Closing Date, that all representations,
warranties, covenants and conditions set forth in this Agreement on behalf of
Shareholders are true and correct as of, or have been fully performed and
complied with by, the Closing Date.
ARTICLE 9
---------
MISCELLANEOUS
-------------
9.1 Captions. The Article and paragraph headings throughout this
Agreement are for convenience and reference only, and shall in no way be deemed
to define, limit, or add to the meaning of any provision of this Agreement.
9.2 No Oral Change. This Agreement and any provision hereof, may not be
waived, changed, modified, or discharged orally, but it can be changed by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, or discharge is sought.
9.3 Non-Waiver. Except as otherwise expressly provided herein, no
waiver of any covenant, condition, or provision of this Agreement shall be
deemed to have been made unless expressly in writing and signed by the party
against whom such waiver is charged; and (i) the failure of any party to insist
in any one or more cases upon the performance of any of the provisions,
covenants, or conditions of this Agreement or to exercise any option herein
contained shall not be construed as a waiver or relinquishment for the future of
any such provisions, covenants, or conditions, (ii) the acceptance of
performance of anything required by this Agreement to be performed with
knowledge of the breach or failure of a covenant, condition, or provision hereof
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shall not be deemed a waiver of such breach or failure, and (iii) no waiver by
any party of one breach by another party shall be construed as a waiver with
respect to any other or subsequent breach.
9.4 Time of Essence. Time is of the essence of this Agreement and of
each and every provision hereof.
9.5 Entire Agreement. This Agreement contains the entire Agreement and
understanding between the parties hereto, supersedes all prior agreements and
understandings, and constitutes a complete and exclusive statement of the
agreements, responsibilities, representations and warranties of the parties.
9.6 Choice of Law. This Agreement and its application shall be governed
by the laws of the State of Florida.
9.7 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.8 Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
Buyer: American Access Technologies, Inc.
----- 238 N. Westmonte Drive, Suite 210
Altamonte Springs, FL 32714
Shareholders: John E. and Lucille R. Presley, JT
------------ 6689 Shands Road
Keystone Heights, FL 32656
Erik Wiisanen
6689 Shands Road
Keystone Heights, FL 32656
9.9 Binding Effect. This Agreement shall inure to and be binding upon
the heirs, executors, personal representatives, successors and assigns of each
of the parties to this Agreement.
9.10 Mutual Cooperation. The parties hereto shall cooperate with each
other to achieve the purpose of this Agreement, and shall execute such other and
further documents and take such other and further actions as may be necessary or
convenient to effect the transaction described herein.
9.11 Announcements. Buyer and Shareholders will consult and cooperate
with each other as to the timing and content of any announcements of the
transactions contemplated hereby to the general public or to employees,
customers or suppliers.
9.12 Expenses. Each party will pay its own legal, accounting and any
other out-of-pocket expenses reasonably incurred in connection with this
transaction, whether or not the transaction contemplated hereby is consummated.
9.13 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties set forth in this Agreement
or in any instrument, certificate, opinion, or other writing providing for in
it, shall survive the Closing irrespective of any investigation made by or on
behalf of any party.
9.14 Exhibits. As of the execution hereof, the parties hereto have
provided each other with the Exhibits provided for hereinabove, including any
items referenced therein or required to be attached thereto. Any material
changes to the Exhibits shall be immediately disclosed to the other party.
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9.15 Arbitration of Disputes Any dispute or controversy arising out of
or relating to this Agreement, any document or instrument delivered pursuant to,
in connection with, or simultaneously with this Agreement, or any breach of this
Agreement or any such document or instrument shall be settled by arbitration to
be held in the State of Florida in accordance with the rules then in effect of
the American Arbitration Association or any successor thereto. The arbitrator
may grant injunctions or other relief in such dispute or controversy. The
decision of the arbitration shall be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's decision
in any court having jurisdiction. Each party in such arbitration shall pay their
respective costs and expenses of such arbitration and all the reasonable
attorneys' fees and expenses of their respective counsel.
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AGREED TO AND ACCEPTED as of the date first above written.
AMERICAN ACCESS TECHNOLOGIES, INC.
By: ___________________________________
President
THE COMPANY SHAREHOLDERS:
/s/ John E. Presley
----------------------------------
/s/ Lucille R. Presley
----------------------------------
John E. and Lucille R. Presley, JT
/s/ Erik Wiisanen
----------------------------------
Erik Wiisanen
10
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EXHIBIT 1.1A
<TABLE>
<CAPTION>
Company Shares Buyer Shares
Shareholder Owned to be Received
- -------------------------------------------------------------------------------------------
<S> <C> <C>
John E. and Lucille R. Presley, JT 1,000 113,235
Erik Wiisanen 1,000 113,235
Total 226,470
</TABLE>
Exhibit 4.1 ARTICLES OF AMENDMENT OF
- -----------
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
AMERICAN ACCESS TECHNOLOGIES, INC.
Pursuant to the provisions of Section 507.1006 of the Florida Business
Corporation Act, the undersigned Corporation adopts the following Articles of
Amendment to its Amended and Restated Articles of Incorporation.
FIRST: The name of the Corporation is American Access Technologies,
Inc.
SECOND: Article 3 of the Amended and Restated Articles of Incorporation
of the Corporation is hereby amended by inserting the following Part II, at the
end of thereof:
PART II
SERIES A 10% SENIOR CONVERTIBLE PREFERRED STOCK
60,000 shares of Preferred Stock of the Corporation are hereby
designated as "Series A 10% Senior Convertible Preferred Stock" (the "Series A
Preferred"), par value $.001 per share, which shall have the following
preferences, limitations and relative rights:
1. Preference. The preferences of each share of Series A Preferred with
respect to dividend payments and distributions of the Corporation's assets upon
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation shall be equal to the preferences of every other share of Series A
Preferred from time to time outstanding in every respect and prior in right to
such preferences of all other equity Securities of the Corporation, whether now
or hereafter authorized.
2. Voting Rights.
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(A) Except as otherwise provided in this Part II of Article 3 or by
law, the Holders of Series A Preferred, by virtue of their ownership thereof,
shall be entitled to cast the number of votes per share thereof on each matter
submitted to the Corporation's Stockholders for voting as equals the number of
votes which could be cast by the Holders of the number of shares of Common into
which such share of Series A Preferred could be converted pursuant to Section 5
hereof immediately prior to the taking of such vote (including, without
limitation, any shares of Common which would be issuable in payment of accrued
and unpaid dividends thereon if such shares were converted on the record date
and the Corporation elected to pay such dividends in Common). Such vote shall be
cast together with those cast by the Holders of Common and not as a separate
class except as otherwise provided herein.
