SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
| | Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
EUROPEAN MICRO HOLDINGS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------
(3) Filing Party:
------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------
<PAGE>
EUROPEAN MICRO HOLDINGS, INC.
6073 N.W. 167TH STREET, UNIT C-25
MIAMI, FLORIDA 33015
Dear Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of
Stockholders of European Micro Holdings, Inc. The annual meeting will be held on
Monday, October 30, 2000, at 4:00 p.m., local time, at the Intercontinental
Hotel, 100 Chopin Plaza, Miami, Florida 33131.
Your vote is important and I urge you to vote your shares by proxy,
whether or not you plan to attend the meeting. After you read this proxy
statement, please indicate on the proxy card the manner in which you want to
have your shares voted. Then date, sign and mail the proxy card in the
postage-paid envelope that is provided. If you sign and return your proxy card
without indicating your choices, it will be understood that you wish to have
your shares voted in accordance with the recommendations of the Company's Board
of Directors.
We hope to see you at the meeting.
Sincerely,
/s/ John B. Gallagher
---------------------
John B. Gallagher,
Co-Chairman and Co-President
October 19, 2000
<PAGE>
EUROPEAN MICRO HOLDINGS, INC.
6073 N.W. 167TH STREET, UNIT C-25
MIAMI, FLORIDA 33015
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 30, 2000
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders
(the "ANNUAL MEETING") of European Micro Holdings, Inc. (the "COMPANY") will be
held on Monday, October 30, 2000, at 4:00 p.m., local time, at the
Intercontinental Hotel, 100 Chopin Plaza, Miami, Florida 33131, for the
following purposes, as more fully described in the attached Proxy Statement:
1. To elect two Class III directors, each for a term of three years;
2. To approve the issuance of shares of the Company's common stock
pursuant to an Equity Line of Credit Agreement (the "EQUITY LINE OF CREDIT")
dated as of August 24, 2000, between the Company and Spinneret Financial System,
Ltd., as well as the issuance of shares of the Company's common stock pursuant
to the exercise of warrants issued in connection with the Equity Line of Credit;
and
3. To consider any other matters that may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on September 22,
2000 as the record date for determining the stockholders entitled to notice of
and to vote at the Annual Meeting or at any adjournment thereof. A complete list
of the stockholders entitled to vote at the Annual Meeting will be open for
examination by any stockholder during ordinary business hours for a period of
ten days prior to the Annual Meeting at the executive offices of the Company,
6073 N.W. 167th Street, Unit C-25, Miami, Florida 33015.
IMPORTANT
You are cordially invited to attend the Annual Meeting in person. In
order to ensure your representation at the meeting, however, please promptly
complete, date, sign and return the enclosed proxy in the accompanying envelope.
If you should decide to attend the Annual Meeting and vote your shares in
person, you may revoke your proxy at that time.
By Order of the Board of Directors,
/s/ John B. Gallgher
--------------------
John B. Gallagher,
Co-Chairman and Co-President
October 19, 2000
<PAGE>
TABLE OF CONTENTS
Page No.
--------
ABOUT THE MEETING.............................................................1
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?................................1
WHO IS ENTITLED TO VOTE?..................................................1
WHO CAN ATTEND THE MEETING?...............................................1
WHAT CONSTITUTES A QUORUM?................................................1
HOW DO I VOTE?............................................................2
WHAT IF I DO NOT SPECIFY HOW MY SHARES ARE TO BE VOTED?...................2
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?........................2
WHAT ARE THE BOARD'S RECOMMENDATIONS?.....................................2
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?...............................2
STOCK OWNERSHIP...............................................................3
BENEFICIAL OWNERS.........................................................3
DIRECTORS AND EXECUTIVE OFFICERS .........................................3
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE...................3
PROPOSAL 1 - ELECTION OF DIRECTORS............................................4
Directors Standing for Election ..........................................4
Directors Continuing in Office............................................5
Meetings..................................................................5
Committees................................................................6
Compensation of Directors.................................................6
Executive Officers........................................................7
Executive Compensation....................................................8
Option Grants in Fiscal 2000.........................................9
Option Exercises and Values for Fiscal 2000..........................9
Employment Agreements................................................9
Report of Compensation Committee on Executive Compensation..........10
Report of Stock Option Committee on Executive Compensation..........11
Compensation Committee Interlocks and Insider Participation.........12
Comparative Stock Performance............................................12
Certain Transactions and Relationships with the Company..................12
Changes in Control.......................................................14
Stockholders Agreement...................................................14
<PAGE>
PROPOSAL 2 - ISSUANCE OF COMMON STOCK........................................15
Equity Line of Credit....................................................15
Description of Capital Stock.............................................19
OTHER MATTERS................................................................22
INDEPENDENT ACCOUNTANTS......................................................22
ADDITIONAL INFORMATION.......................................................22
APPENDIX "A"................................................................A-1
APPENDIX "B"................................................................B-1
APPENDIX "C"................................................................C-1
APPENDIX "D"................................................................D-1
APPENDIX "E"................................................................E-1
APPENDIX "F"................................................................F-1
<PAGE>
EUROPEAN MICRO HOLDINGS, INC.
6073 N.W. 167TH STREET, UNIT C-25
MIAMI, FLORIDA 33015
---------------------
PROXY STATEMENT
OCTOBER 19, 2000
-------------------------
This proxy statement contains information related to the annual meeting
of stockholders of European Micro Holdings, Inc. to be held on Monday, October
30, 2000, at 4:00 p.m., local time, at the Intercontinental Hotel, 100 Chopin
Plaza, Miami, Florida 33131, and at any postponements or adjournments thereof.
The Company is making this proxy solicitation.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Company's annual meeting, stockholders will act upon the matters
outlined in the notice of meeting on the cover page of this proxy statement,
including the election of directors and the issuance of common stock and
warrants. In addition, the Company's management will report on the performance
of the Company during fiscal 2000 and respond to questions from stockholders.
WHO IS ENTITLED TO VOTE?
Only stockholders of record on the close of business on the record
date, September 22, 2000, are entitled to receive notice of the annual meeting
and to vote the shares of common stock that they held on that date at the
meeting, or any postponements or adjournments of the meeting. Each outstanding
share of common stock will be entitled to one vote on each matter to be voted
upon at the meeting.
WHO CAN ATTEND THE MEETING?
All stockholders as of the record date, or their duly appointed
proxies, may attend the meeting, and each may be accompanied by one guest.
Seating, however, is limited. Admission to the meeting will be on a first-come,
first-serve basis. Registration will begin at 1:30 p.m., and seating will begin
at 1:45 p.m. Each stockholder may be asked to present valid picture
identification, such as a driver's license or passport. Cameras, recording
devices and other electronic devices will not be permitted at the meeting.
Please note that if you hold your shares in "street name" (that is,
through a broker or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date and check in at
the registration desk at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, 4,933,900 shares of common stock of the Company were outstanding.
Proxies received but marked as abstentions and broker non-votes will be included
in the calculation of the number of shares considered to be present at the
meeting.
1
<PAGE>
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and
return it to the Company, it will be voted as you direct. If you are a
registered stockholder and attend the meeting, you may deliver your completed
proxy card in person or vote by ballot at the meeting. "Street name"
stockholders who wish to vote at the meeting will need to obtain a proxy form
from the institution that holds their shares.
WHAT IF I DO NOT SPECIFY HOW MY SHARES ARE TO BE VOTED?
If you submit a proxy but do not indicate any voting instructions, then
your shares will be voted in accordance with the Board's recommendations.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy card, you may change your
vote at any time before the proxy is exercised by filing with the Secretary of
the Company either a notice of revocation or a duly executed proxy bearing a
later date. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons
named as proxy holders on the proxy card will vote in accordance with the
recommendation of the Board of Directors. The Board's recommendation is set
forth together with the description of each item in this proxy statement. In
summary, the Board recommends a vote:
o FOR the election of the nominated slate of directors (see page 4);
and
o FOR the issuance of shares of common stock, as well as warrants to
purchase shares of common stock issued pursuant to the Equity Line of
Credit (see page 15).
With respect to any other matter that properly comes before the
meeting, the proxy holders will vote as recommended by the Board of Directors
or, if no recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS. The affirmative vote of a plurality of the votes
cast at the meeting is required for the election of directors. This means that
the two nominees will be elected if they receive more affirmative votes than any
other person. A properly executed proxy marked "Withheld" with respect to the
election of either director will not be voted with respect to such director
indicated, although it will be counted for purposes of determining whether there
is a quoorum.
ISSUANCE OF SHARES AND OTHER ITEMS. For the issuance of shares and any
other item that properly comes before the meeting, the affirmative vote of the
holders of a majority of the shares represented in person or by proxy and
entitled to vote on the item will be required for approval. A properly executed
proxy marked "Abstain" with respect to any such matter will not be voted,
although it will be counted for purposes of determining whether there is a
quorum. Accordingly, an abstention will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to some of the matters to be acted upon. Thus, if you do
not give your broker or nominee specific instructions, your shares may not be
voted on those matters and will not be counted in determining the number of
shares necessary for approval. Shares represented by such "broker non-votes"
will, however, be counted in determining whether there is a quorum.
2
<PAGE>
STOCK OWNERSHIP
BENEFICIAL OWNERS
The following table shows persons (other than directors and executive
officers) who owned beneficially more than five percent of the Company's common
stock as of September 25, 2000.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED OF CLASS
<S> <C> <C>
Stuart S. Southard and Robert H. True, Trustees of the 1997 390,804 7.9%
Henry Daniel Shields Irrevocable Educational Trust
614 Fourth Avenue
Nashville, Tennessee 37210
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the amount of common stock of the Company
beneficially owned by the Company's directors, the executive officers named in
the Summary Compensation Table below and by all directors and executive officers
as a group as of September 25, 2000. Unless otherwise indicated, beneficial
ownership is direct and the person indicated has sole voting and investment
power. As of September 25, 2000, the Company had 4,933,900 shares of common
stock outstanding.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY ACQUIRABLE WITHIN 60 PERCENT OF
NAME AND ADDRESS OWNED DAYS(1) CLASS
<S> <C> <C> <C>
John B. Gallagher 1,900,000 -- 38.5%
Harry D. Shields 1,577,696 -- 32.0%
Jay Nash -- 1,250 *
Frank Cruz -- 1,250 *
Laurence Gilbert -- 5,000 *
Kyle Saxon 2,700 16,250 *
Barrett Sutton -- 16,250 *
All officers and directors as a group 3,480,396 40,000 70.8%
</TABLE>
-----------------------
* Indicates that the ownership percent is less than one percent (1%).
(1) Reflects the number of shares that could be purchased by exercise of
options available at September 25, 2000 or within 60 days thereafter under
the Company's 1998 Stock Incentive Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Except as noted below, based upon a review of filings with the
Securities and Exchange Commission, the Company believes that all of the
Company's directors and executive officers complied during Fiscal 2000 with the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934.
Pursuant to the 1998 Stock Incentive Plan, non-employee directors receive
options to purchase 5,000 shares of common stock on each anniversary of their
election to the Board. Messrs. Sutton and Saxon, non-employee directors,
received option agreements evidencing these options on May 1, 2000 and filed a
Statement of Changes in Beneficial Ownership on Form 4 on May 2, 2000 and May 3,
2000, respectively. Messrs. Sutton and Saxon were entitled to such options on
February 13, 2000 and January 13, 2000, respectively. As such, Messrs. Sutton
and Saxon may have been required to file a Statement of Changes in Beneficial
Ownership on Form 4 by March 10, 2000 and February 10, 2000, respectively. In
addition, Mr. Saxon purchased a total of 1,700 shares of common stock between
December 23, 1999 and April 28, 2000. A Statement of Changes in Beneficial
Ownership on Form 4 was filed but not timely.
3
<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
The Board of Directors of the Company consists of six seats, divided
into three classes of two members each. The terms of office of the three classes
of directors (Class I, Class II and Class III) end in successive years. The term
of the Class III directors expire this year and their successors are to be
elected at the Annual Meeting for a three-year term expiring in 2003. The terms
of the Class I and Class II directors do not expire until 2001 and 2002,
respectively. There is one vacancy in Class I. Pursuant to the Company's bylaws,
a majority of the remaining five members of the Board may appoint a successor to
fill the Class I vacancy. Stockholders will not have an opportunity to vote on a
successor for the Class I vacancy until the 2001 annual meeting. Proxies may not
be voted for more than two nominees.
The Board of Directors has nominated John B. Gallagher and Harry D.
Shields for election as Class III directors. The accompanying proxy will be
voted for the election of these nominees, unless authority to vote for one or
more nominees is withheld. In the event that any of the nominees is unable or
unwilling to serve as a director for any reason (which is not anticipated), the
proxy will be voted for the election of any substitute nominee designated by the
Board of Directors. The nominees for directors have previously served as members
of the Board of Directors of the Company and have consented to serve such term.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION
OF EACH OF THE CLASS III NOMINEES.
CLASS III DIRECTORS--PRESENT TERM EXPIRES IN 2000
<TABLE>
<CAPTION>
<S> <C>
JOHN B. GALLAGHER Mr. Gallagher is co-founder of the Company and
Age 45 European Micro Plc, a wholly-owned subsidiary of
the Company. He has served as Co-Chairman, Co-President
and Director of the Company since it was formed in
December 1997. Mr. Gallagher has also served as
Co-Chairman and Director of European Micro Plc since it
was formed in 1991 and as President, Secretary,
Treasurer and Director of American Micro Computer
Center, Inc., a computer distributor, since 1999.
Between 1989 and 1999, Mr. Gallagher served as
President of American Surgical Supply Corp. of Florida
d/b/a American Micro Computer Center until it was
acquired by the Company in 1999 and changed its name to
American Micro Computer Center, Inc. He was a Director
and President of Ameritech Exports, a computer
distributor, from 1992 to 1997. Mr. Gallagher is a
non-practicing attorney with a Bachelor of Arts and a
Juris Doctorate from the University of Florida.
HARRY D. SHIELDS Mr. Shields is co-founder of the Company and European
Age 50 Micro Plc, a wholly-owned subsidiary of the
Company. He has served as Co-Chairman, Co-President and
Director of the Company since it was formed in December
1997. Mr. Shields has also served as Co-Chairman and
Director of European Micro Plc since it was formed in
1991. Mr. Shields has been Vice President and a
Director of American Micro Computer Center, Inc. since
1999. He has served as President of Technology Express,
a computer distributor, since 1986, and was a Director
of Ameritech Exports, a computer distributor, from 1992
to 1997. Mr. Shields has a Bachelor of Arts from DePaul
University and a Masters of Science from the University
of Tennessee.
4
<PAGE>
DIRECTORS CONTINUING IN OFFICE
CONTINUING CLASS I DIRECTOR--NOMINEE FOR TERM TO EXPIRE IN 2001
<S> <C>
LAURENCE GILBERT Mr. Gilbert has been a Director of the Company since
Age 55 January 1998. He has been Managing Director of
European Micro Plc, a wholly-owned subsidiary of the
Company, since 1996. He was Finance Director to a group
(the "GROUP") of related companies called the Micro
Computer Center Group(1) from 1995 to 1996. He served
as a management consultant from 1994 to 1995 and
Managing Director of Gilbert Lawton Ltd., a management
consulting firm, from 1991 to 1994. Mr. Gilbert is a
Chartered Accountant.
CONTINUING CLASS II DIRECTORS--PRESENT TERM EXPIRES IN 2002
KYLE R. SAXON Mr. Saxon has been a Director of the Company since
Age 49 January 1998. He has also been a Director of
European Micro Plc, a wholly-owned subsidiary of the
Company, since March 1998. He has been a shareholder
and vice president with the law firm of Catlin Saxon
Tuttle Evans Fink & Kolski, P.A. since 1988. Mr. Saxon
has a Bachelor of Science in Business Administration
and a Juris Doctorate from the University of Florida.
BARRETT SUTTON Mr. Sutton has been a Director of the Company since
Age 49 February 1998. He has also been a Director of
European Micro Plc, a wholly-owned subsidiary of the
Company, since March 1998. Mr. Sutton is currently a
member of the law firm of Waller, Lansden, Dortch &
Davis PLLC. From January 1, 1998 to August 31, 2000, he
has been a partner at the law firm of Tuke Yopp &
Sweeney, Plc. Prior to that he was an attorney,
Executive Vice-President and General Counsel for
General Capital Corporation and Gen Cap America, Inc.
since 1995. He practiced law with the firm of White &
Reasor from 1981 to 1994. Mr. Sutton has a Bachelor of
Arts from Vanderbilt University and a Juris Doctorate
from the University of Virginia.
--------------------------
(1) The Group was comprised of European Micro Plc, Technology Express, Inc. in Nashville,
Tennessee, American Micro Computer Center and, until August 1, 1997, Ameritech Exports Inc. in
Miami, Florida and Ameritech Argentina S.A. in Buenos Aires, Argentina. Harry D. Shields owns all
of the outstanding capital stock of Technology Express, Inc. and, until August 1, 1997, had an
ownership interest in Ameritech Exports Inc. and Ameritech Argentina S.A. John B. Gallagher had an
ownership interest in American Micro Computer Center until July 1, 1999, at which time it was
merged with and into a wholly-owned subsidiary of the Company. See "Certain Transactions and
Relationships with the Company." Until August 1, 1997, Mr. Gallagher had an ownership interest in
Ameritech Exports, Inc. and Ameritech Argentina S.A.
</TABLE>
MEETINGS
During the Company's fiscal year ended June 30, 2000 ("FISCAL 2000"),
the Board of Directors met on six occasions. Each director attended more than
75% of the total number of meetings of the Board and Committees on which he
served.
5
<PAGE>
COMMITTEES
The Board has standing Compensation, Stock Option, Audit, and
Acquisition Committees. The Board does not have a nominating committee, such
function being reserved to the full Board of Directors. Committee memberships
are as follows:
<TABLE>
<CAPTION>
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE AUDIT COMMITTEE ACQUISITION COMMITTEE
---------------------- ---------------------- --------------- ---------------------
<S> <C> <C> <C>
John B. Gallagher (Chairman) Kyle Saxon (Chairman) Kyle Saxon (Chairman) Kyle Saxon (Chairman)
Harry D. Shields Barrett Sutton Barrett Sutton Barrett Sutton
Barrett Sutton Laurence Gilbert
Kyle Saxon
</TABLE>
COMPENSATION COMMITTEE. The Compensation Committee is charged with
reviewing and making recommendations concerning the Company's general
compensation strategy, establishing salaries for officers, reviewing employee
benefit plans (other than the benefit plans reserved for the Stock Option
Committee as described below) and approving certain employment contracts. The
Compensation Committee met on one occasion during Fiscal 2000.
STOCK OPTION COMMITTEE. The Stock Option Committee reviews, approves,
recommends and administers the Company's 1998 Stock Incentive Plan and 1998
Employee Stock Purchase Plan. The Stock Option Committee met on two occasions
during Fiscal 2000.