(B) Election of Directors. So long as any shares of Series A Preferred
are outstanding:
(i) subject to the provisions of clause (iii) of this Section
2(B), the Board shall consist of seven members, none of whom need to be
stockholders and each to be elected for a term ending at the next succeeding
annual meeting of stockholders and his successor being elected and qualified;
(ii) the Holders of at least a majority of the shares of then
outstanding Series A Preferred shall be entitled to elect two directors (the
"Preferred Directors"), and five directors (the "Other Directors") shall be
elected by the Holders of Common and Series A Preferred, voting together as a
single class; and
(iii) upon the delivery of written notice to the Corporation
by the Holders of a majority of the then outstanding shares of Series A
Preferred during the continuance of a Majority Voting Right Event exercising
their rights hereunder, the number of directors constituting the entire Board
shall be automatically increased by four (the "Additional Directors") and the
Holders of Series A Preferred, voting together as a single class, shall be
entitled to elect all of such Additional Directors. Each such Additional
Director shall hold office until the earlier to occur of (i) election and
qualification of his or her successor by the Holders of Series A Preferred, (ii)
earlier resignation or removal by the Holders of not less than a majority of the
then outstanding shares of Series A Preferred or (iii) the first date after such
Additional Director's election on which (a) there no longer exists and is
continuing a Majority Voting Right Event or (b) no shares of Series A Preferred
remain outstanding;
(iv) immediately following the delivery of the notice
specified in clause (iii) hereof, the Board will call or cause to be called a
special meeting of the Holders of Series A Preferred by promptly mailing or
causing to be mailed to such Holders a notice of such special meeting to be held
not less than 10 and not more than 20 days after the date such notice is given.
If the Board does not call or cause to be called such a special meeting by
mailing or causing to be mailed a notice pursuant to the preceding sentence by
the 10th day after the request of any such Holder to do so, such special meeting
may be called by any of such Holders on like notice. The record date for
determining the Holders of the Series A Preferred entitled to notice of and to
vote at such special meeting will be the close of business on the business day
preceding the day on which such notice is mailed. If a Majority Voting Right
Event shall cease after the notice of a special meeting has been given but
before such special meeting has been held, the Corporation shall, as soon as
practicable after such cessation, mail or cause to be mailed notice of such
cessation to the Holders. Anything in this paragraph to the contrary
notwithstanding, if the required number of Additional Directors are elected by
the written consent of the Holders of Series A Preferred in compliance with
Florida law, the special meeting contemplated by this paragraph need not be
called or held;
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(v) At any meeting called for the purpose of electing
Additional Directors or Preferred Directors, the Holder or Holders of one-third
of the shares of Series A Preferred then outstanding, present in person or by
proxy, will constitute a quorum for the election of the Additional Directors
and/or Preferred Directors;
(vi) Subject to the terms hereof, any vacancy in the office of
an Additional Director or Preferred Director may be filled by vote of a majority
of the Holders of the outstanding shares of Series A Preferred, voting together
as a single class, in a meeting of stockholders or at a meeting of such Holders
called for such purpose (or acting by written consent without need of any
advance notice). Should a vacancy in the office of an Additional Director or
Preferred Director occur, upon the written request, addressed to the corporation
at is principal office, of the Holders of Series A Preferred which collectively
hold not less than 10% of the total number of shares of Series A Preferred then
outstanding, the Corporation shall call or cause to be called a special meeting
of the Holders of Series A Preferred by promptly mailing or causing to be mailed
to such Holders a notice of such meeting to be held not less than 10 and not
more than 20 days after the date such notice is given. If the Corporation does
not call or cause to be called such a special meeting by mailing or causing to
be mailed a notice pursuant to the preceding sentence by the 10th day after the
request of any such Holder to do so, such meeting may be called by any of such
Holders on like notice;
(vii) No Additional Director or Preferred Director may be
removed prior to the expiration of his term of office except by vote of a
majority of the then Holders of the outstanding shares of Series A Preferred,
voting as a single class, in a meeting of stockholders or at a meeting of such
Holders called for such purpose (or acting by written consent without need of
any advance notice); and
(viii) the Additional Directors, if any, together with the
Preferred Directors and the Other Directors shall constitute the duly elected
directors of the Corporation, and each director shall have one vote per share on
all matters.
3. Liquidation Rights. (A) If the Corporation shall be voluntarily or
involuntarily liquidated, dissolved or wound up ("Liquidation Event"), at any
time when any Series A Preferred shall be outstanding, each then outstanding
share of Series A Preferred shall entitle the Holder thereof to a preference
against the Property of the Corporation available for distribution to the
Holders of the Corporation's Securities equal to the greater of (i) $100.00 per
share plus an amount equal (i) to all accrued and unpaid dividends on such share
up to and including the date of such Liquidation Event (including, without
limitation, any Participating Dividends and Special Dividends) as determined in
accordance with Section 4 hereof and (ii) any shares of Common issuable as a
Conversion Failure Payment or issuable upon failure of the Company to pay a
Redemption Amount in accordance with Section 8(E) of this Part II or (ii) an
amount equal to that percentage of the Property of the Corporation available for
distribution to the Holders of the Corporation's Securities, equal to the
percentage that the Common Stock into which such share of Series A Preferred is
then convertible (plus Common Stock issuable as a Participating Dividend or
Special Dividend) would represent of the sum of the Common outstanding
immediately prior to such Liquidation Event, and the Common that would be
outstanding if all shares of Series A Preferred outstanding immediately prior to
such Liquidation Amount were converted into Common (plus Common Stock issuable
as a Participating Dividend or Special Dividend) (collectively, the "Liquidation
Amount"); provided, however, if the full amount to be paid to Holders of Series
A Preferred pursuant to this Section 3 is paid other than on a single day, the
Liquidation Amount shall be calculated on the basis of the last date on which
payment under this Section 3 occurs.
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(B) The consolidation or merger of the Corporation into or with any
corporation or corporations (other than a merger with another corporation in
which the Corporation is the surviving corporation and which does not result in
any reclassification or change -- 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 -- of outstanding shares of the Corporation's Stock
of any class or series, whether now or hereafter authorized), or the sale or
transfer or disposition by the Corporation of all or substantially all of its
assets (other than to one or more subsidiaries), or the effectuation of a
Change-in-Control Transaction shall be deemed to be a Liquidation Event. The
Corporation shall not effect a Liquidation Event unless it first gives twenty
(20) business days prior notice of such transaction to each Holder of Series A
Preferred (during which time each Holder, at its discretion, may immediately
convert any or all of its shares of Series A Preferred into Common at the
Conversion Price then in effect.)
(C) In the event that, immediately prior to the closing of a
transaction described in Section 3(B) which would constitute a Liquidation
Event, the cash distributions required by Section 3(A) have not been made, the
Corporation shall either: (i) cause such closing to be reasonably postponed
until such cash distributions have been made, (ii) cancel such transaction, in
which event the rights of the Holders of Series A Preferred shall be the same as
existing immediately prior to such proposed transaction or (iii) agree, and
shall require that any successor Corporation resulting from a Liquidation Event
agrees, to make such distributions as quickly after the closing of such
Liquidation Event as reasonably practicable, upon the same terms and in the same
amounts as the Corporation would have made if such distribution was made
immediately prior to the closing of such transaction.
(D) All of the preferential amounts to be paid to the Holders of Series
A Preferred as provided in Section 3 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any Property of the Corporation to, the Holders of any other
equity Securities of the Corporation, whether now or hereafter authorized.
4. Dividends.
(A) Regular Dividends. The Holders of Series A Preferred shall be
entitled to receive, upon conversion of each share of Series A Preferred
pursuant to Section 5 hereof, cumulative dividends at a rate of 10% per annum,
computed on the basis of $100.00 per share of Series A Preferred. Such dividends
shall be cumulative from (and including) such share's Issuance Date and shall
accrue daily, whether or not earned or declared, thereafter until paid and be
calculated on the basis of a 360 day year. Dividends shall be payable in cash;
provided, however that in lieu of paying such dividends in cash, the Corporation
may, at its option, pay any or all of such dividends by delivery of a number of
shares of Common equal to the quotient of (x) the dollar amount of the dividends
to be paid by delivery of shares of Common by (y) the then applicable Conversion
Price on the Date of Conversion.
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(B) Participating Dividends. In the event any dividend or other
distribution payable in cash or other Property (other than shares of Common) is
declared on the Common, each Holder of shares of Series A Preferred on the
record date for such dividend or distribution shall be entitled to receive per
share on the date of payment or distribution of such dividend or other
distribution the amount of cash or Property equal to the cash or Property which
would be received by the Holders of the number of shares of Common into which
such share of Series A Preferred would be converted pursuant to Section 5 hereof
immediately prior to such record date.
(C) Special Dividends. In the event of the occurrence of a Registration
Default, the Company shall immediately pay damages in the form of a special
dividend on each share of Series A Preferred as to which the underlying
Conversion Stock is not so registered in the amount of $1.00 per share, and will
pay additional special dividends on such shares every thirty (30) days
thereafter in the amount of $2.00 per share, in cash, or at the holder's option
the number of shares of Common equal to the quotient of (x) the dollar amount of
the Special Dividend to be paid on the Payment Date by (y) the Conversion Price
of a share of Common on the date of the Registration Default until all
Registration Defaults have been cured. A Registration Default under clause (i)
of the definition thereof shall be deemed cured on the date that the Shelf
Registration Statement is filed with the Securities Exchange Commission; a
Registration Default under clause (ii) of the definition thereof above shall be
cured on the date that the Shelf Registration Statement is declared effective by
the Securities and Exchange Commission; a Registration Default under clause
(iii) of the definition thereof shall be deemed cured on the date the Shelf
Registration Statement includes the Minimum Amount and is declared effective;
and a Registration Default under clause (iv) of the definition thereof shall be
deemed cured on the date the Shelf Registration Statement is again declared
effective or the prospectus contained therein again becomes usable or on the
second anniversary of the Initial Issuance Date, if earlier. The dividends
payable pursuant hereto are referred to herein as the "Special Dividends" and
shall be payable within five (5) business days from the end of each calendar
month commencing on the first calendar month in which the Registration Default
occurs (each, a "Payment Date").
5. Conversion.
(A) General. For purposes of conversion, the Series A Preferred shall
be valued at $100.00 per share ("Convertible Value"), and, if converted, the
Series A Preferred shall be converted into Common (the "Conversion Stock") at
the price per share equal to the then applicable Conversion Price.
(B) Right to Optional Conversion. The Holders of Series A Preferred
shall have the right, at their option, to convert any or all of such shares into
Conversion Stock at any time on or after the earlier of (i) the four month
anniversary of the earliest Issuance Date of any share of Series A Preferred or
(ii) first date upon which the Shelf Registration Statement registering the
Conversion Stock is declared effective by the Securities and Exchange
Commission, into that number of fully paid and non-assessable shares of Common
as shall be computed by dividing (1) the aggregate Convertible Value of the
Series A Preferred so surrendered by (2) the Conversion Price in effect at the
time of such conversion. At the time of conversion of a share of Series A
Preferred pursuant to this Section 5(B), the Corporation shall pay in accordance
with Sections 4(A) and 4(C) all accrued and unpaid dividends thereon through and
including the Date of Conversion, whether or not then earned or declared.
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(C) Mechanics of Conversion. In order to convert Series A Preferred
into full shares of Common, the Holder shall (i) send via facsimile, on or prior
to 11:59 p.m., New York City time (the "Conversion Notice Deadline") on the Date
of Conversion, a copy of the fully executed notice of conversion ("Notice of
Conversion") to the Corporation at the office of the Corporation for the Series
A Preferred stating that the Holder elects to convert, which notice shall
specify the Date of Conversion, the number of shares of Series A Preferred to be
converted, the applicable Conversion Price and a calculation of the number of
shares of Common issuable upon such conversion (together with a copy of the
front page of each certificate to be converted) and (ii) surrender to a common
courier for delivery to the office of the Corporation, the original certificates
representing the Series A Preferred being converted (the "Preferred Stock
Certificates"), duly endorsed for transfer; provided, however, that the
Corporation shall not be obligated to issue certificates evidencing the shares
of Common issuable upon such conversion unless either the Preferred Stock
Certificates are delivered to the Corporation as provided above, or the Holder
notifies the Corporation that such certificates have been lost, stolen or
destroyed (subject to the requirements of subparagraph (i), below). Upon receipt
by the Corporation of a facsimile copy of a Notice of Conversion, the
Corporation shall immediately send, via facsimile, a confirmation of receipt of
the Notice of Conversion to such Holder which shall specify that the Notice of
Conversion has been received and the name and telephone number of a contact
person at the Corporation whom the Holder should contact regarding information
related to the conversion. In the case of a dispute as to the calculation of the
Conversion Price, the Corporation shall promptly issue to the Holder the number
of shares of Common that are not disputed and shall submit the disputed
calculations to its outside accountant via facsimile within three (3) days of
receipt of Holder's Notice of Conversion. The Corporation shall cause the
accountant to perform the calculations and notify the Corporation and Holder of
the results no later than two business days from the time it receives the
disputed calculations. Accountant's calculation shall be deemed conclusive
absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A Preferred, and (in
the case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date. However, the
Corporation shall not be obligated to re-issue such lost or stolen Preferred
Stock Certificates if Holder contemporaneously requests the Corporation to
convert such Series A Preferred into Common.
(ii) Delivery of Common Upon Conversion. The Corporation shall
or shall cause the Transfer Agent to, no later than the close of business on the
third (3rd) business day (the "Deadline") after actual receipt by the
Corporation of a facsimile copy of a Notice of Conversion and actual receipt by
Corporation or the Transfer Agent of all necessary documentation duly executed
and in proper form required for conversion, including the original Preferred
Stock Certificates to be converted (or after provision for security or
indemnification in the case of lost or destroyed certificates, if required),
issue and surrender to a common courier for either overnight or (if delivery is
outside the United States) two (2) day delivery to the Holder at the address of
the Holder as shown on the stock records of the Corporation a certificate for
the number of shares of Common to which the Holder shall be entitled as
aforesaid.
(iii) No Fractional Shares. If any conversion of the Series A
Preferred would create a fractional share of Common or a right to acquire a
fractional share of Common, such fractional share shall be disregarded and the
number of shares of Common issuable upon conversion, in the aggregate, shall be
the next higher number of shares.
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(iv) Date of Conversion. The date on which conversion occurs
(the "Date of Conversion") shall be deemed to be the date set forth in such
Notice of Conversion, provided that (i) the advance copy of the Notice of
Conversion is sent via facsimile to the Corporation before 11:59 p.m., New York
City time, on the Date of Conversion, and (ii) the original Preferred Stock
Certificates representing the shares of Series A Preferred to be converted are
surrendered by depositing such certificates with a common courier, for delivery
to the Corporation as provided above, within three (3) days after the Date of
Conversion. The person or persons entitled to receive the shares of Common
issuable upon such conversion shall be treated for all purposes as the record
Holder of such shares of Common on the Date of Conversion.