AUDIT COMMITTEE. The Audit Committee's functions are to recommend the
appointment of independent accountants, review the arrangements for and scope of
the audit by independent accountants, consider the adequacy of the system of
internal accounting controls, and discuss with management and the independent
accountants the Company's draft annual financial statements and key accounting
and reporting matters. The Audit Committee met on three occasions during Fiscal
2000.
ACQUISITION COMMITTEE. The Acquisition Committee was formed on February
2, 1999 to evaluate and determine whether the Company should acquire American
Surgical Supply Corp. of Florida d/b/a American Micro Computer Center and, if
so, on what terms. The acquisition was completed on July 1, 1999. The
Acquisition Committee remains in effect to carryout certain obligations in
connection with this acquisition. The Acquisition Committee met on one occasion
during Fiscal 2000.
COMPENSATION OF DIRECTORS
BASE COMPENSATION. Non-employee directors receive $1,000 for attendance
at Board of Directors and Committee (other than Acquisition Committee) meetings
whether in person or by telephone and are reimbursed for all out-of-pocket
expenses incurred in attending such meetings. Directors who are also employees
of the Company receive no additional compensation for service as directors.
Acquisition Committee members receive $150 per hour for their services on that
committee.
OPTIONS. Each non-employee director receives an automatic grant of
options to purchase 5,000 shares of common stock for each year of service on the
Board. In addition, each non-employee director receives options to purchase
10,000 shares of common stock upon his or her initial election to the Board. All
options granted have an exercise price equal to the fair market value on the
date of grant, vest after one year of service on the Board and have a ten-year
term. In Fiscal 2000, the options to purchase 5,000 shares of common stock
granted to each of Messrs. Sutton and Saxon had exercise prices of $9.25 and
$9.00 per share, respectively.
In addition to the options described above, on August 21, 2000, the
Board granted options to three Board members. Messrs. Gilbert, Sutton and Saxon
received options to purchase 20,000, 5,000 and 5,000 shares of common stock,
respectively. These options have an exercise price of $7.0625 per share, have a
ten-year life and vest 25% immediately and 25% every six months thereafter.
6
<PAGE>
EXECUTIVE OFFICERS
In addition to John B. Gallagher, Harry D. Shields, and Laurence
Gilbert, who are listed above, the following individuals are executive officers
of the Company:
<TABLE>
<CAPTION>
<S> <C>
JAY NASH Mr. Nash has been Chief Financial Officer, Controller,
Age 38 Secretary and Treasurer of the Company since January
1998. He has also been Assistant Secretary and a
Director of American Micro Computer Center, Inc. since
1999. He has served as Vice President of Technology
Express, Inc., a computer distributor, since 1992 and
was an accountant with Jacques Miller, an accounting
firm, from 1986 to 1992 and KPMG LLP, an accounting
firm, from 1983 to 1986. Mr. Nash is a Certified Public
Accountant with a Bachelor of Science in Accounting
from the University of Tennessee.
FRANK CRUZ Mr. Cruz has been Chief Operating Officer of the
Age 35 Company since November 1998 and has served in the
operations of the Company since October 1997. He has
also been a Director of American Micro Computer Center,
Inc. since 1999. From 1996 to present, Mr. Cruz has
been involved in the operations of American Micro
Computer Center, a computer distributor, and from 1994
to 1996 he was International Sales Manager of American
Micro Computer Center. From 1996 to 1997, Mr. Cruz was
General Manager of AmeriTech Exports, a computer
distributor, and from 1988 to 1994 he was Regional
Sales Manager of Promark Distributors, a computer
distributor.
</TABLE>
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the three
fiscal years ended June 30, 2000 for the Company's Chief Executive Officers, the
two other executive officers of the Company and two most highly compensated
executive officers of European Micro Plc for Fiscal 2000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
------------
OTHER ANNUAL NO. OF STOCK
NAME AND PRINCIPAL POSITION(S) FISCAL COMPENSATION OPTIONS ALL OTHER
------------------------------ YEAR SALARY BONUS (1) GRANTED (2) COMPENSATION
---- ------ ----- --- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
John B. Gallagher 2000 $370,667(3) $0 $0 0 $0
Co-Chairman and Co-President 1999 225,000 100,000 0 0 0
1998 87,500 0 0 0 0
Harry D. Shields 2000 $266,667 $0 $0 0 $0
Co-Chairman and Co-President 1999 225,000 100,000 0 0 0
1998 87,500 0 0 0 0
Jay Nash 2000 $54,167 $5,000 $0 0 $0
Chief Financial Officer, 1999 50,000 5,000 0 0 0
Controller, Secretary and
Secretary and Treasurer 1998 16,666 0 0 10,000 0
Frank Cruz 2000 $100,310(3) $15,000 $0 0 $0
Chief Operating Officer 1999 45,000 10,000 28,030 0 0
1998 3,750 0 0 10,000 0
Laurence Gilbert 2000 $95,592 $159,650 $21,374 0 $0
Managing Director (4) 1999 98,154 178,136 20,450 0 0
1998 100,293 561,358 16,351 25,000 0
Bernadette Spofforth 2000 $95,592 $208,383 $23,858 0 $0
Director of Sales (5) 1999 49,077 322,987 23,329 0 0
1998 59,716 832,017 18,475 50,000 0
-----------------------
(1) This consists primarily of employee benefits, including the use of a company owned car, pension plan and medical
insurance.
(2) Options to purchase shares of common stock granted pursuant to the 1998 Incentive Plan. Messrs. Nash, Cruz and
Gilbert were granted options to purchase shares of the Company's common stock on August 21, 2000, after the end of the
Company's 2000 fiscal year. Accordingly, these options are excluded from the table. See "Option Grants in Fiscal 2000."
(3) Mr. Gallagher's salary includes an annual salary of $104,000 paid by American Micro Computer Center, Inc., a
wholly-owned subsidiary of the Company, in Fiscal 2000. Mr. Cruz' salary also includes $29,093 paid by American Micro
Computer Center, Inc.
(4) Mr. Gilbert is the Managing Director of European Micro Plc.
(5) Ms. Spofforth was the Director of Sales of European Micro Plc until June 25, 2000. She is no longer employed by
European Micro Plc.
</TABLE>
8
<PAGE>
OPTION GRANTS IN FISCAL 2000
During Fiscal 2000, the Company did not grant options to any of the
named executive officers. On August 21, 2000, after the end of the Company's
2000 fiscal year end, Messrs. Nash, Cruz and Gilbert received options to
purchase 5,000, 5,000 and 20,000 shares, respectively, at an exercise price of
$7.0625 per share. These options vest 25% on August 21, 2000, 25% on February
21, 2001, 25% on August 21, 2001 and 25% on February 21, 2002. These options
have a ten-year term.
OPTION EXERCISES AND VALUES FOR FISCAL 2000
The following table sets forth information with respect to option
exercises during Fiscal 2000 by each of the named executive officers who hold
options and the status of their options at June 30, 2000.
<TABLE>
<CAPTION>
NO. OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT JUNE 30, 2000 IN-THE-MONEY OPTIONS AT JUNE 30, 2000
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
<S> <C> <C> <C> <C> <C> <C>
Jay Nash -0- -0- -0- 10,000 -0- $0
Frank Cruz -0- -0- -0- 10,000 -0- 0
Laurence Gilbert -0- -0- -0- 25,000 -0- 0
----------------
(1) None of the options were in-the-money as of June 30, 2000.
</TABLE>
EMPLOYMENT AGREEMENTS
EMPLOYMENT AGREEMENTS WITH THE CHIEF EXECUTIVE OFFICERS. The Company
has entered into five-year employment agreements with each of Messrs. Gallagher
and Shields. Pursuant to the agreements, each executive is employed as
Co-Chairman and Co-President of the Company. These agreements were effective as
of January 1, 1998, and each provided for initial annual base salaries of
$175,000, plus annual cost of living adjustments and other increases to be
determined at any time or from time to time by the Board of Directors or any
committee thereof. On January 31, 1999, the annual base salaries for each of
Messrs. Gallagher and Shields were increased to $275,000. Effective May 1, 2000,
Messrs. Gallagher and Shields voluntarily decreased their annual base salaries
from $275,000 to $225,000. In addition, each executive is entitled to annual
incentive bonus compensation in an amount to be determined by the Board of
Directors or a committee thereof.
Each agreement further provides that each of Messrs. Gallagher and
Shields will devote a significant amount of his working time and efforts to the
business and affairs of the Company (which means no less than 50% of his working
time), Each of Messrs. Gallagher and Shields may devote a reasonable amount of
time and effort to other business affairs disclosed to the Board.
The agreements also provide that upon termination of employment without
"cause" or termination by the executive for "good reason" (which includes a
change of control of the Company), the executive is entitled to receive, in
addition to all accrued or earned but unpaid salary, bonus or benefits, an
amount equal to three times the compensation such executive would be entitled to
receive in the then current fiscal year, including base salary and incentive
bonus compensation. For the purposes of the employment agreements, the amount of
incentive bonus compensation each executive would be entitled to receive in the
then current fiscal year is equal to the largest amount accrued for any of the
two most recently completed fiscal years. In addition, the Company will pay
certain relocation expenses incurred by the executive with respect to a change
of principal residence and will indemnify the executive for any loss sustained
in the sale of his principal residence. The agreements also provide that the
executive will not compete with the Company during his employment (except for
activities disclosed to the Board of Directors) and for two years thereafter
unless the Company terminates the executive without "cause" or the executive
terminates his employment for "good reason."
9
<PAGE>
In addition, the agreements grant each of Messrs. Gallagher and Shields
demand and piggy-back registration rights with respect to the shares of common
stock held by each. Each executive may individually require the Company to file
a registration statement with respect to these shares on an annual basis.
Moreover, each executive may include these shares in certain other offerings by
the Company.
On July 1, 1999, Mr. Gallagher entered into a two-year employment
agreement with American Micro Computer Center, Inc., a wholly-owned subsidiary
of the Company ("AMERICAN MICRO"). American Micro was formed to acquire American
Surgical Supply Corp. of Florida d/b/a American Micro Computer Center, an entity
in which Mr. Gallagher served as President, a Director and a fifty-percent
shareholder. Pursuant to this agreement, Mr. Gallagher is employed as President
of American Micro. This agreement provides for an annual base salary of
$104,000, which is in addition to the annual base salary paid by the Company.
Except with respect to his duties to the Company, Mr. Gallagher must devote
substantially all of his business time to the business affairs of American
Micro.
EMPLOYMENT AGREEMENTS WITH OTHER NAMED EXECUTIVE OFFICERS. European
Micro Plc has entered into an employment agreement with Mr. Laurence Gilbert.
Pursuant to the agreement, Mr. Gilbert is employed as Managing Director of
European Micro Plc. Mr. Gilbert's agreement was effective January 1, 1998, will
continue until terminated by either party delivering not less than six months'
written notice to the other party and provides for an annual base salary
of(pound)60,000 (approximately $96,000 assuming an exchange rate of $1.60 to
(pound)1.00) plus a bonus based on the level of net profit earned by European
Micro Plc. The minimum bonus is(pound)30,000 (approximately $48,000 assuming an
exchange rate of $1.60 to(pound)1.00). Mr. Gilbert is also entitled to the use
of a vehicle owned by European Micro Plc under the terms of his employment
agreement.
Neither Jay Nash nor Frank Cruz have entered into employment agreements
with the Company. Messrs. Nash and Cruz are employed by the Company on a
part-time basis. Mr. Nash is also employed by Technology Express, Inc., an
entity in which Mr. Shields is the President and sole shareholder. Mr. Cruz is
also employed by American Micro, a wholly-owned subsidiary of the Company formed
to acquire AMCC, and, prior to that, he was employed by American Surgical Supply
Corp. of Florida d/b/a American Micro Computer Center, an entity in which Mr.
Gallagher was the President and a fifty percent shareholder until it was
acquired by the Company on July 1, 1999.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION POLICY. The Compensation Committee is responsible for
making recommendations to the Board of Directors concerning the compensation
arrangements for the Company's officers. The Company's compensation policy is
designed to establish an appropriate relationship between executive pay and the
Company's annual performance, its long-term growth objectives and its ability to
attract and retain qualified officers. The Compensation Committee attempts to
achieve these goals by integrating competitive annual base salaries with bonuses
based on corporate performance and on the achievement of internal strategic
objectives. In addition, this policy is coordinated with stock options awards
through the Company's 1998 Stock Incentive Plan, which is administered by the
Company's Stock Option Committee. The Compensation Committee believes that cash
compensation in the form of salary and bonuses provides the Company's officers
with short-term rewards for success in operations. Long-term compensation comes
in the form of stock options awards and other stock incentives which encourages
stock ownership in management.
BASE SALARY. Base salaries and adjustments of base salaries for
officers will be determined based on the Compensation Committee's assessment of
each individual's experience level, the scope and complexity of the position
held and the Company's knowledge of salaries being paid for similar positions in
the marketplace.
BONUS COMPENSATION. In addition to paying a base salary, the Company
may provide for incentive compensation as a component of overall compensation.
Incentive compensation is tied to an individual's contribution to the Company,
as well as the Company's overall performance. Mr. Gilbert's bonus compensation
was fixed pursuant to his employment agreement and is based on achieving certain
operating goals, including the level of gross profit earned by European Micro
Plc during each calendar quarter.
10
<PAGE>
COMPENSATION OF CHIEF EXECUTIVE OFFICERS. In 1998, the Company's Board
approved five-year employment agreements for Messrs. Gallagher and Shields. The
compensation arrangements were determined based on their performance and
contributions, their experience and the compensation arrangements of officers in
similar positions in the marketplace. In Fiscal 2000, the Company did not pay
discretionary bonuses to either Mr. Gallagher or Mr. Shields. Effective May 1,
2000, Messrs. Gallagher and Shields voluntarily decreased their annual base
salaries from $275,000 to $225,000. Messrs. Gallagher and Shields do not
participate in the decisions regarding their own compensation. During Fiscal
2000, Mr. Gallagher entered into a two-year employment agreement with American
Micro, a wholly-owned subsidiary of the Company. This compensation arrangement
was approved by the entire Board of Directors in connection with the acquisition
of American Surgical Supply Corp. of Florda d/b/a American Micro Computer
Center. See "Certain Transactions and Relationships with the Company."
COMPENSATION COMMITTEE
John B. Gallagher
Kyle R. Saxon
Harry D. Shields
Barrett Sutton
REPORT OF STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION
STOCK OPTION POLICY. The Stock Option Committee is responsible for
making recommendations to the Company's Board concerning the administration of
the 1998 Stock Incentive Plan and the 1998 Employee Stock Purchase Plan. In
addition, the Stock Option Committee is responsible for making recommendations
regarding awards of stock options or other benefits under these plans. The
Company's stock option policy is designed to provide long-term incentives by
encouraging stock ownership in management. The Stock Option Committee believes
that the award of stock options provides an incentive to the recipients to
enhance shareholder value which in turn benefits the stockholders. Stock options
and other equity based awards are granted under the 1998 Stock Incentive Plan by
the non-employee members of the Company's Board. Key employees, non-employee
directors and consultants of the Company and its subsidiaries are eligible to
participate in these plans. No member of the Stock Option Committee is a former
or current officer or employee of the Company or any of its subsidiaries.
STOCK OPTION AWARDS. In Fiscal 2000, the Stock Option Committee awarded
stock options at the fair market value of the shares of common stock of the
Company on the date of the grant. In determining the number of stock options
awarded in Fiscal 2000, the Stock Option Committee took into account each
recipient's performance and contribution to the Company's operations.
STOCK OPTION AWARDS TO CHIEF EXECUTIVE OFFICERS. In Fiscal 2000, the
Stock Option Committee did not award any stock options to Messrs. Gallagher and
Shields. Future awards of stock options will be determined based on their
performance and contributions to the Company's operations, their experience and
the compensation arrangements of officers in similar positions in the
marketplace.
STOCK OPTION COMMITTEE
Kyle R. Saxon
Barrett Sutton
11
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 2000, the Company's Compensation Committee was comprised
of John B. Gallagher, Harry D. Shields, Barrett Sutton and Kyle R. Saxon. Each
of Messrs. Gallagher and Shields is a Co-Chairman, Co-President and Director of
the Company and Co-Chairman of each of the subsidiaries. In addition, Technology
Express, Inc., an entity controlled by Mr. Shields, has purchased and sold
products to and from the Company. All of these transactions are described in the
Section entitled "Certain Transactions and Relationships with the Company." The
Compensation Committee is responsible for making recommendations to the Board of
Directors regarding compensation arrangements for the Company's officers.
COMPARATIVE STOCK PERFORMANCE
The following graph compares the performance of the Company's common
stock against the Nasdaq Stock Market (U.S.) Index and a peer group for the
period commencing with the consummation of the Company's initial public offering
on June 12, 1998 and ending June 30, 2000. The peer group consists of Ingram
Micro, Inc., Tech Data Corporation and Liuski International Inc. Historically,
the Company's peer group included CHS Electronics, Inc., a company that is the
subject of a liquidating plan of reorganization. As a result, the Company has
removed CHS Electronics, Inc. The peer group information set forth below
excludes CHS Electronics, Inc. for each period specified.
The graph assumes that $100 was invested on June 12, 1998, and that
dividends were reinvested.
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG EUROPEAN MICRO HOLDINGS, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX AND A PEER GROUP
JUNE 12, JUNE 30,
1998 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
European Micro Holdings, Inc. 100 102.50 70.00 65.00
Peer Group 100 110.21 72.27 62.23
Nasdaq Stock Market (U.S.) Index 100 108.98 156.93 231.81
</TABLE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS WITH THE COMPANY
On February 2, 1999, the Company's Board formed an Acquisition
Committee consisting solely of independent directors to evaluate and determine
whether the Company should acquire American Surgical Supply Corp. of Florida
d/b/a American Micro Computer Center ("AMCC") and, if so, on what terms. The
members of the committee are Kyle R. Saxon and Barrett Sutton. The committee
members were compensated at $150 per hour each for their service on the
committee. John B. Gallagher, who is a significant shareholder, Co-Chairman and
Co-President of the Company, was the President and a Director of AMCC and owned
fifty percent of its outstanding capital stock. Frank Cruz, who is the Chief
Operating Officer of the Company, has been an employee of AMCC since 1994. He is
currently an employee of American Micro, the newly-formed, wholly-owned
subsidiary of the Company formed to acquire AMCC. The remaining fifty percent of
AMCC's outstanding capital stock was owned by Mr. Gallagher's father. The
committee's charter authorized it to take any action it deemed necessary to
properly evaluate and determine whether the Company should acquire AMCC,
including hiring independent advisors and ensuring that any such transaction was
fair to the Company and its stockholders from a financial point of view. The
committee hired independent legal counsel and an independent financial advisor
to render a fairness opinion. On July 1, 1999, the Company acquired AMCC.
The transaction was structured as a merger of AMCC with and into
American Micro, a newly-formed, wholly-owned subsidiary of the Company.