(D) Mandatory Conversion. All of the outstanding Series A Preferred
shall, upon delivery of written notice delivered by the Company to the Holders
of all shares of Series A Preferred then outstanding and approved by the Board
at any time on or after the fifth anniversary of the Initial Issuance Date,
convert into Conversion Stock on such date at the Conversion Price then in
effect (a "Mandatory Conversion"); provided that no Mandatory Conversion may be
required so long as an Event of Non-Compliance is continuing unless such
Mandatory Conversion is consented to in writing by the Holders of not less than
a majority of the Series A Preferred then outstanding. If a Mandatory Conversion
occurs, the Corporation and the Holders shall follow the applicable conversion
procedures set forth in this Section 5; provided, however, that the Holders are
not required to send the Notice of Conversion contemplated by Section 5(C).
(E) Stock Fully Paid; Reservation of Shares.
(i) Authorized and Reserved Amount. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common (the "Reserved Amount") a sufficient number of shares Common to
provide for the full conversion of all outstanding Series A Preferred, and
issuance of the shares of Common in connection therewith (including any shares
of Common which would be issuable in payment of accrued and unpaid dividends
thereon or any shares of Common Stock issuable as a Conversion Failure Payment
or issuable upon the failure of the Corporation to pay a Redemption Amount in
accordance with Section 8(E) of this Part II. All shares of Common which may be
issued upon conversion of Series A Preferred will, upon issuance, be duly
issued, fully paid and non-assessable and free from all taxes, liens and charges
with respect to the issue thereof.
(ii) Increases to Reserved Amount. Without limiting any other
provision of this Section 5(E), if the Reserved Amount for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"Reservation Trigger Date") shall be less than two hundred percent (200%) of the
number of shares of Common issuable upon conversion of the Series A Preferred (a
"Share Authorization Failure"), the Corporation shall immediately notify all
Holders of such occurrence and shall take action as soon as possible, but in any
event within sixty (60) days after a Reservation Trigger Date (including, if
necessary, seeking shareholder approval to authorize the issuance of additional
shares of Common) to increase the Reserved Amount to two hundred percent (200%)
of the number of shares of Common then issuable upon conversion of the Series A
Preferred (including any shares of Common which would be issuable in payment of
accrued and unpaid dividends thereon if the Corporation elected to pay such
dividends in Common).
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(iii) Reduction of Reserved Amount Under Certain
Circumstances. Prior to complete conversion of all Series A Preferred, the
Corporation shall not reduce the number of shares required to be reserved for
issuance under this Section 5(E) without the written consent of all Holders
except for a reduction proportionate to a reverse stock split effected for a
business purpose other than affecting the obligations of Holder under this
Section 5, which reverse stock split affects all shares of Common equally.
(iv) Allocation of Reserved Amount. Each increase to the
Reserved Amount shall be allocated pro rata among the Holders based on the
number of shares of Series A Preferred held by each Holder at the time of the
establishment of or increase in the Reserved Amount. In the event a Holder shall
sell or otherwise transfer any of such Holder's Series A Preferred, each
transferee shall be allocated a pro rata portion of such transferor's Reserved
Amount. Any portion of the Reserved Amount which remains allocated to any person
or entity which does not hold any Series A Preferred shall be allocated to the
remaining Holders, pro rata based on the number of Series A Preferred then held
by such Holders.
(F) Adjustment of Conversion Price and Number of Shares. The number of
shares of Common issuable upon conversion of Series A Preferred and the
Conversion Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows; provided, however, in no event shall
the Conversion Price be reduced to less than $.001:
(i) Adjustment to Fixed Conversion Price Due to Stock Split,
Stock Dividend, Etc. If, prior to the conversion of all of the Series A
Preferred, the number of outstanding shares of Common is increased by a stock
split, stock dividend, or other similar event, the Fixed Conversion Price shall
be proportionately reduced, or if the number of outstanding shares of Common is
decreased by a combination or reclassification of shares, or other similar
event, the Fixed Conversion Price shall be proportionately increased.
(ii) Adjustment to Floating Conversion Price. If, at any time
when any shares of the Series A Preferred are issued and outstanding, the number
of outstanding shares of Common is increased or decreased by a stock split,
stock dividend, or other similar event, which event shall have taken place
during the reference period for determination of the Conversion Price for any
conversion of the Series A Preferred, then the Floating Conversion Price shall
be calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event for all fifteen (15)
trading days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc. If, prior
to the conversion of all Series A Preferred, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common of the Corporation shall be
changed into the same or a different number of shares of the same or another
class or classes of stock or securities of the Corporation or another entity and
which is not deemed to be a Liquidation Event pursuant to Section 3(B), then the
Holders of Series A Preferred shall thereafter have the right to receive upon
conversion of Series A Preferred, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common immediately
theretofore issuable upon conversion, such stock, securities and/or other assets
which the Holder would have been entitled to receive in such transaction had the
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Series A Preferred been converted immediately prior to such transaction, and in
any such case appropriate provisions shall be made with respect to the rights
and interests of the Holders of the Series A Preferred to the end that the
provisions hereof (including, without limitation, provisions for the adjustment
of the Conversion Price and of the number of shares issuable upon conversion of
the Series A Preferred) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities thereafter deliverable upon the
exercise hereof. The Corporation shall not effect any transaction described in
this subsection 5(F)(iii) unless (a) it first gives at least thirty (30) days
prior notice of such merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event (during which time the
Holder shall be entitled to convert its shares of Series A Preferred into
Common) and (b) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument the obligations of the Corporation
under this Part II of Article 3 of the Corporation's Articles of Incorporation
including this subsection 5(F)(iii).
(iv) No Fractional Shares. If upon conversion of Series A
Preferred, a Holder would be entitled to receive a fractional share of Common or
a right to acquire a fractional share of Common, such fractional share shall be
disregarded and the number of shares of Common issuable upon conversion shall be
the next higher number of shares.
(G) Notice of Adjustments. Whenever the Conversion Price shall be
adjusted pursuant to Subsection 5(F) hereof, the Corporation shall make a
certificate signed by its President or a Vice President and by its Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board made any determination hereunder),
and the Conversion Price after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (by first-class mail, postage prepaid)
to each Holder of Series A Preferred at its address shown on the books of the
Corporation. The Corporation shall make such certificate and mail it to each
Holder promptly after each adjustment.
(H) No Reissuance of Series A Preferred. No shares of Series A
Preferred which have been converted into Common shall be reissued by the
Corporation.
6. Consent of the Holders of Series A Preferred. So long any shares of
Series A Preferred shall be outstanding, the Corporation shall not, without the
prior approval by the vote or written consent of the Holders of at least a
majority (or more if required by law) of the then outstanding shares of Series A
Preferred:
(A) Amend, waive or repeal any provisions of, or add any provision to,
(i) this Part II of Article 3 of the Corporation's Amended and Restated Articles
of Incorporation or (ii) if such amendment, waiver, repeal or addition would
have an adverse effect upon the rights, preferences or priorities of the Holders
of Series A Preferred, any other provision of the Corporation's Amended and
Restated Articles of Incorporation;
(B) Amend, waive or repeal any provisions of, or add any provision to,
the Corporation's By-Laws, if such amendment, waiver, repeal or addition would
have an adverse effect upon the rights, preferences or priorities of the Holders
of Series A Preferred;
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(C) Authorize, create, issue or sell any shares of Parity Stock or
Senior Stock; or
(D) Issue any shares of Series A Preferred other than in accordance
with the Placement Agreement or upon transfers of outstanding shares of Series A
Preferred.
In the event Holders of at least a majority of the then outstanding
shares of Series A Preferred agree to allow the Corporation to alter or change
the rights, preferences or privileges of the Series A Preferred, pursuant to
subsection (A) above, so as to affect the Series A Preferred, then the
Corporation will deliver notice of such approved change to the Holders of the
Series A Preferred that did not agree to such alteration or change (the
"Dissenting Holders") and Dissenting Holders shall have the right for a period
of twenty (20) business days to convert pursuant to the terms of these Amended
and Restated Articles of Incorporation as they exist prior to such alteration
or, or continue to hold their shares of Series A Preferred, as amended.
7. Exchange Privilege. Not less than twenty-five days prior to the
issuance or sale by the Corporation of any Convertible Securities ("New
Securities") or units including New Securities ("Units") other than pursuant to
the Offering, the Corporation shall provide written notice thereof to each
Holder of Series A Preferred (an "Issuance Notice") specifying the terms of the
Convertible Securities to be so issued and the consideration payable for such
New Securities or Units. During the twenty day period after delivery of an
Issuance Notice, each Holder of Series A Preferred may tender any or all of his
shares of Series A Preferred in exchange for a quantity of such New Securities
or Units (including any fractional interests thereof) purchasable for
consideration equal to the Convertible Value of the shares of Series A Preferred
tendered plus all accrued and unpaid dividends thereon based upon the
consideration payable for New Securities pursuant to the Issuance Notice. On the
twenty-fifth day after the date of the Issuance Notice (or immediately upon the
first issuance of such New Securities, if later) the Corporation shall deliver
to the tendering Holders (i) certificates and/or other applicable evidence of
the New Securities issuable pursuant hereto on account of the shares of Series A
Preferred tendered for exchange and (ii) certificates representing any shares of
Series A Preferred which were represented by certificates tendered but were
specified by the tendering Holder as not being tendered pursuant to such
exchange; provided that in the event that no New Securities are sold or issued
within sixty days of the date of the Issuance Notice, all tendered shares of
Series A Preferred shall be returned to the Holders and no New Securities shall
be issued without delivery of a new Issuance Notice and compliance herewith. For
the purposes hereof the consideration received by the Corporation in connection
with any sale of New Securities shall be deemed to be the following: to the
extent that any New Securities or Units shall be issued for cash consideration,
the consideration received by the Corporation therefor; to the extent that such
issuance shall be for a consideration other than cash, then, except as herein
otherwise expressly provided, the fair market value of such consideration at the
time of such issuance as determined in good faith by the Board. In any case in
which the consideration to be received or paid shall be other than cash, the
Board shall notify each Holder of Series A Preferred of its determination of the
fair market value of such consideration in the Issuance Notice. If, within 10
days after receipt of the Issuance Notice, the Holders of not less than a
majority of the Series A Preferred then outstanding shall notify the Board in
writing of their objection to such determination, a determination of fair market
value of such consideration shall be made by arbitration in accordance with the
commercial rules of the American Arbitration Association, by an arbitrator in
Orange County, Florida; and the period for electing to exchange pursuant hereto
shall be extended to ten days after notice of the value of such consideration is
delivered to the Holders of Series A Preferred.
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8. Redemption.
(A) Redemption at the Option of the Holders. At any time after the
occurrence of an Event of Non-Compliance until the twentieth calendar day after
delivery of written notice by the Corporation to the Holders of Series A
Preferred of the occurrence of such Event of Non-Compliance, each Holder of
Series A Preferred, may compel the Corporation to redeem, for cash, all of the
then outstanding shares of Series A Preferred held by such Holder at a
redemption price per share equal to the product of (x) 1.1 multiplied by (y) the
sum of the Convertible Value plus an amount equal to all accrued and unpaid
dividends (including, without limitation, Participating Dividends, Special
Dividends) accrued thereon through and including the date of redemption and
accrued and unpaid Conversion Failure Payments (as defined below) (if any) (the
"Redemption Amount"); provided, however, that in the event that as of such
twenty-fifth day such Event of Non-Compliance has been cured, and no Event of
Non-Compliance is then continuing, any such redemption notices delivered shall
be null and void and the Corporation shall not (at that time) be obligated to
redeem such shares.
(B) Mechanics of Redemption. Each Holder electing to have such Holder's
Series A Preferred redeemed pursuant to this Section 8 shall (i) send via
facsimile, on or prior to 11:59 p.m. New York City time, a copy of a written
notice (the "Notice of Redemption") to the Corporation at the office of the
Corporation stating that the Holder elects to compel redemption of all such
Holders shares of Series A Preferred and (ii) surrender to a common courier for
delivery to the office of the Corporation or the Transfer Agent, the Preferred
Stock Certificates representing the Series A Preferred to be redeemed duly
endorsed for transfer. The Corporation shall not be obligated to deliver the
Redemption Amount unless the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent, or, in the event one or more certificates
have been lost, stolen, mutilated or destroyed, unless the Holder has complied
with Section 5(C)(i). Upon receipt by the Corporation of the facsimile copy of a
Notice of Redemption, the Corporation immediately shall send, via facsimile, a
confirmation of receipt of the Notice of Redemption to such Holder which shall
specify that the Notice of Redemption has been received and the name and
telephone number of a contact person at the Corporation whom the Holder should
contact regarding information related to the redemption. On the date which is 50
calendar days after the date of delivery by the Corporation of written notice to
the Holders of Series A Preferred of the occurrence of an Event of
Non-Compliance, the Corporation shall redeem all of the shares of Series A
Preferred which the Holders have required to be redeemed.
(C) Availability of Funds for Redemption. Notwithstanding anything in
this Section 8 to the contrary, if the Corporation has insufficient funds
legally available on the redemption date to redeem shares of Series A Preferred
pursuant to this Section 8, then funds to the extent legally available shall be
used to redeem such shares, in which case the shares shall be redeemed pro rata
from each Holder thereof. At any time thereafter, when additional funds of the
Corporation are legally available for the redemption of the unredeemed shares of
Series A Preferred, such funds shall be immediately used to redeem such shares.
(D) No Distributions. Upon the occurrence of an Event of Non-Compliance
and until redemption of all shares required to be redeemed pursuant to paragraph
(A) of this Section 8, the Corporation shall not declare or pay any cash
dividend on, or redeem or repurchase or make any other cash distribution in
respect of any equity Securities of the Corporation, other than the redemptions
required hereby.
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(E) Failure to Pay Damages Amount. If the Corporation fails to pay the
Redemption Amount within five (5) business days of its receipt of a Notice of
Redemption, then such Holder shall have the right, at any time and from time to
time prior to the payment of the Redemption Amount, to require the Corporation,
upon written notice, to immediately convert (in accordance with the terms of
Section 5) all or any portion of the Redemption Amount, into shares of Common at
the then current Conversion Price, provided that if the Corporation has not
delivered the full number of shares of Common Stock issuable upon such
conversion within five (5) business days after the Corporation receives written
notice of such conversion and all other documents required to be received
pursuant to Section 5(C) of this Part II not previously delivered to the
Corporation, the Conversion Price with respect to such Redemption Amount shall
thereafter be deemed to be the at the lowest Conversion Price in effect during
the period beginning on the date of the Event of Non-Compliance through the date
on which the Corporation delivers to the Holder the full number of freely
tradable shares of Common issuable upon such conversion. In the event the
Corporation is not able to pay all amounts due and payable with respect to all
Series A Preferred subject to a Notice of Redemption, the Corporation shall pay
the Holders such amounts pro rata, based on the total amounts payable to such
Holder relative to the total amounts payable to all Holders.