According to the merger agreement, the purchase price for AMCC was equal to
$1,130,660, plus an earn-out amount payable in cash or shares of the Company's
common stock (at the Company's discretion) equal to two times the after-tax
earnings of American Micro in calendar year 1999 and two times the after-tax
12
<PAGE>
earnings of American Micro in calendar year 2000. In addition, the Company
assumed all outstanding indebtedness of AMCC, including a shareholder loan in
the approximate amount of $289,000. This loan is owed to the father of John B.
Gallagher, Co-Chairman of the Company. If the Company elects to pay any portion
of the purchase price in shares of the Company's common stock, then AMCC's
shareholders have fifteen days to make arrangements to sell such shares over the
next forty trading days. If the sale of such shares results in net proceeds of
less than the purchase price, then the Company will pay the difference in cash
to AMCC's shareholders. The earn-out amount paid for calendar 1999 was
approximately $603,205.
During Fiscal 2000, the Company and its subsidiaries has acted as a
supplier for, and purchaser from, Technology Express, Inc. Harry D. Shields, who
is the Co-Chairman, Co-President, director and a significant stockholder (owning
approximately 32.0% of the outstanding shares of common stock) of the Company,
is President of Technology Express, and owns all of the outstanding capital
stock of that company. In addition, Jay Nash, who is Chief Financial Officer,
Controller, Secretary and Treasurer of the Company, has been an officer of
Technology Express since 1992. Sales between the Company and its subsidiaries
and Technology Express are typically priced at one percent above cost, although
exceptions are sometimes made in times of short supply and other circumstances.
This mark-up has enabled the Company to buy and sell product quickly and
efficiently in order to take advantage of bulk purchases, logistics and
financing that may not otherwise be available to the Company. Related party
purchases and sales during Fiscal 2000 are as follows:
($ IN THOUSANDS)
FISCAL 2000
Sales to Technology Express $2,369
Purchases from Technology Express 3,986
Accounts Receivable from Technology Express(1) 0
Accounts Payable to Technology Express(2) 11
--------------------------
(1) The largest aggregate amount of indebtedness owed from Technology Express to
the Company between July 1, 1999 and June 30, 2000 was approximately $736,000.
These amounts represent receivables incurred in the ordinary course of business
for sales of product by the Company to the related parties.
(2) The largest aggregate amount of indebtedness owed by the Company to
Technology Express between July 1, 1999 and June 30, 2000 was approximately
$895,000. These amounts represent payables incurred in the ordinary course of
business of business for sales of product by the related parties to the Company.
13
<PAGE>
CHANGES IN CONTROL
On October 28, 1999, European Micro Holdings, Inc. obtained a $1.5
million term loan and Nor-Easter and American Micro obtained two $1.5 million
revolving lines of credit from SouthTrust Bank. As partial security for these
loans, each of Messrs. Gallagher and Shields pledged 179,105 shares of the
Company's common stock to SouthTrust Bank. If the market value of these pledged
shares is less than $3.0 million, then Messrs. Gallagher and Shields are
obligated to pledge additional shares of the Company's common stock so that the
market value of all pledged shares is at least $3.0 million. In the event of
default, SouthTrust Bank may foreclose on all or a portion of the pledged
securities. Such an event may cause a change of control in the Company because
Messrs. Gallagher and Shields together own approximately 70.8% of the Company's
outstanding shares of common stock.
As of June 30, 2000, the Company was not in compliance with certain
financial covenants contained in these lines of credit. The Company is in
discussions regarding this non-compliance. The Company's failure to remedy such
non-compliance may result in an event of default under the lines of credit.
STOCKHOLDERS AGREEMENT
Pursuant to a stockholders agreement, each of Messrs. Gallagher and
Shields have agreed to vote his shares in concert on all matters submitted to a
vote of stockholders of the Company, including the election of all directors. In
the event that either Messrs. Gallagher or Shields cannot agree to vote his
shares in concert with the other, neither shall vote his shares. It is expected
that Messrs. Gallagher and Shields will vote their shares for the two proposals
set forth in this proxy statement. Together, Messrs. Gallagher and Shields have
enough votes to approve these two proposals.
The stockholders agreement also provides that each of Thomas H.
Minkoff, Trustee of the Gallagher Family Trust, and Stuart S. Southard and
Robert H. True, Trustees of the 1997 Henry Daniel Shields Irrevocable
Educational Trust, will vote the shares subject to such trusts in concert on all
matters submitted to a vote of the stockholders of the Company, including the
election of all directors. If the parties cannot agree to vote his shares in
concert with the other, neither may vote his shares.
14
<PAGE>
PROPOSAL 2 - ISSUANCE OF COMMON STOCK
On August 24, 2000, the Company entered into an Equity Line of Credit
Agreement (the "EQUITY LINE OF CREDIT") with Spinneret Financial System, Ltd.
(the "INVESTOR"). Pursuant to the Equity Line of Credit, the Company may, at its
discretion, periodically issue and sell to the Investor shares of the Company's
common stock for a total purchase price of up to $20 million. The Investor will
purchase each share of the Company's common stock at a purchase price equal to
88% of the market price. In connection with the Equity Line of Credit, the
Company will also issue warrants to purchase up to 1,000,000 shares of the
Company's common stock to the placement agent. One-half of the warrants will
have an exercise price of $7.00 per share and one-half will have an exercise
price of $10.00 per share. The effectiveness of the issuance of common stock
pursuant to the Equity Line of Credit and the warrants is conditioned upon the
Company (i) registering with the Securities and Exchange Commission the sale of
the common stock by the Investor and (ii) obtaining the affirmative vote of the
holders of a majority of the shares represented in person or by proxy and
entitled to vote thereon.
The following description of the Equity Line of Credit does not purport
to be complete and is qualified in its entirety by reference to the Equity Line
of Credit Agreement attached hereto as Appendix "A." Also attached hereto are
the following documents:
o Registration Rights Agreement dated as of August 24, 2000,
between the Company and the Investor attached hereto as
Appendix "B."
o Form of Class A Warrant dated as of August 24, 2000, given by
the Company to the May Davis Group, Inc. attached hereto as
Appendix "C."
o Form of Class B Warrant dated as of August 24, 2000, given by
the Company to the May Davis Group, Inc. attached hereto as
Appendix "D."
o Registration Rights Agreement dated as of August 24, 2000,
between the Company and the May Davis Group, Inc. attached
hereto as Appendix "E."
o Placement Agent Agreement dated as of August 24, 2000, between
the Company and the May Davis Group, Inc. attached hereto as
Appendix "F."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ISSUANCE
OF COMMON STOCK PURSUANT TO THE EQUITY LINE OF CREDIT AND UPON EXERCISE OF
WARRANTS ISSUED IN CONNECTION THEREWITH.
EQUITY LINE OF CREDIT
ADVANCES. Pursuant to the Equity Line of Credit, the Company may
periodically sell shares of its common stock to the Investor to raise capital to
fund its working capital needs. The periodic sale of shares is known as an
advance. The Company may request an advance every 15 days.
MECHANICS. The Company may, at it discretion, request advances from the
Investor by written notice, specifying the amount requested up to the maximum
advance amount. A closing will be held 25 days after such written notice at
which time the Company will deliver shares of common stock and the Investor will
pay the advance amount. The Company has the ability to determine when and if it
desires to draw an advance. There is no minmum advance requirement. Under
certain circumstances, the Company may withdraw an advance without penalty.
COMMITMENT PERIOD. The Company may request an advance at any time
during the commitment period. The commitment period begins on the date the
Securities and Exchange Commission first declares effective a Registration
Statement registering the sale of the shares of common stock to be issued to the
Investor under the Equity Line of Credit. The commitment period expires on the
earliest to occur of (i) the date on which the Investor has made advances
15
<PAGE>
totaling $20 million or (ii) February 23, 2003 (i.e. 30 months from the date of
the Equity Line of Credit).
MAXIMUM ADVANCE AMOUNT. The Company may not request advances in excess
of a total of $20 million. In addition, each individual advance is subject to a
maximum advance amount based on the 25-day average daily volume of the Company's
common stock. The 25-day average daily volume is equal to the bid price of the
Company's common stock, multiplied by the volume for each of the 25 trading days
preceding the Company's request for an advance. The maximum advance amount for
each individual advance is determined according to the following table:
25-DAY AVERAGE VOLUME MAXIMUM ADVANCE AMOUNT
--------------------- ----------------------
$25,000 - $50,000 $100,000
$50,001 - $100,000 $200,000
$100,001 - $200,000 $350,000
$200,001 - $300,000 $500,000
$300,001 - $400,000 $650,000
$400,001 - $500,000 $900,000
$500,001 - $600,000 $1,200,000
$600,001 - $800,000 $1,500,000
$800,001 - $1,000,000 $1,750,000
$1,000,001 and Over $2,000,000
By way of illustration only, if the Company had requested an advance on
August 31, 2000 (which the Company could not have done since that date is not
within the commitment period), then the 25-day average volume would have been
approximately $141,000. Accordingly, on August 31, 2000, the maximum advance
amount would have been $350,000.
PURCHASE PRICE. The purchase price for the shares of common stock to be
sold under the Equity Line of Credit is equal to 88% of the market price on the
Nasdaq National Market or other principal trading market. The market price is
defined as the average of the three lowest closing bid prices of the common
stock over the ten trading days subsequent to the date on which the Company
notifies the Investor of an advance. Note that the net proceeds to be received
by the Company will be less due to its obligation to pay a placement agent fee
of 7% of each advance to the May Davis Group, Inc. See "Net Proceeds" and
"Placement Agent."
NUMBER OF SHARES TO BE ISSUED. The Company cannot predict the actual
number of shares of common stock that will be issued pursuant to the Equity Line
of Credit, in part, because the purchase price of the shares will fluctuate
based on prevailing market conditions and the Company has not determined the
total amount of advances it intends to draw. Nonetheless, the Company can
estimate the number of shares of common stock that will be issued using certain
assumptions. Assuming the Company advanced the entire $20 million available
under the Equity Line of Credit in a single advance (which is not permitted
under the terms of the Equity Line of Credit) at $7.875 per share, the closing
price on August 30, 2000, then the Company would issue 2,539,683 shares of
common stock to the Investor, plus warrants to purchase 1,000,000 shares of
common stock to the placement agent. These shares would represent 34.0% of the
Company's outstanding capital stock (41.8% if the shares to be issued upon
exercise of the warrants held by the placement agent are taken into account)
upon issuance. To assist our stockholders in evaluating the number of shares of
common stock which could be issued to the Investor at various prices, the
Company has prepared the following table. This table shows the number of shares
of the Company's common stock that would be issued with and without warrants at
various prices.
16
<PAGE>
<TABLE>
<CAPTION>
PURCHASE PRICE: $5.00 $6.00 $7.00 $8.00 $9.00
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
NO. OF SHARES(1): 4,000,000 3,333,333 2,857,143 2,500,000 2,222,222
TOTAL OUTSTANDING EXCLUDING
WARRANTS(2): 8,933,900 8,267,233 7,791,043 7,433,900 7,156,122
PERCENT OUTSTANDING
EXCLUDING WARRANTS(3): 44.8% 40.3% 36.7% 33.6% 31.1%
NO. OF WARRANTS(4): 1,040,000 1,033,333 1,028,571 1,025,000 1,022,222
TOTAL OUTSTANDING INCLUDING
WARRANTS(4): 9,973,900 9,300,566 8,819,614 8,458,900 8,178,344
PERCENT OUTSTANDING
INCLUDING WARRANTS(4)(5): 50.5% 50.0% 44.1% 41.7% 39.7%
----------------------
(1) Represents the number of shares of common stock to be issued to the Investor at the prices set forth in the table.
(2) Represents the total number of shares of common stock outstanding after the issuance of the shares to the Investor
and excludes the issuance of shares to the placement agent upon the exercise of warrants granted to it.
(3) Represents the shares of common stock to be issued as a percentage of the total number shares outstanding, EXCLUDING
the warrants issued to the placement agent.
(4) Represents the total number of shares of common stock outstanding after the issuance of the shares to the Investor,
including the issuance of shares to the placement agent upon the exercise of warrants granted to it. Also includes
the issuance of shares to Persia Consulting Group, Inc. upon the exercise of warrants granted to it.
(5) Represents the shares of common stock to be issued as a percentage of the total number shares outstanding, INCLUDING
the warrants issued to the placement agent and Persia Consulting Group, Inc.
</TABLE>
REGISTRATION RIGHTS. The Company granted to the Investor certain
registration rights. Pursuant to the Registration Rights Agreement, the Company
is obligated to register the sale of the Investor's shares of common stock. The
cost of this registration will be borne by the Company.
NET PROCEEDS. The Company cannot predict the total amount of proceeds
to be raised in this transaction, in part, because the Company has not
determined the total amount of the advances it intends to draw. However, the
Company expects to incur approximately $75,000, consisting primarily of
professional fees incurred in negotiating and completing the Equity Line of
Credit and to be incurred in connection with registering the Investor's shares
pursuant to the Investor Rights Agreement. In addition, the Company is obligated
to pay the placement agent, May Davis Group, Inc., a cash placement agent fee
equal to 7% of each advance.
USE OF PROCEEDS. The Company intends to use the net proceeds received
under the Equity Line of Credit for general working capital purposes.
PLACEMENT AGENT. The Company retained the May Davis Group, Inc. to act
as its placement agent in connection with the Equity Line of Credit. For its
services, the Company will pay a cash placement agent fee to the May Davis
Group, Inc. equal to 7% of each advance. Further, the Company granted to the May
Davis Group, Inc. warrants to purchase 1,000,000 shares of the Company's common
stock, of which warrants to purchase 500,000 shares of the Company's common
17
<PAGE>
stock had an exercise price of $7.00 per share (the "CLASS A WARRANT") and
500,000 shares of the Company's common stock had an exercise price of $10.00 per
share (the "CLASS B Warrant"). The Class A Warrants are exercisable immediately
upon receiving shareholder approval and the Class B Warrants are exercisable pro
rata on the basis of the number of shares of common stock to be issued in
connection with each advance. Subsequently, the warrants were transferred by the
May Davis Group, Inc. to the following:
NUMBER OF CLASS A NUMBER OF CLASS B
NAME: WARRANTS: WARRANTS:
----- --------- ---------
Mark Angelo 113,000 113,000
Hunter Singer 113,000 113,000
Joseph Donahue 113,000 113,000
Robert Ferrell 113,000 113,000
Persia Consulting Group 48,000 48,000
The exercise price of the warrants will be reduced if the Company
issues or sells shares of common stock for, or issues securities convertible
into shares of common stock with a conversion or exercise price of, less than
the average closing bid prices of the Company's common stock for the ten trading
days immediately preceding the date of issuance, or in the case of options
issued to employees after 30 days of the employees start date, the closing bid
price on the date of issuance. In such event, the exercise price of the warrants
will be reduced to the price at which such common stock was issued or sold or to
the exercise price of such convertible securities. All warrants are exercisable
for five years after the date of issuance. The holders of the warrants may,
under certain circumstances, exercise the warrants pursuant to a cashless
exercise.
The Company has the right to force exercise of the Class A Warrants and
Class B Warrants if the closing bid price of the Company's common stock is
$10.00 and $15.00, respectively, or higher per share for ten consecutive trading
days.
The Company granted certain registration rights to the May Davis Group,
Inc. and any subsequent holder of such warrants, including the parties set forth
above. Pursuant to the Registration Rights Agreement, the Company is obligated
to register the sale of the shares of common stock underlying the warrants. The
cost of this registration will be borne by the Company.
STOCKHOLDER APPROVAL. The Company's common stock is listed for
quotation on the Nasdaq National Market System. The NASD, which administers the
Nasdaq National Market System, maintains listing standards that the Company must
follow in order to continue such listing. These rules require the Company to
obtain stockholder approval where the Company proposes to sell or issue shares
of common stock (i) equal to 20% or more of the common stock for less than the
greater of book or market value of the stock or (ii) which will result in a
change of control of the Company. As demonstrated above, the proposed issuance
of shares of common stock to the Investor, as well as the issuance of shares of
common stock upon the exercise of warrants granted to the May Davis Group, Inc
and subsequently transferred (see "Placement Agent" above), may result in the
issuance of more than 20% of the Company's common stock at less than market
price (i.e. 88% of market price). Moreover, the issuance of the common stock
could result in a change of control if the newly-issued shares were purchased by
a single investor. Accordingly, the Company is seeking stockholder approval of
the issuance of the shares of common stock to be issued under the Equity Line of
Credit and upon exercise of the warrants issued in connection therewith.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
common stock, par value $0.01 per share, and 1,000,000 shares of preferred
stock, par value $0.01 per share, of which 4,933,900 shares of common stock are
issued and outstanding on September 11, 2000. The rights and preferences of the
preferred stock will be determined upon issuance by the Company's Board of
Directors. The number of shares of common stock to be issued pursuant to the
Equity Line of Credit and upon the exercise of warrants issued to the placement
agent is set forth in the section "Equity Line of Credit - Number of Shares to
be Issued." The following description is a summary of the capital stock of the
Company and contains the material terms of the capital stock. Additional
information can be found in the Articles of Incorporation and Bylaws, which were
filed as exhibits to the Company's Registration Statement on Form S-1 with the
Securities and Exchange Commission.
COMMON STOCK
Each share of common stock entitles the holder to one vote on each
matter submitted to a vote of the Company's shareholders, including the election
of directors. There is no cumulative voting. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefore.
Holders of common stock shall have no preemptive, conversion or other
subscription rights. There are no redemption or sinking fund provisions
available to the common stock. In the event of liquidation, dissolution or
winding up of the Company, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations
prescribed by the Nevada Revised Statutes ("NRS"), or the rules of any quotation
system or national securities exchange on which stock of the Company may be
quoted or listed, to provide for the issuance of shares of preferred stock in
one or more series; to establish from time to time the number of shares to be
included in each such series; to fix the rights, powers, preferences, and
privileges of the shares of such series, without any further vote or action by
the shareholders. Depending upon the terms of the preferred stock established by
the Board of Directors, any or all series of preferred stock could have
preference over the common stock with respect to dividends and other
distributions and upon liquidation of the Company or could have voting or
conversion rights that could adversely affect the holders of the outstanding
common stock. The Company has no present plans to issue any shares of preferred
stock.
OPTIONS
The Company has issued options to purchase 328,000 shares of common
stock under its 1998 Stock Incentive Plan. In addition, the Company has issued
options to purchase 100,000 shares of common stock to Persia Consulting Group.
These options were issued outside the plan. Accordingly, as of September 11,
2000, the Company has outstanding options to purchase a total of 428,000 shares
of common stock. All options have a ten year term. A summary of the Company's
outstanding options is set forth below:
NO. OF OPTIONS: EXERICSE PRICES:
-------------- ---------------
215,500 $10.00
100,000 $4.55
85,000 $7.06
7,500 $7.50
5,000 $12.00
5,000 $10.25
5,000 $9.25
5,000 $9.00
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WARRANTS
As of August 31, 2000, pursuant to the Equity Line of Credit, the
Company issued warrants to the placement agent to purchase up to 1,00,000 shares
of common stock, of which 500,000 have an exercise price of $7.00 per share and
500,000 have an exercise price of $10.00 per share. These warrants were
subsequently transferred by the placement agent to certain persons affiliated
with the placement agent. Additional information concerning these warrants is
set forth in the section entitled "Equity Line of Credit - Placement Agent" in
this proxy.