(F) No Reissuance of Series A Preferred Redeemed. No shares of Series A
Preferred which have been redeemed by the Corporation, whether pursuant hereto
or otherwise, shall be reissued by the Corporation.
9. Failure to Satisfy Conversions.
(A) Conversion Failure Payments. If, at any time, (x) a Holder submits
a Notice of Conversion (or is deemed to submit such notice pursuant to Section
5(D) hereof), and the Corporation fails for any reason to deliver, on or prior
to the expiration of the Deadline ("Delivery Period") for such conversion, such
number of shares of Common to which such converting Holder is entitled upon such
conversion, and such delivery is not the subject of a pending dispute which is
being resolved in accordance with the provisions provided for pursuant to
Section 5(D), or (y) the Corporation provides notice to Holder at any time of
its intention not to issue shares of Common upon exercise by Holder of
conversion rights in accordance with the terms of this Part II (each of (x) and
(y) being a "Conversion Failure"), then the Corporation shall pay to such Holder
damages in an amount equal to the lower of:
(i) Damages Amount multiplied by Days multiplied by .005, and
(ii) the highest interest rate permitted by applicable law.
The payments to which a Holder shall be entitled pursuant to this
Section 9 are referred to herein as "Conversion Failure Payments." The parties
agree that the damages caused by a breach hereof would be difficult or
impossible to estimate accurately. A Holder may elect to receive accrued
Conversion Failure Payments in cash or to convert all or any portion of such
accrued Conversion Failure Payments, at any time, into Common at the lowest
Conversion Price in effect during the period beginning on the date of the
Conversion Failure through the Cure Date for such Conversion Failure. In the
event a Holder elects to receive any Conversion Failure Payments in cash, it
shall so notify the Corporation in writing no later than three (3) business days
after the Deadline and failure to so notify the Corporation, shall entitle the
Corporation, in its sole discretion, to elect make such Conversion Failure
Payments in cash, Common or some combination of the two. In the event a Holder
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elects to convert all or any portion of the Conversion Failure Payments, such
Holder shall indicate on a Notice of Conversion such portion of the Conversion
Failure Payments which such Holder elects to so convert in accordance with this
Section 9 and such conversion shall otherwise be effected in accordance with
provisions of Section 5.
(B) Buy-In Cure. Unless a Conversion Failure described in clause (y) of
Section 9(A) hereof has occurred with respect to such a Holder, if (i) the
Corporation fails for any reason to deliver during the Delivery Period shares of
Common to a Holder upon a conversion of the Series A Preferred and (ii) after
the applicable Delivery Period with respect to such conversion, a Holder
purchases (in an open market transaction or otherwise) shares of Common to make
delivery upon a sale by a Holder of the shares of Common (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 Holder) the amount by which (x) such Holder's total purchase price (including
brokerage commission, if any) for the shares of Common so purchased exceeds (y)
the net proceeds received by such Holder from the sale of the Sold-Shares. For
example, if a Holder purchases shares of Common having a total purchase price of
$11,000 to cover a Buy-in with respect to shares of Common sold for $10,000, the
Corporation will be required to pay such Holder $1,000. A Holder shall provide
the Corporation written notification indicating any amounts payable to Holder
pursuant to this Section 9.
(C) Adjustment to Conversion Price. If a Holder has not received
certificates for all shares of Common within five (5) business days following
the expiration of the Delivery Period with respect to a conversion of any
portion of any of such Holder's Series A Preferred for any reason, then the
Conversion Price for the affected Series A Preferred shall thereafter be the
lesser of (i) the Fixed Conversion Price on the Conversion Date specified in the
Notice of Conversion which resulted in the Conversion Failure and (ii) the
lowest Conversion Price in effect during the period beginning on, and including,
such Conversion Date through and including the Cure Date. If there shall occur a
Conversion Failure of the type described in clause (y) of Section 9(A), then 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 Failure through and
including the Cure Date. The Conversion Price shall thereafter be subject to
further adjustment for any events described in Section 5(F).
10. Definitions. As used in this Part II, the following terms have the
following meanings:
"Affiliate" shall mean any entity controlling, controlled by or under
common control with another entity. For the purposes of this definition,
"control" shall have the meaning presently specified for that word in Rule 405
promulgated by the Securities and Exchange Commission under the Securities Act.
With respect to any Person who is a limited partnership Affiliate shall also
mean any general or limited partner of such limited partnership, or any Person
which is a general partner in a general or limited partnership which is a
general of such limited partnership.
"Board" shall mean the Board of Directors of the Corporation.
"Buy-In" shall have the meaning set forth in Section 9(B) of this Part
II.
"Change-in-Control Transaction" means any transaction or series of
related transactions, whether involving the Corporation, the Holders of any
class or series of its Stock other than Series A Preferred (whether now or
hereafter authorized), or both, resulting in any Person or group of Persons
acting in concert who were not theretofore the Holder or Holders of Voting
13
<PAGE>
Securities enabling the Holder or Holders thereof to cast more than a majority
of the votes which may be cast for the election of directors becoming the Holder
or Holders of at least such amount of Voting Securities (for such purpose,
treating instruments or Securities issued in such transaction which are
convertible into or exchangeable or exercisable for Voting Securities as being
so converted, exchanged or exercised upon issuance, regardless of the terms
thereof).
"Closing Bid Price" shall mean, with respect to a share of Common, the
last closing bid price for such security on the Nasdaq National Market as
reported by Bloomberg Financial Markets ("Bloomberg"), or if the Nasdaq National
Market is not the principal trading market for such security, the last 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, or if
the Common is not listed or traded on any national securities exchange or Nasdaq
National Market or SmallCap Market, then the last closing bid price of Common in
the over-the-counter market on the electronic bulletin board as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for Common as
reported in the "pink sheets" by the National Quotation Bureau, Inc.
"Common" shall mean the Corporation's Common Stock, with $.001 par
value per share, and any stock into which such stock may hereafter be changed.
"Conversion Failure" shall have the meaning set forth in Section 9(A)
of this Part II.
"Conversation Failure Payments" shall have the meaning set forth in
Section 9 for this Part II.
"Conversion Notice Deadline" shall have the meaning set forth in
Section 5(C) of this Part II.
"Conversion Price" shall mean, as of any Conversion Date, the lesser of
(i) the Fixed Conversion Price and (ii) the then applicable Floating Conversion
Price.
"Conversion Stock" shall have the meaning set forth in Section 5(A) of
this Part II.
"Convertible Securities" shall mean evidences of Indebtedness, shares
of Stock or other Securities which are or may be at any time be convertible into
or exchangeable for Common. The term "Convertible Security" shall mean one of
the Convertible Securities.
"Convertible Value" shall have the meaning set forth in Section 5(A) of
this Part II.
"Cure Date" means (i) with respect to a Conversion Failure described in
clause (x) of its definition, the date the Corporation effects the conversion of
the shares of Series A Preferred submitted for conversion and (ii) with respect
to a Conversion Failure described in clause (y) of its definition, the date the
Corporation undertakes in writing to issue Common in satisfaction of all
conversions of Series A Preferred in accordance with the terms of this Part II
of the Corporation's Amended and Restated Articles of Incorporation.
"Damages Amount" means the Convertible Value for each share of Series A
Preferred subject to conversion plus all accrued and unpaid interest thereon as
of the first day of the Conversion Failure.
14
<PAGE>
"Date of Conversion" shall have the meaning set forth in Section 5(C)
of this Part II.
"Days" means the number of days beginning the date of the Conversion
Failure through and including the Cure Date with respect to such Conversion
Failure;
"Deadline" shall have the meaning set forth in Section 5(C) of this
Part II.
"Delivery Period" shall have the meaning set forth in Section 9(A) of
this Part II.
"Dissenting Holders" shall have the meaning set forth in Section 6 of
this Part II.
"Event of Non-Compliance" shall mean any of the following:
(i) Any failure by the Corporation to comply with the
provisions of this Part II of Article 3 (including, without limitation,
the failure to make any required dividend or redemption payment
hereunder because the Corporation does not have legally available
capital to make such payment);
(ii) Default by the Corporation or any Subsidiary in the
performance or observance of any obligation or condition with respect
to any Indebtedness of the Company or any Subsidiary, if the effect of
such default is to accelerate the maturity of such Indebtedness or
cause such Indebtedness to be prepaid, purchased or redeemed, in full,
prior to its expressed maturity or to cause such Indebtedness to be
prepaid, purchased or redeemed, in full, or to realize upon any
collateral or security for such Indebtedness, unless such default shall
have been waived by the appropriate Person; and
(iii) a Conversion Failure described in Section 9 hereof;
(iv) a Share Authorization Failure described in Section
5(D)(2) hereof, if such Share Authorization Failure continues uncured
for ninety (90) days after the Reservation Trigger Date;
(v) the Corporation fails, and such failure continues uncured
for three (3) business days after the Corporation has been notified
thereof in writing by a Holder, to satisfy the share reservation
requirements of Section 5(D) hereof;
(vi) the Corporation fails to maintain an effective
registration statement as required by the Registration Rights
Agreement, between the Corporation and the Holder(s) (the "Registration
Rights Agreement") except where such failure (a) lasts no longer than
three (3) consecutive trading days and is caused solely by failure of
the Securities and Exchange Commission to timely review the customary
submission of or respond to the customary requests of the Corporation
or (b) would not be considered a Registration Default within the
meaning of clause (iv) of the definition thereof.
(vii) for five (5) consecutive trading days or for an
aggregate of fifteen (15) trading days in any six (6) month period, the
Common (including any of the shares of Common issuable upon conversion
of the Series A Preferred) is (i) suspended from trading on any of
NASDAQ SmallCap, NMS, NYSE, AMEX or the OTC Bulletin Board, or (ii) is
not qualified for trading on at least one of NASDAQ SmallCap, NMS,
NYSE, AMEX or the OTC Bulletin Board;
15
<PAGE>
(viii) the Corporation fails, and such failure continues
uncured for three (3) business days after the Corporation has been
notified thereof in writing by a Holder, to remove any restrictive
legend on any certificate for any shares of Common issued to a Holder
upon conversion of any Series A Preferred as and when required by these
Articles of Incorporation, the Subscription Agreement, between the
Corporation and the Holder(s) (the "Subscription Agreement") or the
Registration Rights Agreement;
(ix) the Corporation breaches, and such breach continues
uncured for three (3) business days after the Corporation has been
notified thereof in writing by a Holder, any significant covenant or
other material term or condition of these Articles of Incorporation,
the Subscription Agreement or the Registration Rights Agreement;
(x) any representation or warranty of the Corporation made
herein or in any agreement, statement or certificate given in writing
pursuant hereto or in connection herewith (including, without
limitation, the Subscription Agreement and Registration Rights
Agreement), shall be false or misleading in any material respect when
made and not more than 180 days has passed since the Holders of the
Series A Preferred had actual knowledge thereof;
(xi) the Corporation shall make an assignment for the benefit
of its creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business, or such receiver or trustee shall otherwise be appointed;
(xii) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or
any law for the relief of debtors shall be instituted by or against the
Corporation (and such proceedings shall continue unstayed for thirty
(30) days); or
(xiii) take any corporate or other action authorizing, or in
furtherance of, any of the foregoing.
provided, that upon the occurrence of an Event of Non-Compliance, the
Corporation shall provide prompt written notice thereof by facsimile to all of
the Holders of Series A Preferred then outstanding, not later than 5:00 p.m. New
York City time on the business day after the occurrence thereof, and the
Corporation shall provide a copy of such notice by overnight or two (2) day
courier to each Holder.
"Fixed Conversion Price" shall mean $17.00 per share, subject to
adjustment in accordance with Section 5(F) of this Part II.
"Floating Conversion Price" shall mean, as of any day, the product of
(x) .8 multiplied by (y) the Market Value as of such day.
"Holders" shall mean the Persons who shall, from time to time, own of
record, or beneficially, any Security. The term "Holder" shall mean one of the
Holders.
16
<PAGE>
"Indebtedness" of any corporation shall mean the principal of (and
premium, if any) and unpaid interest on:
(i) indebtedness which is for money borrowed from others;
(ii) indebtedness guaranteed, directly or indirectly, in any
manner by such corporation, or in effect guaranteed, directly or
indirectly, by such corporation through an agreement, contingent or
otherwise, to supply funds to or in any manner invest in the debtor or
to purchase indebtedness, or to purchase Property or services primarily
for the purpose of enabling the debtor to make payment of the
indebtedness or of assuring the owner of the indebtedness against loss;
(iii) all indebtedness secured by any mortgage, lien, pledge,
charge or other encumbrance upon Property owned by such corporation,
even if such corporation has not in any manner become liable for the
payment of such indebtedness;
(iv) all obligations of such corporation created or arising
under any conditional sale, lease or other title retention agreement
with respect to Property acquired by such corporation even though the
rights and remedies of the seller, lessor or lender under such
agreement or lease in the event of default are limited to repossession
or sale of such Property to the extent that such obligations are
required to be capitalized for financial accounting purposes in
accordance with generally accepted accounting principles, consistently
applied; and
(v) renewals, extensions and refunding of any such
indebtedness.
"Initial Issuance Date" shall mean the Issuance Date with respect to
the first share of Series A Preferred issued by the Corporation.
"Issuance Date" shall mean with respect to each share of Series A
Preferred, the date of issuance of such share of Series A Preferred.
"Issuance Notice" shall have the meaning set forth in Section 7 of this
Part II.
"Liquidation Amount" shall have the meaning set forth in Section 3
hereof.
"Liquidation Event" shall have the meaning set forth in Section 3 of
this Part II.
"Majority Voting Right Event" shall mean the failure of the Corporation
to redeem in full all shares of Series A Preferred which the Corporation is
required to redeem pursuant to Section 8(A) of this Part II if the shares which
the Corporation was required to redeem pursuant to such provision in connection
with the applicable Event of Non-Compliance (whether or not actually redeemed)
constituted not less than a majority of the shares of Series A Preferred
outstanding immediately prior to the occurrence of such Event of Non-Compliance,
and shall continue until all shares which the Corporation is then, or subsequent
thereto, becomes required to redeem pursuant to Section 8(A) of this Part II
have been redeemed in full; provided, that upon the occurrence of a Majority
Voting Right Event, the Corporation shall provide written notice thereof by
facsimile, to all of the Holders of Series A Preferred then outstanding, no
later than 5:00 p.m. New York City time on the business day after the occurrence
thereof.