In addition, in connection with the Equity Line of Credit, the Company
will issue warrants to Persia Consulting Group, Inc. The number of warrants will
be equal to one percent of the amount of each advance, one-half of which will
have an exercise price of $7.00 per share and one-half will have an exercise
price of $10.00 per share. These warrants are in addition to the warrants
transferred by the placement agent to Persia Consulting Group.
LIMITATION OF LIABILITY; INDEMNIFICATION
As permitted by the NRS, the Articles of Incorporation provide that
directors of the Company shall not be personally liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director to
the fullest extent permitted by the NRS (which currently provides that such
liability may be so limited, except for: (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law; or (ii) the payment
of distributions in violation of NRS 78.300.
Each person who is or was a party to any action by reason of the fact
that such person is or was a director or officer of the Company shall be
indemnified and held harmless by the Company to the fullest extent permitted by
the NRS. This right to indemnification also includes the right to have paid by
the Company the expenses incurred in connection with any such proceeding in
advance of its final disposition, to the fullest extent permitted by the NRS. In
addition, the Company may, by action of the Board of Directors, provide
indemnification to such other employees and agents of the Company to such extent
as the Board of Directors determines to be appropriate under the NRS.
As a result of this provision, the Company and its shareholders may be
unable to obtain monetary damages from a director for breach of his duty of
care. Although shareholders may continue to seek injunctive and other equitable
relief for an alleged breach of fiduciary duty by a director, shareholders may
not have any effective remedy against the challenged conduct if equitable
remedies are unavailable.
REGISTRATION RIGHTS
In January 1998, each of Messrs. Gallagher and Shields was granted
certain registration rights, including demand and piggy-back registration
rights. Each of Messrs. Gallagher and Shields may exercise such rights once each
per calendar year. The Company will pay all expenses (other than underwriting
discounts and commissions of the selling shareholders) in connection with up to
two requested registrations, as well as any registrations pursuant to the
exercise of piggyback rights. The Company also will agree to indemnify such
persons against certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended. The registration rights granted to Messrs.
Gallagher and Shields will remain as long as he remains an "affiliate" of the
Company for purposes of Rule 144.
In addition, the Company has granted certain registration rights to the
Investor, the placement agent. Additional information concerning these
registration rights is set forth in the sections entitled "Equity Line of Credit
- Registration Rights" and "Equity Line of Credit - Placement Agent."
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS
The following provisions of the Company's Articles of Incorporation and
By-laws could discourage potential acquisition proposals and could delay or
prevent a change in control. Such provisions may also have the effect of
preventing changes in the management.
DIRECTORS. The Company's Articles of Incorporation divides the
Company's Board of Directors into three classes with regular three year
staggered terms. Pursuant to Section 78.335 of the NRS, any director may be
removed from office by the vote of shareholders representing two-thirds of the
outstanding shares of common stock. In addition, all vacancies on the Board of
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Directors may be filled by a majority of directors even if a quorum of directors
is not possible. The authority of the Board of Directors to fill vacancies may
result in a majority of remaining directors without having been elected by
shareholders. Shareholders have no right to compel an election in such cases.
Any vacancies (including those caused by an increase in the number of
directors), however, may be filled by a majority of the remaining directors and
therefore the nominees of a dissident shareholder may be precluded from filling
any vacancies. Consequently, a shareholder interested in gaining control of the
Company will only be able to elect a minority of the Company's Board of
Directors in any given year. Consequently, two annual meetings will be necessary
for such a shareholder to gain control of the Company's Board of Directors.
There is currently a vacancy on the Board as a result of the resignation of
Bernadette Spofforth.
AUTHORIZED BUT UNISSUED STOCK. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
shareholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans.
BLANK CHECK PREFERRED STOCK. The existence of authorized but unissued
and unreserved shares of preferred stock may enable the Board of Directors to
issue shares to persons friendly to current management, which would render more
difficult or discourage an attempt to obtain control of the Company by means of
a proxy contest, tender offer, merger or otherwise, and thereby protect the
continuity of the Company's management.
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OTHER MATTERS
As of the date of this proxy statement, the Company knows of no
business that will be presented for consideration at the annual meeting other
than the items referred to above. If any other matter is properly brought before
the meeting for action by stockholders, proxies in the enclosed form returned to
the Company will be voted in accordance with the recommendation of the Board of
Directors or, in the absence of such a recommendation, in accordance with the
judgment of the proxy holder.
INDEPENDENT ACCOUNTANTS
The firm of KPMG LLP served as the Company's independent accountants
for Fiscal 2000. Representatives of this firm will be available by telephone to
respond to questions at the 2000 Annual Meeting of the Stockholders. These
representatives will have an opportunity to make a statement if they desire to
do so. The Company has not selected its independent accountants for Fiscal 2001
as the Company's audit committee has not met to make such a selection.
ADDITIONAL INFORMATION
ADVANCE NOTICE PROCEDURES. Under the Company's bylaws, no business may
be brought before an annual meeting unless it is specified in the notice of the
meeting (which includes stockholder proposals that the Company is required to
include in its proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934) or is otherwise brought before the meeting by or at the
discretion of the Board or by a stockholder entitled to vote who has delivered
notice to the Company (containing certain information specified in the bylaws)
not less than 120 days nor more than 180 days prior to the first anniversary of
the preceding year's annual meeting. These requirements are separate from and in
addition to the SEC's requirements that a stockholder must meet in order to have
a stockholder proposal included in the Company's proxy statement.
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING. Stockholders
interested in submitting a proposal for inclusion in the proxy materials for the
Company's annual meeting of stockholders in 2001 may do so by following the
procedures prescribed in SEC Rule 14a-8. To be eligible for inclusion,
stockholder proposals must be received by the Company's Secretary no later than
June 1, 2000. Any stockholder proposals should be addressed to the Company's
Secretary, 6073 N.W. 167th Street, Unit C-25, Miami, Florida 33015.
PROXY SOLICATION COSTS. The Company is soliciting the enclosed proxies.
The cost of solicting proxies in the enclosed form will be borne by the Company.
The Company has retained Chase Mellon Shareholder Services, LLC, Four Station
Square, Third Floor, Pittsburgh, Pennsylvania 15219, to aid in the solicitation.
For these services, the Company will pay Chase Mellon Shareholder Services, LLC
a fee of approximately $6,500, plus reimbursement of certain out-of-pocket
disbursements and expenses. Officers and regular employees of the Company may,
but without compensation other than their regular compensation, solicit proxies
by further mailing or personal conversations, or by telephone, telex, facsimile
or electronic means. The Company will, upon request, reimburse brokerage firms
for their reasonable expenses in forwarding solictation materials to the
beneficial owners of stock.
INCORPORATION BY REFERENCE. Certain financial and other information
required pursuant to Item 13 of the Proxy Rules is incorporated by reference to
the Company's Annual Report on Form 10-K, which is being delivered to the
stockholders with this proxy statement. In order to facilitate compliance with
Rule 2-02(a) of Regulation S-X, one copy of the definitive proxy statement will
include a manually signed copy of the accountant's report.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John B. Gallagher
----------------------------------------------
John B. Gallagher, Co-Chairman and Co-President
Miami, Florida
October 19, 2000
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APPENDIX "A"
EQUITY LINE OF CREDIT AGREEMENT
AGREEMENT dated as of the 24 day of August 2000, (the "Agreement") between
Spinneret Financial System, Ltd., (the "Investor") and European Micro Holdings,
Inc., a corporation organized and existing under the laws of the State of Nevada
(the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase up to
Twenty Million ($20,000,000) Dollars of the Company's common stock, par value
$0.01 per share (the "Common Stock"), for a total purchase price of Twenty
Million ($20,000,000) Dollars; and
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and the
regulations promulgated there under (the "Securities Act"), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder;
and
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
Section 1.2 "Advance Notice Date" shall mean each date the Company
delivers to the Investor an Advance Notice requiring the Investor to advance
funds to the Company, subject to the terms of this Agreement. No Advance Notice
Date shall be less than fifteen Trading Days after the prior Advance Notice
Date.
Section 1.3 "Advance Date" shall mean the date Butler Gonzalez LLP/First
Union Escrow Account is in receipt of the funds from the Investor and Butler
Gonzalez LLP, as the Placement Agent's Counsel, is in possession of free trading
shares from the Company and therefore an Advance by the Investor to the Company
can be made and Butler Gonzalez LLP can release the free trading shares to the
Company. No Advance Date shall be less than twenty-five (25) Trading Days after
an Advance Notice Date.
Section 1.4 "Advance Notice" shall mean a written notice to the Investor
setting forth the Advance amount that the Company requests from the Investor and
the Advance Date,
Section 1.5 "Bid Price" shall mean, on any date, the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if
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the Common Stock is not traded on a Principal Market, the highest reported bid
price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section 1.7 "Closing" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.1.
Section 1.8 "Commitment Amount" shall mean the aggregate amount of up to
$20,000,000 which the Investor has agreed to provide to the Company in order to
purchase the Company's Common Stock pursuant to the terms and conditions of this
Agreement.
Section 1.9 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of $20,000,000,
(y) the date this Agreement is terminated pursuant to Section 2.6, or (z) the
date occurring thirty (30) months from the date hereof.
Section 1.10 "Common Stock" shall mean the Company's common stock, par
value $0.01 per share.
Section 1.11 "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.12 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.13 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.14 "Escrow Agreement" shall mean the escrow agreement between
the Company and the Investor dated the date hereof.
Section 1.15 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.16 "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement or the Registration Rights Agreement in any material
respect.
Section 1.17 "Market Price" shall mean the average of the three (3) lowest
closing Bid Prices of the Common Stock over the ten (10) Trading Day period
beginning on the relevant Advance Notice Date.
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Section 1.18 "Maximum Advance Amount" on any Advance Notice Date shall be
equal to the difference between (i) the amount indicated in the Maximum Advance
Amount column opposite the range of the 25 Day Average Daily Volume Traded on
such Advance Notice Date, as set forth in the table below and (ii) the sum of
the Advances made pursuant to this Agreement, in the 15 Trading Days immediately
preceding the Advance Notice Date:
25-DAY AVERAGE VOLUME TRADED(1) MAXIMUM ADVANCE AMOUNT
$25,000 - $50,000 $100,000
$50,001 - $100,000 $200,000
$100,001 - $200,000 $350,000
$200,001- $300,000 $500,000
$300,001 - $400,000 $650,000
$400,001 - $500,000 $900,000
$500,001 - $600,000 $1,200,000
$600,001 - $800,000 $1,500,000
$800,001 - $1,000,000 $1,750,000
$1,000,000 plus $2,000,000
(1) The 25-Day Average Volume Traded shall be equal to the Bid Price multiplied
by the volume for each of the 25 Trading Days preceding the Advance Notice Date.
Section 1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.20 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.21 "Placement Agent" shall mean May Davis Group, Inc.
Section 1.22 "Pre Advance Notice Market Price" shall mean the average of
the three (3) lowest closing Bid Prices of the Common Stock over the ten (10)
Trading Day period beginning on the relevant Advance Notice Date.
Section 1.23 "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.24 "Purchase Price" shall be set at 88% of the Market Price.
Section 1.25 "Registrable Securities" shall mean the shares of Common
Stock (i) in respect of which the Registration Statement has not been declared
effective by the SEC, (ii) which have not been sold under circumstances meeting
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all of the applicable conditions of Rule 144 (or any similar provision then in
force) under the Securities Act ("Rule 144") or (iii) which have not been
otherwise transferred to a holder who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive
legend.
Section 1.26 "Registration Rights Agreement" shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.
Section 1.27 "Registration Statement" shall mean a registration statement
on Form S-1 or Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered there under in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.28 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.29 "SEC" shall mean the Securities and Exchange Commission.
Section 1.30 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.31 "SEC Documents" shall mean Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements
of the Company as supplemented to the date hereof, filed by the Company for a
period of at least twelve (12) months immediately preceding the date hereof or
the Advance Date, as the case may be, until such time as the Company no longer
has an obligation to maintain the effectiveness of a Registration Statement as
set forth in the Registration Rights Agreement.
Section 1.32 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
ARTICLE II
ADVANCES
Section 2.1 INVESTMENTS.
(a) ADVANCES. Upon the terms and conditions set forth herein
(including without limitation, the provisions of Article VII hereof), on any
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Advance Notice Date the Company may request an Advance by the Investor by the
delivery of an Advance Notice. The number of shares of Common Stock that the
Investor shall receive for each Advance shall be determined by dividing the
amount of the Advance by the Purchase Price on the Advance Notice Date. No
fractional shares shall be issued. Fractional shares shall be rounded to the
next higher whole number of shares. The aggregate maximum amount of all Advances
that the Investor shall be obligated to make under this Agreement shall not
exceed the Commitment Amount.
Section 2.2 MECHANICS.
(a) ADVANCE NOTICE. At any time during the Commitment Period, the
Company may deliver an Advance Notice to the Investor, subject to the conditions
set forth in Section 2.7 and Section 7.2; provided, however, the amount for each
Advance as designated by the Company in the applicable Advance Notice shall not
be (i) less than $30,000, or (ii) more than the Maximum Advance Amount. The
aggregate amount of the Advances pursuant to this Agreement shall not exceed the
Commitment Amount, unless otherwise agreed by the Investor in the Investor's
sole and absolute discretion. There will be a minimum of fifteen (15) Trading
Days between each Advance Notice.
(b) DATE OF DELIVERY OF ADVANCE NOTICE. An Advance Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon Eastern Time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Advance Notice may be deemed delivered, on a day
that is not a Trading Day.
(c) WITHDRAWAL OF ADVANCE NOTICE. The Company shall have the right
to withdrawal an Advance Notice if prior to a Closing the Market Price shall
change more than:
(i) ten percent (10%) from the Pre Advance Notice Market Price
if the closing price of the Common Stock is less than Ten (10) dollars; or
(ii) five percent (5%) from the Pre Advance Notice Market
Price if the closing price of the Common Stock is greater than Ten (10) dollars.
Section 2.3 CLOSINGS. On each Advance Date, which shall be twenty-five
(25) Trading Days after an Advance Notice Date, (i) the Company shall deliver to
the Escrow Agent, as defined pursuant to the Escrow Agreement, shares of the
Company's Common Stock, representing the amount of the Advance by the Investor
pursuant to Section 2.1 herein, registered in the name of the Investor which
shall be delivered to the Investor, or otherwise in accordance with the Escrow
Agreement and (ii) the Investor shall deliver to the Escrow Agent the amount of
the Advance specified in the Advance Notice by wire transfer of immediately
available funds which shall be delivered to the Company, or otherwise in
accordance with the Escrow Agreement. In addition, on or prior to the Advance
Date, each of the Company and the Investor shall deliver to the other through
the Escrow Agent all documents, instruments and writings required to be
delivered or reasonably requested by either of them pursuant to this Agreement
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in order to implement and effect the transactions contemplated herein. Payment
of funds to the Company and delivery of the Company's Common Stock to the
Investor shall occur in accordance with the conditions set forth above and those
contained in the Escrow Agreement; PROVIDED, HOWEVER, that to the extent the
Company has not paid the fees, expenses, and disbursements of the Investor's
counsel and the Placement Agent in accordance with Section 12.4, the amount of
such fees, expenses, and disbursements may be deducted by the Investor (and
shall be paid to the relevant party) from the amount of the Advance with no
reduction in the amount of shares of the Company's Common Stock to be delivered
on such Advance Date.
Section 2.4 SUSPENSION OF REGISTRATION STATEMENT. If subsequent to any
Closing, the Registration Statement is suspended, other than due to the acts of
the Investor or the Placement Agent, for any period exceeding twenty trading
days (20) days, the Company shall pay an amount equal to one and one half
percent (1 1/2 %) of the Purchase Price of all Common Stock held by the
Investor, purchased pursuant to this Agreement for each twenty trading day (20)
day period or portion thereof; PROVIDED, HOWEVER, that the Company shall not be
required to pay such amount to the Investor in connection with any period
commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post-effective amendment is
declared effective by the SEC.
Section 2.5 TERMINATION OF INVESTMENT. The obligation of the Investor to
make an Advance to the Company pursuant to this Agreement shall terminate
permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension
of the effectiveness of the Registration Statement for an aggregate of fifty
(50) Trading Days, other than due to the acts of the Investor or the Placement
Agent, during the Commitment Period, or (ii) the Company shall at any time fail
materially to comply with the requirements of Section 6.3, 6.4 or 6.7; PROVIDED,
HOWEVER, that this termination provision shall not apply to any period
commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is
declared effective by the SEC.
Section 2.6 AGREEMENT TO ADVANCE FUNDS.
(a) The Investor agrees to advance the amount specified in the
Advance Notice to the Company after the completion of each of the following
conditions and the other conditions set forth in this Agreement:
(i) the execution and delivery by the Company, and the
Investor, of this Agreement, and the Exhibits hereto;
(ii) the Escrow Agent shall have received the shares of Common
Stock applicable to the Advance;
(iii) the Company's Registration Statement with respect to the
resale of the Registrable Securities in accordance with the terms of the
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Registration Rights Agreement shall have been declared effective by the
SEC;
(iv) the Company shall have obtained all permits and qualifications
required by any applicable state for the offer and sale of the Registrable
Securities, or shall have the availability of exemptions there from. The
sale and issuance of the Registrable Securities shall be legally permitted
by all laws and regulations to which the Company is subject;
(v) the Company shall have filed with the Commission in a timely
manner all reports, notices and other documents required of a "reporting
company" under the Exchange Act and applicable Commission regulations;
(vi) the fees as set forth in Section 12.4 below shall have been
paid or can be withheld as provided in Section 2.3; and
(vii) the conditions set forth in Section 7.2 shall have been
satisfied.
Section 2.7 LOCK UP PERIOD. (a) During the terms of this Agreement, the
Company shall not, without the prior consent of the Investor, issue or sell (i)
any Common Stock without consideration or for a consideration per share less
than the Bid Price on the date of issuance or (ii) issue or sell any warrant,
option, right, contract, call, or other security or instrument granting the
holder thereof the right to acquire Common Stock without consideration or for a
consideration per share less than the Bid Price on the date of issuance.
(b) On the date hereof, the Company shall obtain from each officer,
director and Affiliate, as defined below, a lock-up agreement, as defined below,
in the form annexed hereto as Schedule 2.7(a) agreeing to only sell in
compliance with the volume limitation of Rule 144. "Affiliate" for purposes
hereof means, with respect to any person or entity, another person or entity
that, directly or indirectly, (i) has a 5% or more equity interest in that
person or entity, (ii) has 5% or more common ownership with that person or
entity, (iii) controls that person or entity, or (iv) shares common control with
that person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
Section 2.8 SHAREHOLDER APPROVAL. The Company's obligations under this
Agreement are subject to approval of the shareholders of the Company pursuant to
Nevada Corporate Law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby represents and warrants to, and agrees with, the Company
that the following are true and as of the date hereof and as of each Advance
Date:
Section 3.1 ORGANIZATION AND AUTHORIZATION. Investor is duly incorporated
or organized and validly existing in the jurisdiction of its incorporation or
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organization and has all requisite power and authority to purchase and hold the
securities issuable hereunder. The decision to invest and the execution and
delivery of this Agreement by such Investor, the performance by such Investor of
its obligations hereunder and the consummation by such Investor of the
transactions contemplated hereby have been duly authorized and requires no other
proceedings on the part of the Investor. The undersigned has the right, power
and authority to execute and deliver this Agreement and all other instruments (
including, without limitations, the Registration Rights Agreement), on behalf of
the Investor. This Agreement has been duly executed and delivered by the
Investor and, assuming the execution and delivery hereof and acceptance thereof
by the Company, will constitute the legal, valid and binding obligations of the
Investor, enforceable against the Investor in accordance with its terms.
Section 3.2 EVALUATION OF RISKS. The Investor has such knowledge and
experience in financial tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
Section 3.3. NO LEGAL ADVICE FROM THE COMPANY. The Investor acknowledges
that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and investment
and tax advisors. The Investor is relying solely on such counsel and advisors
and not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
Section 3.4 INVESTMENT PURPOSE. The securities are being purchased by the
Investor for its own account, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or in
part. The Investor agrees not to assign or in any way transfer the Investor's
rights to the securities or any interest therein and acknowledges that the
Company will not recognize any purported assignment or transfer except in
accordance with applicable Federal and state securities laws. No other person
has or will have a direct or indirect beneficial interest in the securities. The
Investor agrees not to sell, hypothecate or otherwise transfer the Investor's
securities unless the securities are registered under Federal and applicable
state securities laws or unless, in the opinion of counsel satisfactory to the
Company, an exemption from such laws is available.
Section 3.5 ACCREDITED INVESTOR. Investor is an "accredited investor" as
that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.
Section 3.6 INFORMATION. Such Investor and its advisors (and his or its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information it deemed
material to making an informed investment decision. Such Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence
investigations conducted by such Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investor's right to rely on
the Company's representations and warranties contained in this Agreement. Such
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Investor understands that its investment involves a high degree of risk. Such
Investor is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables each
Investor to obtain information from the Company in order to evaluate the merits
and risks of this investment. Such Investor has sought such accounting, legal
and tax advice, as it has considered necessary to make an informed investment
decision with respect to this transaction.
Section 3.7 RECEIPT OF DOCUMENTS. Such Investor and his or its counsel has
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-K for the year ended year ended June 30, 1999 and
Form 10-Q for the periods ended September 1999, December 1999, and March 2000;
and (v) answers to all questions the Investor submitted to the Company regarding
an investment in the Company; and the Investor has relied on the information
contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.
Section 3.8 REGISTRATION RIGHTS AGREEMENT AND ESCROW AGREEMENT. The
parties have entered into the Registration Rights Agreement and the Escrow
Agreement, each dated the date hereof.
Section 3.9 NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the shares of Common Stock offered hereby.
Section 3.10 NOT AN AFFILIATE. The Investor is not an officer, director or
a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the Company "an
Affiliate," as that term is defined in Rule 405 of the Securities Act) of the
Company). The Investor agrees that it will not, and that it will cause its
affiliates not to, engage in any short sales of or hedging transactions with
respect to the Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as stated below or on the disclosure schedules attached hereto, the
Company hereby represents and warrants to, and covenants with, the Investor that
the following are true and correct as of the date hereof and as of each Advance
Date:
Section 4.1 ORGANIZATION AND QUALIFICATION. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
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good standing would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
Section 4.2. AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER
INSTRUMENTS. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement and any
related agreements, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Escrow Agreement and any related agreements by the Company and the consummation
by it of the transactions contemplated hereby and thereby, have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) except as disclosed in Section 4.3, this Agreement,
Registration Rights Agreement, the Escrow Agreement and any related agreements
have been duly executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement, Escrow Agreement the execution and delivery
thereof and acceptance by the Investor and any related agreements constitute the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
Section 4.3 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 shares of Common Stock, par value
$0.01 per share, of which 4,933,900 shares were issued and outstanding and
1,000,000 shares of preferred stck of which nine are outstanding. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed on Schedule 4.3, no shares of Common Stock
are subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company. Except as disclosed on
Schedule 4.3, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement). There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered in this Agreement or
any related agreement or the consummation of the transactions described herein
or therein. The Company has furnished to the Investor true and correct copies of
the Company's Certificate of Incorporation, as amended and as in effect on the
date hereof (the "Certificate of Incorporation"), and the Company's By-laws, as
in effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
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Section 4.4 NO CONFLICT. Subject to Section 2.8, the execution, delivery
and performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby will not (i) result in a
violation of the Certificate of Incorporation, any certificate of designations
of any outstanding series of preferred stock of the Company or By-laws or (ii)
conflict with or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of Nasdaqon which the Common Stock is quoted) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries is bound or affected. Except as disclosed
on Schedule 4.4, neither the Company nor its subsidiaries is in violation of any
term of or in default under its Certificate of Incorporation or By-laws or their
organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted in violation of any material law,
ordinance, regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the Securities Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstance which might give rise to any of the foregoing.
Section 4.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. Since June 6, 1998, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under of the Exchange Act (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being hereinafter referred to as the "SEC Documents"). The
Company has delivered to the Investor or its representatives, or made available
through the SEC's website at http://www.sec.gov, true and complete copies of the
SEC Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the "Financial Statements") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
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the Investor which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 4.6. 10b-5. The SEC Documents do not include any untrue statements
of material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
Section 4.7 NO DEFAULT. Except as disclosed Section 4.4 the Company is not
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party or by
which it is or its property is bound and neither the execution, nor the delivery
by the Company, nor the performance by the Company of its obligations under this
Agreement or any of the exhibits or attachments hereto will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under its Certificate of
Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or instrument to which the Company
is a party or by which it is bound, or any statute, or any decree, judgment,
order, rules or regulation of any court or governmental agency or body having
jurisdiction over the Company or its properties, in each case which default,
lien or charge is likely to cause a Material Adverse Effect on the Company's
business or financial condition.
Section 4.8 ABSENCE OF EVENTS OF DEFAULT. Except for matters described in
the SEC Documents and/or this Agreement, no Event of Default, as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (as so defined), has occurred and is continuing, which would have a
Material Adverse Effect on the Company's business, properties, prospects,
financial condition or results of operations.
Section 4.9 INTELLECTUAL PROPERTY RIGHTS. The Company and its subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company, there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service mark registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
Section 4.10 EMPLOYEE RELATIONS Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
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Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
Section 4.11 ENVIRONMENTAL LAWS. The Company and its subsidiaries are (i)
in compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
Section 4.12 TITLE. Except as set forth in Schedule 4.12, the Company has
good and marketable title to its properties and material assets owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than such as are not material to the business of the
Company. Any real property and facilities held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
Section 4.13 INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
Section 4.14 REGULATORY PERMITS. The Company and its subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
Section 4.15 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
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accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 4.16 NO MATERIAL ADVERSE BREACHES, ETC. Except as set forth in the
SEC Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company's officers has or is
expected in the future to have a Material Adverse Effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Neither the Company nor any of its
subsidiaries is in breach of any contract or agreement which breach, in the
judgment of the Company's officers, has or is expected to have a Material
Adverse Effect on the business, properties, operations, financial condition,
results of operations or prospects of the Company or its subsidiaries.
Section 4.17 ABSENCE OF LITIGATION. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a Material Adverse Effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a Material Adverse Effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
Section 4.18 SUBSIDIARIES. Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
Section 4.19 (INTENTIONALLY NOT USED)
Section 4.20 OTHER OUTSTANDING SECURITIES/FINANCING RESTRICTIONS. As of
the date hereof, other than warrants and options to acquire shares of Common
Stock as disclosed in Schedule 4.3, there are no other warrants and options
registered with the SEC, which are available for sale as unrestricted ("free
trading") stock.
Section 4.21 TAX STATUS. The Company and each of its subsidiaries has made
or filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
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to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
Section 4.22 CERTAIN TRANSACTIONS. Except as set forth in the SEC
Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
Section 4.23 FEES AND RIGHTS OF FIRST REFUSAL. Except as set forth in the
SEC Documents, the Company is not obligated to offer the securities offered
hereunder on a right of first refusal basis or otherwise to any third parties
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers, agents or other third parties.
Section 4.24 USE OF PROCEEDS. The Company represents that the net proceeds
from this offering will be used as provided on Schedule 4.24. However, in no
event shall the net proceeds from this offering be used by the Company for the
payment (or loaned to any such person for the payment) of any judgment, or other
liability, incurred by any executive officer, officer, director, or employee of
the Company.
Section 4.25 FURTHER REPRESENTATION AND WARRANTIES OF THE Company. For so
long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will use commercially reasonable efforts to maintain the listing of its Common
Stock on NASD Bulletin Board and/or the NASDAQ Small Cap Stock Market and/or the
American Stock Exchange.
Section 4.26 OPINION OF COUNSEL. Investor shall receive an opinion letter
from counsel to the Company (updated where applicable) on the date hereof and on
each Advance Date substantially in the form of Exhibit "C".
Section 4.27 OPINION OF COUNSEL. The Company will obtain for the Investor,
at the Company's expense, any and all opinions of counsel which may be
reasonably required in order to sell the securities issuable hereunder without
restriction.
Section 4.28 DILUTION. The Company is aware and acknowledges that issuance
of shares of the Company's Common Stock could cause dilution to existing
shareholders and could significantly increase the outstanding number of shares
of Common Stock.
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ARTICLE V
INDEMNIFICATION
The Investor and the Company represent to the other the following with
respect to itself:
Section 5.1 INDEMNIFICATION. (a) In consideration of the Investor's
execution and delivery of this Agreement, and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Investor(s), and all of their officers,
directors, employees and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Investor Indemnitees") from and against any and all actions,
causes of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Investor Indemnitee is a party to the action for which indemnification hereunder
is sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by the Investor Indemnitees or any of them
as a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in this Agreement
or the Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Investor Indemnitee not arising out of any action
or inaction of an Investor Indemnitee, and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnitees. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Investor's other obligations under this
Agreement, the Investor shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Investor(s) in this Agreement or any instrument or document contemplated hereby
or thereby executed by the Investor, (b) any breach of any covenant, agreement
or obligation of the Investor(s) contained in this Agreement, the Registration
Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby executed by the Investor, or (c) any cause of action, suit or
claim brought or made against such Company Indemnitee based on material
misrepresentations or due to a material breach by the Investor and arising out
of or resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnitees. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.
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ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2 LISTING OF COMMON STOCK. The Company shall maintain the Common
Stock's authorization for quotation on the Nasdaq.
Section 6.3 EXCHANGE ACT REGISTRATION. The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
file in a timely manner all reports and other documents required of it as a
reporting company under the Exchange Act and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules there under
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Exchange Act.
Section 6.4 TRANSFER AGENT INSTRUCTIONS. Upon each Closing and the
effectiveness of the Registration Statement the Company will deliver
instructions to its transfer agent to issue to Investor and deliver to Escrow
Agent shares of Common Stock free of legends.
Section 6.5 CORPORATE EXISTENCE. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.6 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF
RIGHT TO MAKE AN ADVANCE. The Company will immediately notify the Investor upon
its becoming aware of the occurrence of any of the following events in respect
of a registration statement or related prospectus relating to an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other Federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the registration statement or related prospectus; (ii) the issuance by the SEC
or any other Federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus of any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
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stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Advance Notice during the
continuation of any of the foregoing events.
Section 6.7 EXPECTATIONS REGARDING ADVANCE NOTICES. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Advance
Notices. Such notification shall constitute only the Company's good faith
estimate and shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Advance Notices. The failure
by the Company to comply with this provision can be cured by the Company's
notifying the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.
Section 6.8 CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all the assets of the Company to
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.9 ISSUANCE OF THE COMPANY'S COMMON STOCK. The sale of the shares
of Common Stock shall be made in accordance with the provisions and requirements
of Regulation D and any applicable state securities law.
ARTICLE VII
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligation hereunder of the Company to issue and sell the shares of Common Stock
to the Investor incident to each Closing is subject to the satisfaction, or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATION AND WARRANTIES. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time.
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.
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Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER AN
ADVANCE NOTICE AND THE OBLIGATION OF THE INVESTOR TO PURCHASE SHARES OF COMMON
STOCK. The right of the Company to deliver an Advance Notice and the obligation
of the Investor hereunder to acquire and pay for shares of the Company's Common
Stock incident to a Closing is subject to the satisfaction or waiver by the
Investor, on (i) the date of delivery of such Advance Notice and (ii) the
applicable Advance Date (each a "Condition Satisfaction Date"), of each of the
following conditions:
(a) REGISTRATION OF THE COMMON STOCK WITH THE SEC. The Company shall
have filed with the SEC a Registration Statement with respect to the resale of
the Registrable Securities in accordance with the terms of the Registration
Rights Agreement. As set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective on each Condition Satisfaction Date and (i) neither the Company nor
the Investor shall have received notice that the SEC has issued or intends to
issue a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and the Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the effectiveness of
the Registration Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to the first
Advance Notice Date.
(b) AUTHORITY. The Company shall have obtained all permits and
qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions there from. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date.
(d) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
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by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
(f) ADVERSE CHANGES. Since the date of filing of the Company's most
recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The
trading of the Common Stock is not suspended by the SEC or the Principal Market
(if the Common Stock is traded on a Principal Market). The issuance of shares of
Common Stock with respect to the applicable Closing, if any, shall not violate
the shareholder approval requirements of the Principal Market (if the Common
Stock is traded on a Principal market). The Company shall not have received any
notice threatening the continued listing of the Common Stock on the Principal
Market (if the Common Stock is traded on a Principal Market).
(h) MAXIMUM ADVANCE AMOUNT. The amount of the advance requested by
the Company does not exceed the Maximum Advance Amount.
(i) NO KNOWLEDGE. The Company has no knowledge of any event more
likely than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective.
(j) PURCHASE PRICE. The Bid Price on the Advance Notice Date shall
not be less than the Purchase Price.
(k) OTHER. On each Condition Satisfaction Date, the Investor shall
have received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set forth
in this Section 7.2, including, without limitation, a certificate executed by an
executive officer of the Company and to the effect that all the conditions to
such Closing shall have been satisfied as at the date of each such certificate
substantially in the form annexed hereto on Schedule B.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 DUE DILIGENCE REVIEW. Prior to the filing of the Registration
Statement the Company shall make available for inspection and review by the
Investor, advisors to and representatives of the Investor, any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
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connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE IX
CHOICE OF LAW/JURISDICTION
Section 9.1 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. The parties further agree that any action
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between them shall be heard in New York City, New York, and expressly consent to
the jurisdiction and venue of the Supreme Court of New York and the United
States District Court for the Southern District of New York for the adjudication
of any civil action asserted pursuant to this paragraph.
ARTICLE X
ASSIGNMENT; TERMINATION
Section 10.1 ASSIGNMENT. Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person. The provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any transferee
of the Investor. The Investor's interest in this Agreement may be assigned at
any time, in whole or in part, to any other person or entity (including any
affiliate of the Investor) who agrees to make the representations and warranties
contained in Article III and who agrees to be bound by the covenants of Article
V.
Section 10.2 TERMINATION. The obligations of the Investor to make Advances
under Article II hereof shall terminate 30 months after the date hereof.
ARTICLE XI
NOTICES
Section 11.1 NOTICES. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company, to:
EUROPEAN MICRO HOLDINGS, INC.
6073 N.W. 167th Street
Unit C-25
Miami, Fl 33015
Attention: John B. Gallagher
Telephone: (305) 825-2458
Facsimile: (305) 362-4854
with a copy to: Kirkpatrick & Lockhart
201 Biscayne Blvd.
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Suite 2000
Miami, Fl 33131
Attention: Clayton Parker, Esq.
Telephone: (305) 539-3306
Facsimile: (305) 358-7095
If to the Investor(s), to its address and facsimile number on Exhibit A, with
copies to the Investor's counsel as set forth on Exhibit A. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
ARTICLE XII
MISCELLANEOUS
Section 12.1 COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
Section 12.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all
other prior oral or written agreements between the Investor(s), the Company,
their affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
Section 12.3 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 12.4 FEES AND EXPENSES. As set forth in the Placement Agent
Agreement entered into by the Company in connection herewith, the Company has
agreed to pay the following fees:
(a) LEGAL FEES. Each of the parties shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transactions
contemplated hereby, except that the Company will pay the sum of Twenty Five
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Thousand ($25,000) Dollars, to Butler Gonzalez LLP for legal fees. Subsequently
on each Advance Date, the Company will pay Butler Gonzalez LLP the sum of Two
Hundred and Fifty Dollars ($250) Dollars for escrow fees.
(b) PLACEMENT AGENT FEES. On each Advance Date the Company shall pay
the May Davis Group, Inc. an amount equal to seven (7%) percent of the amount of
the Advance. The Company hereby agrees that if such payment, as is described
above, is not made by the Company on the Advance Date, such payment will be made
at the direction of the Investor as outlined and mandated by Section 2.3 of this
Agreement. In the event that Mark Angelo, Joseph Donahue, Hunter Singer, and
Robert Farrell terminate their employment with the May Davis Group, Inc., May
Davis Group, Inc., recognizes and directs the Company to pay the May Davis
Group, Inc., an amount equal to 1.4% of the amount of the Advance and an amount
equal to 5.6% of the amount of the advance to a broker dealer designated by Mark
Angelo, Joseph Donahue, Hunter Singer, and Robert Farrell jointly.
Section 12.5 BROKERAGE. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party, other
than the Placement Agent. The Company on the one hand, and the Investor, on the
other hand, agree to indemnify the other against and hold the other harmless
from any and all liabilities to any person claiming brokerage commissions or
finder's fees on account of services purported to have been rendered on behalf
of the indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 12.6 CONFIDENTIALITY. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Line of Credit
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
COMPANY:
EUROPEAN MICRO HOLDINGS, INC.
By: ________________________________
Name: John B. Gallagher
Title: Co-President
INVESTOR:
SPINNERET FINANCIAL SYSTEM, LTD.
By: ________________________________
Name: Alfred Hahnfeldt
Title:
<PAGE>
APPENDIX "B"
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REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of August 24,
2000, by and among EUROPEAN MICRO HOLDINGS, INC., a Nevada corporation, with its
principal office located at 6073 N.W. 167th Street, Unit C-25 Miami, Fl (the
"COMPANY"), and the undersigned investors (each, an "INVESTOR" and collectively,
the "INVESTORS").