17
<PAGE>
"Mandatory Conversion" shall have the meaning set forth in Section 5(D)
of this Part II.
"Market Value" shall mean, in respect of a share of Common on any date
herein specified, the average of the Closing Bid Price for the fifteen trading
days immediately preceding such date.
"Minimum Amount" shall have the meaning set forth in the definition of
Registration Default.
"New Securities" shall have the meaning set forth in Section 7 of this
Part II.
"Notice of Redemption" shall have the meaning set forth in Section 9(B)
of this Part II.
"Offering" shall mean the offering by the Corporation of Series A
Preferred, as described pursuant to that certain Private Placement Memorandum,
dated July 27, 1998, as the same may be amended and supplemented with the
written consent of the Co-Placement Agents identified therein (the
"Memorandum").
"Parity Stock" shall mean any shares of any class or series of Stock of
the Corporation having any preference or priority as to dividends or Property on
a parity with any such preference or priority of the Series A Preferred and no
preference or priority as to dividends or Property superior to any such
preference or priority of the Series A Preferred and any instrument or Security
convertible into or exchangeable for Parity Stock. Without limiting the
generality of the foregoing, a dividend rate, mandatory or optional sinking fund
payment amounts or schedules or optional redemption provisions, the existence of
a conversion right or the existence of a liquidation preference of up to 100% of
the original issue price plus unpaid accrued dividends plus a premium of up to
the dividend rate or up to the percentage of the equity of the Corporation
represented by such Stock, with respect to any class or series of Stock,
differing from that of the Series A Preferred, shall not prevent such class of
Stock from being Parity Stock.
"Payment Date" shall have the meaning set forth in Section 4(C) hereof.
"Person" shall mean an individual, a corporation, a partnership, a
limited liability company, a trust, an unincorporated organization or a
government organization or an agency or political subdivision thereof.
"Preferred Stock Certificates" shall have the meaning set forth in
Section 5(C) of this Part II.
"Property" shall mean an interest in any kind of property or assets,
whether real, personal or mixed, or tangible or intangible.
"Registration Default" shall mean the occurrence of any of the
following:
(i) if the Shelf Registration Statement has not been filed
with the Commission within sixty days of the Initial Issuance Date; or
(ii) if the Shelf Registration Statement is not declared
effective by the Commission within 180 days of the Initial Issuance
Date; or
18
<PAGE>
(iii) if, on the date the Shelf Registration Statement is
declared effective by the Commission and each 30 days thereafter (each
a "Measure Date"), the number of shares of Common Stock covered by the
Shelf Registration Statement is less than two hundred percent (200%) of
the number of shares of Common issuable upon conversion of each share
of Series A Preferred then outstanding (assuming any accrued and unpaid
dividends are paid on such date by delivery of shares of Common if the
Corporation elected to pay such dividends in Common and any shares of
Common issuable as a Conversion Failure or issuable upon the failure by
the Company to pay a Redemption Amount in accordance with Section 8
hereof and assuming each share of Series A Preferred is converted on
such Measure Date) (the "Minimum Amount"); or
(iv) the Shelf Registration Statement has been declared
effective by the Commission and thereafter ceases to be effective or
usable (including because of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness of
the Shelf Registration Statement under the Securities Act or of the
suspension by any state securities commission of the qualification of
the Common registered thereunder for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes) before all of the Common registered thereunder has
(i) become freely salable under Section 144(K), (ii) been transferred
pursuant to the Shelf Registration Statement or another registration
statement under the Securities Act or (iii) is transferred pursuant to
Rule 144; provided that any such failure of the use of the Shelf
Registration Statement which is a result of (a) a required disclosure
by the Company in the form of a registration statement relating to an
acquisition or disposition of assets by the Company, the acquisition of
a business by the Company, the merger, consolidation or reorganization
of the Company, or a tender offer by or for the Company and which does
not exceed a period of 75 calendar days or (b) a performance of its
obligation pursuant to Section 4(b) hereof and does not exceed a period
of 7 calendar days shall not be deemed a Registration Default.
"Reservation Trigger Date" shall have the meaning set forth in Section
5(E) in Part II.
"Securities" shall mean any debt or equity securities of the
Corporation or a Subsidiary, whether now or hereafter authorized, and any
instrument convertible into or exchangeable for Securities or a Security. The
term "Security" shall mean one of the Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended
prior to or after the date hereof, or any federal statute or statutes which
shall be enacted to take the place of such Act, together with all rules and
regulations promulgated thereunder.
"Securities and Exchange Commission" shall mean the United States
Securities and Exchange Commission or any successor to the functions of such
agency.
"Senior Stock" shall mean any shares of any class or series of Stock of the
Corporation having any preference or priority as to dividends or Property
superior to any such preference or priority of the Series A Preferred and any
instrument or Security convertible into or exchangeable for Senior Stock.
"Share Authorization Failure" shall have the meaning set forth in
Section 5(E) of this Part II.
19
<PAGE>
"Shelf Registration Statement" shall mean a registration statement on
Form SB-2 pursuant to the Securities Act for an offering to be made on a
continuous basis pursuant to Rule 415 promulgated by the Commission under the
Securities Act covering all of the shares of Common issued or issuable upon the
conversion of any shares of Series A Preferred issued pursuant to the Offering
(including any shares of Common which would be issuable in payment of accrued
and unpaid dividends thereof if the Corporation elected to pay such dividends in
Common and any shares of Common issuable as a Conversion Failure Payment or as a
result of failure by the Corporation to pay the Redemption Amount in accordance
with Section 8(E) hereof).
"Sold Shares" shall have the meaning set forth in Section 9(B) of this
Part II.
"Special Dividends" shall have the meaning set forth in Section 4(C) of
this Part II.
"Stock" shall include any and all shares, interests or other
equivalents (however designated) of, or participation in, corporate stock.
"Subsidiary" shall mean any corporation at least 50% of whose
outstanding Voting Securities and capital stock shall at the time be owned
directly or indirectly by the Corporation or by one or more Subsidiaries or by
the Corporation and one or more Subsidiaries.
"Termination Date" shall mean the date upon which the Offering
terminates pursuant to and as described in the Memorandum.
"Transfer Agent" shall have the meaning set forth in Section 5(C) of
this Part II.
"Units" shall have the meaning set forth in Section 7 of this Part II.
"Voting Securities," as applied to the securities of any corporation,
shall mean securities of any class or classes (however designated) having
ordinary voting power for the election of a member of the Board of Directors (or
other governing body) of such corporation, other than securities having such
power only by reason of the happening of a contingency.
THIRD: The amendment was duly adopted by the directors of the
Corporation on September 29th, 1998, without shareholder action in accordance
with Article 3 of the Corporation's Amended and Restated Articles of
Incorporation and Section 607.0602 of the Florida Business Corporation Act.
IN WITNESS WHEREOF, the Corporation caused this Articles of Amendment
to be duly executed on behalf of the Corporation as of this 30th Day of
September, 1998.
AMERICAN ACCESS TECHNOLOGIES, INC.
/s/ Victor E. Murray
By: _____________________________________
/s/ President
Its: ____________________________________
20
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