WHEREAS:
A. In connection with the Equity Line of Credit Agreement by and among the
parties hereto of even date herewith (the "CREDIT AGREEMENT"), the Company has
agreed, upon the terms and subject to the conditions of the Credit Agreement, to
issue and sell to the Investors that number of shares of the Company's common
stock, par value $0.01 per share (the "COMMON STOCK"), which can be purchased
pursuant to the terms of the Credit Agreement for an aggregate purchase price of
up to $20,000,000. Capitalized terms not defined herein shall have the meaning
ascribed to them in the Credit Agreement.
B. To induce the Investors to execute and deliver the Credit Agreement,
the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended, and the rules and regulations there under,
or any similar successor statute (collectively, the "1933 ACT"), and applicable
state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investors
hereby agree as follows:
1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means an Investor and any transferee or assignee
thereof to whom an Investor assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
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securities on a continuous or delayed basis ("RULE 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the shares of Common Stock
issuable to Investors pursuant to the Credit Agreement.
e. "REGISTRATION STATEMENT" means a registration statement
under the 1933 Act which covers the Registrable Securities.
2. REGISTRATION.
------------
a. MANDATORY REGISTRATION. The Company shall prepare and file with
the SEC a Registration Statement on Form S-3 covering the resale of all of the
Registrable Securities. In the event that Form S-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration, subject to the provisions of Section 2(d). The Company shall cause
such Registration Statement to be declared effective by the SEC prior to the
first sale to Investors of the Company's Common Stock pursuant to the Credit
Agreement.
b. INELIGIBILITY FOR FORM S-3. In the event that Form S-3 is not
available for the registration of Registrable Securities hereunder, the Company
shall (i) register the sale of the Registrable Securities on another appropriate
form and (ii) undertake to register the Registrable Securities on Form S-3 as
soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
c. SUFFICIENT NUMBER OF SHARES REGISTERED. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities which Investors
have purchased pursuant to the Credit Agreement, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefore, if applicable), or both, so as to cover all of such
Registrable Securities which Investors have purchased pursuant to the Credit
Agreement as soon as practicable, but in any event not later than fifteen (15)
days after the necessity therefore arises. The Company shall use it best efforts
to cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if at any
time the number of Registrable Securities issuable on an Advance Notice Date is
greater than the number of shares available for resale under such Registration
Statement.
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3. RELATED OBLIGATIONS.
-------------------
a. The Company shall keep the Registration Statement effective
pursuant to Rule 415 at all times until the date on which the Investor shall
have sold all the Registrable Securities covered by such Registration Statement
(the "REGISTRATION PERIOD"), which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company's filing a report on Form 10-K, Form 10-Q or Form 8-K or
any analogous report under the Securities Exchange Act of 1934, as amended (the
"1934 ACT"), the Company shall have incorporated such report by reference into
the Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is filed
which created the requirement for the Company to amend or supplement the
Registration Statement.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i) at
least one copy of such Registration Statement as declared effective by the SEC
and any amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, all exhibits and each preliminary
prospectus, (ii) ten (10) copies of the final prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents as such Investor may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities owned by such Investor.
d. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as any Investor reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
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qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its certificate of incorporation or by-laws,
(x) qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify each
Investor who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.
e. As promptly as practicable after becoming aware of such event or
development, the Company shall notify each Investor in writing of the happening
of any event as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (provided that in no event shall such notice contain any
material, nonpublic information), and promptly prepare a supplement or amendment
to such Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such supplement or amendment to each Investor. The
Company shall also promptly notify each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to each
Investor by facsimile on the same day of such effectiveness), (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.
f. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction within the United States of America and, if such an
order or suspension is issued, to obtain the withdrawal of such order or
suspension at the earliest possible moment and to notify each Investor who holds
Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
g. At the reasonable request of any Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the Investors.
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h. The Company shall make available for inspection by (i) any
Investor and (ii) one firm of accountants or other agents retained by the
Investors (collectively, the "INSPECTORS") all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the "RECORDS"), as shall be reasonably deemed necessary by each
Inspector, and cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree, and each Investor hereby agrees, to hold in
strict confidence and shall not make any disclosure (except to an Investor) or
use of any Record or other information which the Company determines in good
faith to be confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required under the 1933 Act, (b) the release of such Records is ordered pursuant
to a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector and the Investor has knowledge.
Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential.
i. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
j. The Company shall use its best efforts either to cause all the
Registrable Securities covered by a Registration Statement (i) to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market or The Nasdaq SmallCap
Market or, if, despite the Company's best efforts to satisfy the preceding
clause (i) or (ii), the Company is unsuccessful in satisfying the preceding
clause (i) or (ii), to secure the inclusion for quotation on the National
Association of Securities Dealers, Inc. OTC Bulletin Board for such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(j).
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<PAGE>
k. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.
l. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
m. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
n. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
o. Within two (2) business days after a Registration Statement which
covers Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as EXHIBIT A.
p. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
----------------------------
Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
the first sentence of 3(e), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(e) or
receipt of notice that no supplement or amendment is required. Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to deliver
unlegended certificates for shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Credit Agreement in connection with
any sale of Registrable Securities with respect to which an Investor has entered
into a contract for sale prior to the Investor's receipt of a notice from the
Company of the happening of any event of the kind described in Section 3(f) or
the first sentence of 3(e) and for which the Investor has not yet settled.
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5. EXPENSES OF REGISTRATION.
------------------------
All expenses incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company.
6. INDEMNIFICATION.
---------------
With respect to Registrable Securities which are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act or the 1934
Act (each, an "INDEMNIFIED PERSON"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys'
fees, amounts paid in settlement or expenses, joint or several (collectively,
"CLAIMS") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("BLUE SKY FILING"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue statement of
a material fact contained in any final prospectus (as amended or supplemented,
if the Company files any amendment thereof or supplement thereto with the SEC)
or the omission or alleged omission to state therein any material fact necessary
to make the statements made therein, in light of the circumstances under which
the statements therein were made, not misleading; or (iii) any violation or
alleged violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation there under relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "VIOLATIONS"). The Company shall
reimburse the Investors and each such controlling person promptly as such
expenses are incurred and are due and payable, for any legal fees or
disbursements or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
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<PAGE>
with information furnished in writing to the Company by such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto; (y) shall not be
available to the extent such Claim is based on a failure of the Investor to
deliver or to cause to be delivered the prospectus made available by the
Company, if such prospectus was timely made available by the Company pursuant to
Section 3(d); and (z) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with a Registration Statement, each Investor agrees
to severally and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration Statement and
each Person, if any, who controls the Company within the meaning of the 1933 Act
or the 1934 Act (each an "INDEMNIFIED Party"), against any Claim or Indemnified
Damages to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or
is based upon any Violation, in each case to the extent, and only to the extent,
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and, subject to Section 6(d), such
Investor will reimburse any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and the agreement
with respect to contribution contained in Section 7 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any prospectus shall not inure to
the benefit of any Indemnified Party if the untrue statement or omission of
material fact contained in the prospectus was corrected and such new prospectus
was delivered to each Investor prior to such Investor's use of the prospectus to
which the Claim relates.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
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<PAGE>
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
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<PAGE>
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
--------------------------
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("RULE 144") the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Credit Agreement) and the filing of such reports and other documents is required
for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
B-10
<PAGE>
9. ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; and (iv)
such transfer shall have been made in accordance with the applicable
requirements of the Credit Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to fewer than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
11. MISCELLANEOUS.
-------------
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
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EUROPEAN MICRO HOLDINGS, INC.
6073 N.W. 167th Street
Unit C-25
Miami, Fl 33015
Telephone: (305) 825-2458
Facsimile: (305) 362-4854
Attention: John B. Gallagher
If to an Investor, to its address and facsimile number on the Schedule of
Investors attached hereto, with copies to such Investor's representatives as set
forth on the Schedule of Investors or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. The corporate laws of the State of Nevada shall govern all issues
concerning the relative rights of the Company and the Investors as its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, Borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
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<PAGE>
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
e. This Agreement, the Credit Agreement and the Escrow Agreement
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Credit Agreement and the Escrow Agreement supersede
all prior agreements and understandings among the parties hereto with respect to
the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
EUROPEAN MICRO HOLDINGS, INC.
By: ____________________________________
Name: John B. Gallagher
Title: Co-President
SPINNERET FINANCIAL SYSTEM, LTD.
By: ____________________________________
Name: Alfred Hahnfeldt
Title:
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<PAGE>
SCHEDULE OF INVESTORS
INVESTOR'S REPRESENTATIVES'
INVESTOR ADDRESS ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER
--------------------------------------------------------------------------------
Spinneret Financial 578 Post Road East 578 Post Road East
System, Ltd. Suite 637 Suite 637
Westport, CT 06880 Westport, CT 06880
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<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
ATTN:________________
Re: EUROPEAN MICRO HOLDINGS, INC.
-----------------------------
Ladies and Gentlemen:
We are counsel to European Micro Holdings, Inc., a Nevada corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Equity Line of Credit Agreement (the "CREDIT AGREEMENT") entered into by and
among the Company and the investors named therein (collectively, the
"INVESTORS") pursuant to which the Company issued to the Investors shares of its
Common Stock, par value $0.01 per share (the "COMMON STOCK"). Pursuant to the
Credit Agreement, the Company also has entered into a Registration Rights
Agreement with the Investors (the "REGISTRATION RIGHTS AGREEMENT") pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement) under the
Securities Act of 1933, as amended (the "1933 ACT"). In connection with the
Company's obligations under the Registration Rights Agreement, on ____________
____, the Company filed a Registration Statement on Form ________ (File No.
333-_____________) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Investors as a selling stockholder there under.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
---------------------------------
cc: [LIST NAMES OF INVESTORS]
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APPENDIX "C"
FORM OF CLASS A WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
EUROPEAN MICRO HOLDINGS, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 001 Number of Shares: 500,000
Date of Issuance: August 24, 2000
European Micro Holdings, Inc., a Nevada corporation (the "COMPANY"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, May Davis Group, Inc., the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M. Eastern Time on the
Expiration Date (as defined herein) Five Hundred Thousand (500,000) fully paid
and nonassessable shares of Common Stock (as defined herein) of the Company (the
"WARRANT SHARES") at the purchase price per share provided in Section 1(b)
below; provided, however, that in no event shall the holder be entitled to
exercise this Warrant for a number of Warrant Shares in excess of that number of
Warrant Shares which, upon giving effect to such exercise, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such exercise, except within 60 days of the Expiration Date. For
purposes of the foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon exercise of this Warrant with
respect to which the determination of such proviso is being made, but shall
exclude shares of Common Stock which would be issuable upon (i) exercise of the
remaining, unexercised Warrants beneficially owned by the holder and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by the holder
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and its affiliates (including, without limitation, any convertible notes or
preferred stock) subject to a limitation on conversion or exercise analogous to
the limitation contained herein. Except as set forth in the preceding sentence,
for purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Warrant, in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company's most recent Form 10-Q or Form
10-K, as the case may be, (2) a more recent public announcement by the Company
or (3) any other notice by the Company or its transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written request of any
holder, the Company shall promptly, but in no event later than one (1) Business
Day following the receipt of such notice, confirm in writing to any such holder
the number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
the exercise of Warrants (as defined below) by such holder and its affiliates
since the date as of which such number of outstanding shares of Common Stock was
reported.
Section 1.
(a) PLACEMENT AGENT AGREEMENT. This Warrant is one of the common
stock purchase warrants (the "WARRANTS") issued pursuant to the Placement Agent
Agreement dated as of August 24, 2000 between the Company and May Davis Group,
Inc. (the "PLACEMENT AGENT AGREEMENT").
(b) DEFINITIONS. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "APPROVED STOCK PLAN" means any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer or
director for services provided to the Company.
(ii) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.
(iii) "CLOSING BID PRICE" means the closing bid price of
Common Stock as quoted on the Principal Market (as reported by Bloomberg
Financial Markets ("BLOOMBERG") through its "Volume at Price" function).
(iv) "COMMON STOCK" means (i) the Company's common stock, par
value $0.01 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(v) "CREDIT AGREEMENT" means the Equity Line of Credit
Agreement dated as of August 24, 2000 between the Company and the Investor named
therein for the purchase of Common Stock by the Investor.
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(vi) "EXCLUDED SECURITIES" means, provided such security is
issued at a price which is greater than or equal to the arithmetic average of
the Closing Bid Prices of the Common Stock for the ten (10) consecutive trading
days immediately preceding the date of issuance, any of the following: (a) any
issuance by the Company of securities in connection with a strategic partnership
or a joint venture (the primary purpose of which is not to raise equity
capital), (b) any issuance by the Company of securities as consideration for a
merger or consolidation or the acquisition of a business, product, license, or
other assets of another person or entity and (c) options to purchase shares of
Common Stock, provided (I) such options are issued after the date of this
Warrant to employees of the Company within 30 days of such employee's starting
his employment with the Company, and (II) the exercise price of such options is
not less than the CLOSING BID PRICE of the Common Stock on the date of issuance
of such option.
(vii) "EXPIRATION DATE" means the date five (5) years from the
Issuance Date of this Warrant or, if such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in the City of
New York or the State of New York or on which trading does not take place on the
Principal Exchange or automated quotation system on which the Common Stock is
traded (a "HOLIDAY"), the next date that is not a Holiday.
(viii) "ISSUANCE DATE" means the date hereof.
(ix) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(x) "OTHER SECURITIES" means (i) those options and warrants of
the Company issued prior to, and outstanding on, the Issuance Date of this
Warrant, (ii) the shares of Common Stock issuable on exercise of such options
and warrants, provided such options and warrants are not amended after the
Issuance Date of this Warrant and (iii) the shares of Common Stock issuabale
upon exercise of this Warrant.
(xi) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xii) "PRINCIPAL MARKET" means the New York Stock Exchange,
the American Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap
Market, whichever is at the time the principal trading exchange or market for
such security, or the over-the-counter market on the electronic bulletin board
for such security as reported by BLOOMBERG or, if no bid or sale information is
reported for such security by BLOOMBERG, then the average of the bid prices of
each of the market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc.
(xiii) "REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement dated as of August 24, 2000 between the Company and May Davis
with respect to the registration rights pertaining to the Common Stock issuable
upon exercise of this Warrant.
(xiv) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
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(xv) "WARRANT" means this Warrant and all Warrants issued in
exchange, transfer or replacement thereof.
(xvi) "WARRANT EXERCISE PRICE" shall be $7.00.
(xvii) "WARRANT SHARES" means the shares of Common Stock
issuable at any time upon exercise of this Warrant.
(c) OTHER DEFINITIONAL PROVISIONS.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's successors
and (B) to any applicable law defined or referred to herein shall be deemed
references to such applicable law as the same may have been or may be amended
or supplemented from time to time.
(ii) When used in this Warrant, the words "HEREIN", "HEREOF",
and "HEREUNDER" and words of similar import, shall refer to this Warrant as a
whole and not to any provision of this Warrant, and the words "SECTION",
"SCHEDULE", and "EXHIBIT" shall refer to Sections of, and Schedules and
Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the
plural, and vice versa.
Section 2. EXERCISE OF WARRANT.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, pro
rata as hereinafter provided, at any time on any Business Day on or after the
opening of business on such Business Day, commencing with the first Advance
Date, and prior to 11:59 P.M. Eastern Time on the Expiration Date, by (i)
delivery of a written notice, in the form of the subscription notice attached
as EXHIBIT A hereto (the "EXERCISE NOTICE"), of such holder's election to
exercise this Warrant, which notice shall specify the number of Warrant Shares
to be purchased, (ii) (A) payment to the Company of an amount equal to the
Warrant Exercise Price(s) applicable to the Warrant Shares being purchased,
multiplied by the number of Warrant Shares (at the applicable Warrant Exercise
Price) as to which this Warrant is being exercised (plus any applicable issue
or transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash or wire transfer of
immediately available funds or (B) notification to the Company that this
Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 2(f)) and (iii) the surrender of this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) to a common carrier for overnight delivery to the Company as soon
as practicable following such date. In the event of any exercise of the rights
represented by this Warrant in compliance with this Section 2(a), the Company
shall on the second Business Day following the date of receipt of the Exercise
Notice, the Aggregate Exercise Price (or notice of a Cashless Exercise) and
this Warrant (or an indemnification undertaking with respect to this Warrant in
the case of its loss, theft or destruction) and, except for a Cashless
Exercise, the receipt of the representations of the holder specified in Section
6 hereof, if requested by the Company. (the "EXERCISE DELIVERY DOCUMENTS"),
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credit such aggregate number of shares of Common Stock to which the holder
shall be entitled to the holder's or its designee's balance account with The
Depository Trust Company; provided, however, if the holder who submitted the
Exercise Notice requested physical delivery of any or all of the Warrant
Shares, then the Company shall, on or before the second Business Day following
receipt of the Exercise Delivery Documents, issue and surrender to a common
carrier for overnight delivery to the address specified in the Exercise Notice,
a certificate, registered in the name of the holder, for the number of shares
of Common Stock to which the holder shall be entitled pursuant to such request.
Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to
in clause (ii)(A) above or notification to the Company of a Cashless Exercise
referred to in Section 2(e), the holder of this Warrant shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised. In the case of a dispute
as to the determination of the Warrant Exercise Price, the Closing Bid Price or
the arithmetic calculation of the Warrant Shares, the Company shall promptly
issue to the holder the number of Warrant Shares that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one (1) Business Day of receipt of the holder's Exercise
Notice. If the holder and the Company are unable to agree upon the
determination of the Warrant Exercise Price or arithmetic calculation of the
Warrant Shares within one (1) day of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall immediately
submit via facsimile (i) the disputed determination of the Warrant Exercise
Price or the Closing Bid Price to an independent, reputable investment banking
firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its
independent, outside accountant The Company shall cause the investment banking
firm or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no later than
forty-eight (48) hours from the time it receives the disputed determinations or
calculations. Such investment banking firm's or accountant's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five (5) Business Days after any
exercise and at its own expense, issue a new Warrant identical in all respects
to this Warrant exercised except it shall represent rights to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
this Warrant exercised, less the number of Warrant Shares with respect to which
such Warrant is exercised.
(c) No fractional Warrant Shares are to be issued upon any pro rata
exercise of this Warrant, but rather the number of Warrant Shares issued upon
such exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(d) If the Company or its Transfer Agent shall fail for any reason
or for no reason to issue to the holder within ten (10) Business Days of
receipt of the Exercise Delivery Documents, a certificate for the number of
Warrant Shares to which the holder is entitled or to credit the holder's
balance account with The Depository Trust Company for such number of Warrant
Shares to which the holder is entitled upon the holder's exercise of this
Warrant, the Company shall, in addition to any other remedies under this
Warrant or the Placement Agent Agreement or otherwise available to such holder,
pay as additional damages in cash to such holder on each day the issuance of
such certificate for Warrant Shares is not timely effected an amount equal to
0.5% of the product of (A) the sum of the number of Warrant Shares not issued
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to the holder on a timely basis and to which the holder is entitled, and (B)
the Closing Bid Price of the Common Stock for the trading day immediately
preceding the last possible date which the Company could have issued such
Common Stock to the holder without violating this Section 2.
(e) If within ten (10) Business Days after the Companys receipt of
the Exercise Delivery Documents, the Company fails to deliver a new Warrant to
the holder for the number of Warrant Shares to which such holder is entitled
pursuant to Section 2(b) hereof, then, in addition to any other available
remedies under this Warrant or the Placement Agent Agreement, or otherwise
available to such holder, the Company shall pay as additional damages in cash
to such holder on each day after such tenth (10th) Business Day that such
delivery of such new Warrant is not timely effected in an amount equal to 0.25%
of the product of (A) the number of Warrant Shares represented by the portion
of this Warrant which is not being exercised and (B) the Closing Bid Price of
the Common Stock for the trading day immediately preceding the last possible
date which the Company could have issued such Warrant to the holder without
violating this Section 2.
(f) If the Warrant Shares are not covered by an effective
registration statement for the resale of the Warrant Shares, the holder of this
Warrant may, at its election exercised in its sole discretion, exercise this
Warrant to the extent then exercisable, in lieu of making payment of the
Aggregate Exercise Price in cash, elect instead to receive upon such exercise
the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
Net Number = (A X B) - (A X C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of Warrant Shares with respect to which
this Warrant is then being exercised.
B= the Closing Bid Price of the Common Stock on the date of
exercise of the Warrant.
C= the Warrant Exercise Price then in effect for the
applicable Warrant Shares at the time of such exercise.
Section 3. COVENANTS AS TO COMMON STOCK. The Company hereby covenants
and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
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(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly file a registration statement with
the Securities and Exchange Commission to secure the listing of the Warrant
Shares on the Principal Market in accordance with the terms and conditions
regarding the registration rights of holders of Warrants set forth in the
Registration Rights Agreement and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Warrant Shares from time to
time issuable upon the exercise of this Warrant; and the Company shall so list
on each national securities exchange or automated quotation system, as the case
may be, and shall maintain such listing of, any other shares of capital stock of
the Company issuable upon the exercise of this Warrant if and so long as any
shares of the same class shall be listed on such national securities exchange or
automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. The Company will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant
Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
(f) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.
Section 4. TAXES. The Company shall pay any and all taxes, except any
applicable withholding, which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.
Section 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
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nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
Section 6. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of this
Warrant, other than pursuant to a Cashless Exercise, the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of this Warrant, other than pursuant to a Cashless Exercise, that the
Company receive such other representations as the Company considers reasonably
necessary to assure the Company that the issuance of its securities upon
exercise of this Warrant shall not violate any United States or state securities
laws.
Section 7. OWNERSHIP AND TRANSFER.
(a) The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
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Section 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES. The
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. If and whenever on or after the Issuance Date of this
Warrant, the Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock (other than (i) Excluded Securities and (ii) shares of
Common Stock which are issued or deemed to have been issued by the Company in
connection with an Approved Stock Plan or upon exercise or conversion of the
Other Securities) for a consideration per share less than a price (the
"APPLICABLE PRICE") equal to the Warrant Exercise Price in effect immediately
prior to such issuance or sale, then immediately after such issue or sale the
Warrant Exercise Price then in effect shall be reduced to an amount equal to
such consideration per share. Upon each such adjustment of the Warrant Exercise
Price hereunder, the number of Warrant Shares issuable upon exercise of this
Warrant shall be adjusted to the number of shares determined by multiplying the
Warrant Exercise Price in effect immediately prior to such adjustment by the
number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:
(i) ISSUANCE OF OPTIONS. If after the date hereof, the Company
in any manner grants any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share. For purposes of this Section 8(b)(i), the lowest price per share for
which one share of Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon the granting or
sale of the Option, upon exercise of the Option or upon conversion or exchange
of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon the conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
shall be equal to the sum of the lowest amounts of consideration (if any)
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received or receivable by the Company with respect to one share of Common Stock
upon the issuance or sale of the Convertible Security and upon conversion or
exchange of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
(iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of Warrant Shares issuable upon
exercise of this Warrant shall be correspondingly readjusted. For purposes of
this Section 8(b)(iii), if the terms of any Option or Convertible Security that
was outstanding as of the Issuance Date of this Warrant are changed in the
manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment pursuant to this Section 8(b) shall be made
if such adjustment would result in an increase of the Warrant Exercise Price
then in effect.
(c) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Warrant Exercise Price under Sections
8(a) and 8(b), the following shall be applicable:
(i) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefore will be
deemed to be the net amount received by the Company therefore. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of marketable securities, in which case the amount of consideration
received by the Company will be the Market Price of such securities on the date
of receipt of such securities. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefore will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the holders of Warrants representing at least
two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then
outstanding. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "VALUATION EVENT"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day following the Valuation Event by an independent,
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reputable appraiser jointly selected by the Company and the holders of Warrants
representing at least two-thirds (b) of the Warrant Shares issuable upon
exercise of the Warrants then outstanding. The determination of such appraiser
shall be final and binding upon all parties and the fees and expenses of such
appraiser shall be borne jointly by the Company and the holders of Warrants.
(ii) INTEGRATED TRANSACTIONS. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01.
(iii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company, and the disposition of any shares so owned or held
will be considered an issue or sale of Common Stock.
(iv) RECORD DATE. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(d) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, any Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of Warrant
Shares issuable upon exercise of this Warrant will be proportionately decreased.
Any adjustment under this Section 8(d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a "DISTRIBUTION"), at any time
after the issuance of this Warrant, then, in each such case:
(i) any Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
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<PAGE>
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing Sale Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Sale Price
of the Common Stock on the trading day immediately preceding such record date;
and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
(f) CERTAIN EVENTS. If any event occurs of the type contemplated by
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment pursuant to this Section 8(f) will increase the
Warrant Exercise Price or decrease the number of shares of Common Stock
obtainable as otherwise determined pursuant to this Section 8.
(g) NOTICES.
(i) Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
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<PAGE>
(iii) The Company will also give written notice to the holder
of this Warrant at least ten (10) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION,
MERGER OR SALE.
(a) In addition to any adjustments pursuant to Section 8 above, if
at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock (the "PURCHASE
RIGHTS"), then the holder of this Warrant will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction in each case which is effected in such a
way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "ORGANIC CHANGE". Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "ACQUIRING ENTITY") a written agreement (in form and substance
satisfactory to the holders of Warrants representing at least two-thirds (iii)
of the Warrant Shares issuable upon exercise of the Warrants then outstanding)
to deliver to each holder of Warrants in exchange for such Warrants, a security
of the Acquiring Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant and satisfactory to the holders of the
Warrants (including an adjusted warrant exercise price equal to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable
and receivable upon exercise of the Warrants without regard to any limitations
on exercise, if the value so reflected is less than any Applicable Warrant
Exercise Price immediately prior to such consolidation, merger or sale). Prior
to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of
Warrants representing a majority of the Warrant Shares issuable upon exercise of
the Warrants then outstanding) to insure that each of the holders of the
Warrants will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the Warrant Shares immediately theretofore
issuable and receivable upon the exercise of such holder's Warrants (without
regard to any limitations on exercise), such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of Warrant Shares which would have been
issuable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exercisability of this Warrant).
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Section 10. FORCED CONVERSION. The Company shall have the
right to force conversion provided that the Closing Bid Price of the
Company's Common Stock is $10.00 or higher per share for ten (10) consecutive
trading days.
Section 11. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt
of an indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.
Section 12. NOTICE. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of receipt is received by the sending party transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to the Holder:
May Davis Group, Inc.
1 World Trade Center, Suite 8735
New York, NY 10048
Telephone: (212) 775-7400
Facsimile: (212) 775-8166
Attention: Michael Jacobs
With Copy to:
Butler Gonzalez LLP
1000 Stuyvesant Avenue
Suite # 6
Union, NJ 07083
Telephone: (908) 810-8588
Facsimile: (908) 810-0873
Attention: David Gonzalez, Esq.
If to the Company:
European Micro Holdings, Inc.
6073 N.W. 167th Street
Unit C-25
Miami, Fl 33015
Telephone: (305) 825-2458
Facsimile: (305) 362-4854
Attention: John B. Gallagher, Co-President
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<PAGE>
With a copy to:
Kirkpatrick & Lockhart
201 Biscayne Blvd.
Suite 2000
Miami, Fl 33131
Attention: Clayton Parker, Esq.
Telephone: (305) 539-3306
Facsimile: (305) 358-7095
If to a holder of this Warrant, to it at the address and facsimile number set
forth in the Credit Agreement, with copies to such holder's representatives as
set forth in such Credit Agreement, or at such other address and facsimile as
shall be delivered to the Company upon the issuance or transfer of this Warrant.
Each party shall provide five days' prior written notice to the other party of
any change in address or facsimile number. Written confirmation of receipt (A)
given by the recipient of such notice, consent, facsimile ,waiver or other
communication, (or (B) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 13. DATE. The date of this Warrant is August 24_, 2000. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 8(b) shall continue in full force
and effect after such date as to any Warrant Shares or other securities issued
upon the exercise of this Warrant.
Section 14. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of
Warrants representing at least two-thirds of the Warrant Shares issuable upon
exercise of the Warrants then outstanding; provided that no such action may
increase the Warrant Exercise Price or decrease the number of shares or class of
stock obtainable upon exercise of any Warrant without the written consent of the
holder of such Warrant.
Section 15. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York, or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
John B. Gallagher, its Co-President, as of the 24th day of August, 2000.
EUROPEAN MICRO HOLDINGS, INC.
By: ______________________________
Name: John B. Gallagher
Title: Co-President
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<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
EUROPEAN MICRO HOLDINGS, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of European
Micro Holdings, Inc., a Nevada corporation (the "COMPANY"), evidenced by the
attached Warrant (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
____________ a "CASH EXERCISE" with respect to
_________________ Warrant Shares; and/or
____________ a "CASHLESS EXERCISE" with respect to
_______________ Warrant Shares (to the extent
permitted by the terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the
holder __________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
Name of Registered Holder
By:
------------------------
Name:
Title:
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<PAGE>
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of European Micro Holdings, Inc., a
Nevada corporation, represented by warrant certificate no. _____, standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint ______________, attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.
Dated: _________, ____
------------------------------------
By: _____________________________
Its: _____________________________
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APPENDIX "D"
FORM OF CLASS B WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
EUROPEAN MICRO HOLDINGS, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 001 Number of Shares: 500,000
Date of Issuance: August 24, 2000
European Micro Holdings, Inc., a Nevada corporation (the "COMPANY"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, May Davis Group, Inc., the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M. Eastern Time on the
Expiration Date (as defined herein) Five Hundred Thousand (500,000) fully paid
and nonassessable shares of Common Stock (as defined herein) of the Company (the
"WARRANT SHARES") at the purchase price per share provided in Section 1(b)
below; provided, however, that in no event shall the holder be entitled to
exercise this Warrant for a number of Warrant Shares in excess of that number of
Warrant Shares which, upon giving effect to such exercise, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such exercise, except within 60 days of the Expiration Date. For
purposes of the foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon exercise of this Warrant with
respect to which the determination of such proviso is being made, but shall
exclude shares of Common Stock which would be issuable upon (i) exercise of the
remaining, unexercised Warrants beneficially owned by the holder and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by the holder
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<PAGE>
and its affiliates (including, without limitation, any convertible notes or
preferred stock) subject to a limitation on conversion or exercise analogous to
the limitation contained herein. Except as set forth in the preceding sentence,
for purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Warrant, in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company's most recent Form 10-Q or Form
10-K, as the case may be, (2) a more recent public announcement by the Company
or (3) any other notice by the Company or its transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written request of any
holder, the Company shall promptly, but in no event later than one (1) Business
Day following the receipt of such notice, confirm in writing to any such holder
the number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
the exercise of Warrants (as defined below) by such holder and its affiliates
since the date as of which such number of outstanding shares of Common Stock was
reported.
Section 1.
(a) PLACEMENT AGENT AGREEMENT. This Warrant is one of the common
stock purchase warrants (the "WARRANTS") issued pursuant to the Placement Agent
Agreement dated as of August 24, 2000 between the Company and May Davis Group,
Inc. (the "PLACEMENT AGENT AGREEMENT").
(b) DEFINITIONS. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "ADVANCE" means the amount of funds payable by the
Investor to the Company on any Advance Date for the purchase of Common Stock
pursuant to the Credit Agreement.
(ii) "ADVANCE DATE" means each date on which the Investor
makes payment of an Advance to the Company pursuant to the Credit Agreement.
(iii) "ADVANCE NOTICE DATE" means each date on which the
Company delivers to the Investor a notice requiring the Investor to make payment
of an Advance to the Company pursuant to the Credit Agreement.
(iv) "APPROVED STOCK PLAN" means any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer or
director for services provided to the Company.
(v) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.
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<PAGE>
(vi) "CLOSING BID PRICE" means the closing bid price of Common
Stock as quoted on the Principal Market (as reported by Bloomberg Financial
Markets ("BLOOMBERG") through its "Volume at Price" function).
(vii) "COMMON STOCK" means (i) the Company's common stock, par
value $0.01 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(viii) "CREDIT AGREEMENT" means the Equity Line of Credit
Agreement dated as of August 24, 2000 between the Company and the Investor named
therein for the purchase of Common Stock by the Investor.
(ix) "EXCLUDED SECURITIES" means, provided such security is
issued at a price which is greater than or equal to the arithmetic average of
the Closing Bid Prices of the Common Stock for the ten (10) consecutive trading
days immediately preceding the date of issuance, any of the following: (a) any
issuance by the Company of securities in connection with a strategic partnership
or a joint venture (the primary purpose of which is not to raise equity
capital), (b) any issuance by the Company of securities as consideration for a
merger or consolidation or the acquisition of a business, product, license, or
other assets of another person or entity and (c) options to purchase shares of
Common Stock, provided (I) such options are issued after the date of this
Warrant to employees of the Company within 30 days of such employee's starting
his employment with the Company, and (II) the exercise price of such options is
not less than the CLOSING BID PRICE of the Common Stock on the date of issuance
of such option.
(x) "EXPIRATION DATE" means the date five (5) years from the
Issuance Date of this Warrant or, if such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in the City of
New York or the State of New York or on which trading does not take place on the
Principal Exchange or automated quotation system on which the Common Stock is
traded (a "HOLIDAY"), the next date that is not a Holiday.
(xi) "ISSUANCE DATE" means the date hereof.
(xii) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xiii) "OTHER SECURITIES" means (i) those options and warrants
of the Company issued prior to, and outstanding on, the Issuance Date of this
Warrant, (ii) the shares of Common Stock issuable on exercise of such options
and warrants, provided such options and warrants are not amended after the
Issuance Date of this Warrant and (iii) the shares of Common Stock issuabale
upon exercise of this Warrant.
(xiv) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xv) "PRINCIPAL MARKET" means the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
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<PAGE>
whichever is at the time the principal trading exchange or market for such
security, or the over-the-counter market on the electronic bulletin board for
such security as reported by BLOOMBERG or, if no bid or sale information is
reported for such security by BLOOMBERG, then the average of the bid prices of
each of the market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc.
(xvi) "REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement dated as of August 24, 2000 between the Company and May Davis
with respect to the registration rights pertaining to the Common Stock issuable
upon exercise of this Warrant.
(xvii) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(xviii) "WARRANT" means this Warrant and all Warrants issued
in exchange, transfer or replacement thereof.
(xvix) "WARRANT EXERCISE PRICE" shall be $10.00 with respect
to that number of Warrant Shares the holder is entitled to purchase on or after
the Advance Date specified in the Advance Notice Date, as determined pursuant
to Section 2(b) below.
(xx) "WARRANT SHARES" means the shares of Common Stock
issuable at any time upon exercise of this Warrant.
(c) OTHER DEFINITIONAL PROVISIONS.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's successors
and (B) to any applicable law defined or referred to herein shall be deemed
references to such applicable law as the same may have been or may be amended
or supplemented from time to time.
(ii) When used in this Warrant, the words "HEREIN", "HEREOF",
and "HEREUNDER", and words of similar import, shall refer to this Warrant as a
whole and not to any provision of this Warrant, and the words "SECTION",
"SCHEDULE", and "EXHIBIT" shall refer to Sections of, and Schedules and
Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the
plural, and vice versa.
Section 2. EXERCISE OF WARRANT.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, pro
rata as hereinafter provided, at any time on any Business Day on or after the
opening of business on such Business Day, commencing with the first Advance
Date, and prior to 11:59 P.M. Eastern Time on the Expiration Date, by (i)
delivery of a written notice, in the form of the subscription notice attached
as EXHIBIT A hereto (the "EXERCISE NOTICE"), of such holder's election to
exercise this Warrant, which notice shall specify the number of Warrant Shares
to be purchased, (ii) (A) payment to the Company of an amount equal to the
Warrant Exercise Price(s) applicable to the Warrant Shares being purchased,
multiplied by the number of Warrant Shares (at the applicable Warrant Exercise
D-4
<PAGE>
Price) as to which this Warrant is being exercised (plus any applicable issue
or transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash or wire transfer of
immediately available funds or (B) notification to the Company that this
Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 2(f)) and (iii) the surrender of this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) to a common carrier for overnight delivery to the Company as soon
as practicable following such date. In the event of any exercise of the rights
represented by this Warrant in compliance with this Section 2(a), the Company
shall on the second Business Day following the date of receipt of the Exercise
Notice, the Aggregate Exercise Price (or notice of a Cashless Exercise) and
this Warrant (or an indemnification undertaking with respect to this Warrant in
the case of its loss, theft or destruction) and, except for a Cashless
Exercise, the receipt of the representations of the holder specified in Section
6 hereof, if requested by the Company. (the "EXERCISE DELIVERY DOCUMENTS"),
credit such aggregate number of shares of Common Stock to which the holder
shall be entitled to the holder's or its designee's balance account with The
Depository Trust Company; provided, however, if the holder who submitted the
Exercise Notice requested physical delivery of any or all of the Warrant
Shares, then the Company shall, on or before the second Business Day following
receipt of the Exercise Delivery Documents, issue and surrender to a common
carrier for overnight delivery to the address specified in the Exercise Notice,
a certificate, registered in the name of the holder, for the number of shares
of Common Stock to which the holder shall be entitled pursuant to such request.
Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to
in clause (ii)(A) above or notification to the Company of a Cashless Exercise
referred to in Section 2(e), the holder of this Warrant shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised,. In the case of a
dispute as to the determination of the Warrant Exercise Price, the Closing Bid
Price or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the holder the number of Warrant Shares that is not disputed
and shall submit the disputed determinations or arithmetic calculations to the
holder via facsimile within one (1) Business Day of receipt of the holder's
Exercise Notice. If the holder and the Company are unable to agree upon the
determination of the Warrant Exercise Price or arithmetic calculation of the
Warrant Shares within one (1) day of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall immediately
submit via facsimile (i) the disputed determination of the Warrant Exercise
Price or the Closing Bid Price to an independent, reputable investment banking
firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its
independent, outside accountant The Company shall cause the investment banking
firm or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no later than
forty-eight (48) hours from the time it receives the disputed determinations or
calculations. Such investment banking firm's or accountant's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.
(b) This Warrant shall be exercisable pro rata on or after each
Advance Date with respect to that number of Warrant Shares equal to the product
obtained by multiplying 500,000 by a fraction, the numerator of which is the
amount of the Advance payable on the applicable Advance Date and the
denominator of which is $20,000,000. Warrant Shares which become eligible for
purchase on any Advance Date with respect to which this Warrant remains
unexercised may be purchased on any subsequent Business Day for the applicable
Warrant Exercise Price in accordance with the provisions of Section 2(a).
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(c) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five (5) Business Days after any
exercise and at its own expense, issue a new Warrant identical in all respects
to this Warrant exercised except it shall represent rights to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
this Warrant exercised, less the number of Warrant Shares with respect to which
such Warrant is exercised. The holder shall have the right to exchange this
Warrant for a new warrant or warrants, at any time, such that one warrant
represents the portion of this Warrant that is present exercisable and the
other warrant represents the unexercisable portion of this Warrant as described
in Section 2(b).
(d) No fractional Warrant Shares are to be issued upon any pro rata
exercise of this Warrant, but rather the number of Warrant Shares issued upon
such exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(e) If the Company or its Transfer Agent shall fail for any reason
or for no reason to issue to the holder within ten (10) Business Days of
receipt of the Exercise Delivery Documents, a certificate for the number of
Warrant Shares to which the holder is entitled or to credit the holder's
balance account with The Depository Trust Company for such number of Warrant
Shares to which the holder is entitled upon the holder's exercise of this
Warrant, the Company shall, in addition to any other remedies under this
Warrant or the Placement Agent Agreement or otherwise available to such holder,
pay as additional damages in cash to such holder on each day the issuance of
such certificate for Warrant Shares is not timely effected an amount equal to
0.5% of the product of (A) the sum of the number of Warrant Shares not issued
to the holder on a timely basis and to which the holder is entitled, and (B)
the Closing Bid Price of the Common Stock for the trading day immediately
preceding the last possible date which the Company could have issued such
Common Stock to the holder without violating this Section 2.
(f) If within ten (10 ) Business Days after the Companys receipt of
the Exercise Delivery Documents, the Company fails to deliver a new Warrant to
the holder for the number of Warrant Shares to which such holder is entitled
pursuant to Sections 2(b) and 2(c) hereof, then, in addition to any other
available remedies under this Warrant or the Placement Agent Agreement, or
otherwise available to such holder, the Company shall pay as additional damages
in cash to such holder on each day after such tenth (10th ) Business Day that
such delivery of such new Warrant is not timely effected in an amount equal to
0.25% of the product of (A) the number of Warrant Shares represented by the
portion of this Warrant which is not being exercised and (B) the Closing Bid
Price of the Common Stock for the trading day immediately preceding the last
possible date which the Company could have issued such Warrant to the holder
without violating this Section 2.
(g) If the Warrant Shares are not covered by an effective
registration statement for the resale of the Warrant Shares, the holder of this
Warrant may, at its election exercised in its sole discretion, exercise this
Warrant to the extent then exercisable, in lieu of making payment of the
Aggregate Exercise Price in cash, elect instead to receive upon such exercise
the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
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Net Number = (A X B) - (A X C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of Warrant Shares with respect to which
this Warrant is then being exercised.
B= the Closing Bid Price of the Common Stock on the date of
exercise of the Warrant.
C= the Warrant Exercise Price then in effect for the
applicable Warrant Shares at the time of such exercise.
For purposes of this paragraph 2(g), each portion of this Warrant on any
Advance Date shall be treated as a separate Warrant.
Section 3. COVENANTS AS TO COMMON STOCK. The Company hereby covenants and
agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly file a registration statement with
the Securities and Exchange Commission to secure the listing of the Warrant
Shares on the Principal Market in accordance with the terms and conditions
regarding the registration rights of holders of Warrants set forth in the
Registration Rights Agreement and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Warrant Shares from time to
time issuable upon the exercise of this Warrant; and the Company shall so list
on each national securities exchange or automated quotation system, as the case
may be, and shall maintain such listing of, any other shares of capital stock of
the Company issuable upon the exercise of this Warrant if and so long as any
shares of the same class shall be listed on such national securities exchange or
automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
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Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. The Company will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant
Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
(f) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.
Section 4. TAXES. The Company shall pay any and all taxes, except any
applicable withholding, which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.
Section 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
Section 6. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of this
Warrant, other than pursuant to a Cashless Exercise, the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
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exercise of this Warrant, other than pursuant to a Cashless Exercise, that the
Company receive such other representations as the Company considers reasonably
necessary to assure the Company that the issuance of its securities upon
exercise of this Warrant shall not violate any United States or state securities
laws.
Section 7. OWNERSHIP AND TRANSFER.
(a) The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
Section 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES. For
purposes of this Section 8, the portion of each Warrant which becomes
exercisable on an Advance Date shall be treated as if it were a separate Warrant
based on the Warrant Exercise Price as determined on the Advance Date and as if
such portion of this Warrant were exercisable on the Issuance Date. The Warrant
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Warrant shall be adjusted from time to time as follows:
(a) ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. If and whenever on or after the Issuance Date of this
Warrant, the Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock (other than (i) Excluded Securities and (ii) shares of
Common Stock which are issued or deemed to have been issued by the Company in
connection with an Approved Stock Plan or upon exercise or conversion of the
Other Securities) for a consideration per share less than a price (the
"APPLICABLE PRICE") equal to the Warrant Exercise Price in effect immediately
prior to such issuance or sale, then immediately after such issue or sale the
Warrant Exercise Price then in effect shall be reduced to an amount equal to
such consideration per share. Upon each such adjustment of the Warrant Exercise
Price hereunder, the number of Warrant Shares issuable upon exercise of this
Warrant shall be adjusted to the number of shares determined by multiplying the
Warrant Exercise Price in effect immediately prior to such adjustment by the
number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Warrant Exercise Price under Section
8(a) above, the following shall be applicable:
(i) ISSUANCE OF OPTIONS. If after the date hereof, the Company
in any manner grants any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option or upon
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<PAGE>
conversion or exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share. For purposes of this Section 8(b)(i), the lowest price per share for
which one share of Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon the granting or
sale of the Option, upon exercise of the Option or upon conversion or exchange
of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon the conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to one share of Common Stock
upon the issuance or sale of the Convertible Security and upon conversion or
exchange of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
(iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of Warrant Shares issuable upon
exercise of this Warrant shall be correspondingly readjusted. For purposes of
this Section 8(b)(iii), if the terms of any Option or Convertible Security that
was outstanding as of the Issuance Date of this Warrant are changed in the
manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment pursuant to this Section 8(b) shall be made
if such adjustment would result in an increase of the Warrant Exercise Price
then in effect.
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(c) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Warrant Exercise Price under Sections
8(a) and 8(b), the following shall be applicable:
(i) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefore will be
deemed to be the net amount received by the Company therefore. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of marketable securities, in which case the amount of consideration
received by the Company will be the Market Price of such securities on the date
of receipt of such securities. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefore will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the holders of Warrants representing at least
two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then
outstanding. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "VALUATION EVENT"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the holders of Warrants
representing at least two-thirds (b) of the Warrant Shares issuable upon
exercise of the Warrants then outstanding. The determination of such appraiser
shall be final and binding upon all parties and the fees and expenses of such
appraiser shall be borne jointly by the Company and the holders of Warrants.
(ii) INTEGRATED TRANSACTIONS. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01.
(iii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company, and the disposition of any shares so owned or held
will be considered an issue or sale of Common Stock.
(iv) RECORD DATE. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(d) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
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recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, any Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of Warrant
Shares issuable upon exercise of this Warrant will be proportionately decreased.
Any adjustment under this Section 8(d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a "DISTRIBUTION"), at any time
after the issuance of this Warrant, then, in each such case:
(i) any Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing Sale Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Sale Price
of the Common Stock on the trading day immediately preceding such record date;
and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
(f) CERTAIN EVENTS. If any event occurs of the type contemplated by
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
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Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment pursuant to this Section 8(f) will increase the
Warrant Exercise Price or decrease the number of shares of Common Stock
obtainable as otherwise determined pursuant to this Section 8.
(g) NOTICES.
(i) Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder
of this Warrant at least ten (10) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER OR SALE.
(a) In addition to any adjustments pursuant to Section 8 above, if
at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock (the "PURCHASE
RIGHTS"), then the holder of this Warrant will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction in each case which is effected in such a
way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "ORGANIC CHANGE". Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "ACQUIRING ENTITY") a written agreement (in form and substance
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satisfactory to the holders of Warrants representing at least two-thirds (b) of
the Warrant Shares issuable upon exercise of the Warrants then outstanding) to
deliver to each holder of Warrants in exchange for such Warrants, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Warrant and satisfactory to the holders of the
Warrants (including an adjusted warrant exercise price equal to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable
and receivable upon exercise of the Warrants without regard to any limitations
on exercise, if the value so reflected is less than any Applicable Warrant
Exercise Price immediately prior to such consolidation, merger or sale). Prior
to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of
Warrants representing a majority of the Warrant Shares issuable upon exercise of
the Warrants then outstanding) to insure that each of the holders of the
Warrants will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the Warrant Shares immediately theretofore
issuable and receivable upon the exercise of such holder's Warrants (without
regard to any limitations on exercise), such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of Warrant Shares which would have been
issuable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exercisability of this Warrant).
Section 10. FORCED CONVERSION. The Company shall have the right to force
conversion provided that the Closing Bid Price of the Company's Common Stock is
$15.00 or higher per share for ten (10) consecutive trading days.
Section 11. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt
of an indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.
Section 12. NOTICE. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of receipt is received by the sending party, transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to the Holder:
May Davis Group, Inc.
1 World Trade Center, Suite 8735
New York, NY 10048
Telephone: (212) 775-7400
Facsimile: (212) 775-8166
Attention: Michael Jacobs
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with Copy to:
Butler Gonzalez LLP
1000 Stuyvesant Avenue
Suite # 6
Union, NJ 07083
Telephone: (908) 810-8588
Facsimile: (908) 810-0973
Attention: David Gonzalez, Esq.
If to the Company:
European Micro Holdings, Inc.
6073 N.W. 167th Street
Unit C-25
Miami, Fl 33015
Telephone: (305) 825-2458
Facsimile: (305) 362-4854
Attention: John B. Gallagher, Co-President
with a copy to:
Kirkpatrick & Lockhart
201 Biscayne Blvd.
Suite 2000
Miami, Fl 33131
Telephone: (305) 539-3306
Facsimile: (305) 358-7095
Attention: Clayton Parker, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth in the Credit Agreement, with copies to such holder's representatives as
set forth in such Credit Agreement, or at such other address and facsimile as
shall be delivered to the Company upon the issuance or transfer of this Warrant.
Each party shall provide five days' prior written notice to the other party of
any change in address or facsimile number. Written confirmation of receipt (A)
given by the recipient of such notice, consent, facsimile, waiver or other
communication, or (B)provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 13. DATE. The date of this Warrant is August 24, 2000. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section (b) shall continue in full force
and effect after such date as to any Warrant Shares or other securities issued
upon the exercise of this Warrant.
Section 14. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of
Warrants representing at least two-thirds (b) of the Warrant Shares issuable
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upon exercise of the Warrants then outstanding; provided that no such action may
increase the Warrant Exercise Price or decrease the number of shares or class of
stock obtainable upon exercise of any Warrant without the written consent of the
holder of such Warrant.
Section 15. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York, or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
John B. Gallagher, its Co-President, as of the 24th day of August, 2000.
EUROPEAN MICRO HOLDINGS, INC.
By: ______________________________
Name: John B. Gallagher
Title: Co-President
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EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT
EUROPEAN MICRO HOLDINGS, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of European
Micro Holdings, Inc., a Nevada corporation (the "COMPANY"), evidenced by the
attached Warrant (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
____________ a "CASH EXERCISE" with respect to
_________________ Warrant Shares; and/or
____________ a "CASHLESS EXERCISE" with respect to
_______________ Warrant Shares (to the extent
permitted by the terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the
holder __________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
Name of Registered Holder
By:
------------------------
Name:
Title:
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EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of European Micro Holdings, Inc., a
Nevada corporation, represented by warrant certificate no. _____, standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint ______________, attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.
Dated: _________, ____
------------------------------------
By: _____________________________
Its: _____________________________
D-19
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APPENDIX "E"
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of August 24,
2000, by and among EUROPEAN MICRO HOLDINGS, INC., a Nevada corporation, with its
principal office located at 6073 N.W. 167th Street, Unit C-25 Miami, Fl (the
"COMPANY"), and May Davis Group, Inc., with its principal office at One World
Trade Center, Suite 8735, New York, NY ("MAY DAVIS").
WHEREAS:
A. In connection with the Placement Agent Agreement between the parties
hereto of even date herewith (the "PLACEMENT AGENT AGREEMENT"), the Company has
agreed to issue common stock purchase warrants to purchase an aggregate of one
million (1,000,000) shares of the Company's common stock, par value $0.01 per
share (the "COMMON STOCK"), at various exercise prices for a term of five (5)
years from the date of issuance of such warrants (individually, a "WARRANT" and
collectively, the "WARRANTS"). Capitalized terms not defined herein shall have
the meaning ascribed to them in the Placement Agent Agreement.
B. To induce the Placement Agent to enter to execute and deliver the
Placement Agent Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations there under, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws, with respect to the shares of
Common Stock issuable upon exercise of the Warrants (the "WARRANT SHARES").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Warrant
Holders hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "WARRANT HOLDER" means a Warrant Holder and any transferee or
assignee thereof to whom an Warrant Holder assigns its rights under this
Agreement and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
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c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis ("RULE 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the shares of Common Stock
issuable to Warrant Holders upon conversion of the Warrants issues pursuant to
the Placement Agent Agreement.
e. "REGISTRATION STATEMENT" means a registration statement
under the 1933 Act which covers the Registrable Securities.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare and file with
the SEC a Registration Statement on Form S-3 covering the resale of all of the
Registrable Securities. In the event that Form S-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration, subject to the provisions of Section 2(b). The Company shall cause
such Registration Statement to be declared effective by the SEC prior to the
first conversion by the Warrant Holders of the Warrants issued pursuant to the
Placement Agent Agreement.
b. INELIGIBILITY FOR FORM S-3. In the event that Form S-3 is not
available for the registration of Registrable Securities hereunder, the Company
shall (i) register the sale of the Registrable Securities on another appropriate
form and (ii) undertake to register the Registrable Securities on Form S-3 as
soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
c. SUFFICIENT NUMBER OF SHARES REGISTERED. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities which are
issuable to the Warrant Holders upon conversion of the Warrants issued pursuant
to the Placement Agent Agreement, the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form available
therefore, if applicable), or both, so as to cover all of such Registrable
Securities issuable to the Warrant Holders upon conversion of the Warrants
issued pursuant to the Placement Agent Agreement as soon as practicable, but in
any event not later than fifteen (15) business days after the necessity
therefore arises. The Company shall use it best efforts to cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. For purposes of the foregoing provision, the
number of shares available under a Registration Statement shall be deemed
"insufficient to cover all of the Registrable Securities" if at any time the
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number of Registrable Securities issuable upon conversion of the Warrants is
greater than the number of shares available for resale under such Registration
Statement.
3. RELATED OBLIGATIONS.
a. The Company shall keep the Registration Statement effective
during the term of the Warrant pursuant to Rule 415 at all times until the date
on which the Warrant Holder shall have sold all the Registrable Securities
covered by such Registration Statement (the "REGISTRATION Period"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company's filing a report on Form 10-K, Form 10-Q or Form 8-K or
any analogous report under the Securities Exchange Act of 1934, as amended (the
"1934 ACT"), the Company shall have incorporated such report by reference into
the Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is filed
which created the requirement for the Company to amend or supplement the
Registration Statement.
c. The Company shall furnish to each Warrant Holder whose
Registrable Securities are included in any Registration Statement, without
charge, (i) at least one copy of such Registration Statement as declared
effective by the SEC and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, all
exhibits and each preliminary prospectus, (ii) ten (10) copies of the final
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Warrant Holder may
reasonably request) and (iii) such other documents as such Warrant Holder may
reasonably request from time to time in order to facilitate the disposition of
the Registrable Securities owned by such Warrant Holder.
d. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as any Warrant Holder reasonably requests, (ii) prepare and file in those
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jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its certificate of incorporation or by-laws,
(x) qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify each Warrant
Holder who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.
e. As promptly as practicable after becoming aware of such event or
development, the Company shall notify each Warrant Holder in writing of the
happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (provided that in no event shall such
notice contain any material, nonpublic information), and promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to each Warrant Holder. The Company shall also promptly notify each
Warrant Holder in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to each Warrant Holder by facsimile on the same
day of such effectiveness), (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or related
information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
f. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction within the United States of America and, if such an
order or suspension is issued, to obtain the withdrawal of such order or
suspension at the earliest possible moment and to notify each Warrant Holder who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
g. At the reasonable request of any Warrant Holder, the Company
shall furnish to such Warrant Holder, on the date of the effectiveness of the
Registration Statement and thereafter from time to time on such dates as an
Warrant Holder may reasonably request (i) a letter, dated such date, from the
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Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the Warrant Holders.
h. The Company shall make available for inspection by (i) any
Warrant Holder and (ii) one firm of accountants or other agents retained by the
Warrant Holders (collectively, the "INSPECTORS") all pertinent financial and
other records, and pertinent corporate documents and properties of the Company
(collectively, the "RECORDS"), as shall be reasonably deemed necessary by each
Inspector, and cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree, and each Warrant Holder hereby agrees, to hold
in strict confidence and shall not make any disclosure (except to an Warrant
Holder) or use of any Record or other information which the Company determines
in good faith to be confidential, and of which determination the Inspectors are
so notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required under the 1933 Act, (b) the release of such Records is ordered pursuant
to a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector and the Warrant Holder has
knowledge. Each Warrant Holder agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential.
i. The Company shall hold in confidence and not make any disclosure
of information concerning a Warrant Holder provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning a Warrant Holder is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Warrant Holder and allow such Warrant Holder, at the
Warrant Holder's expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.
j. The Company shall use its best efforts either to cause all the
Registrable Securities covered by a Registration Statement (i) to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market or The Nasdaq SmallCap
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Market or, if, despite the Company's best efforts to satisfy the preceding
clause (i) or (ii), the Company is unsuccessful in satisfying the preceding
clause (i) or (ii), to secure the inclusion for quotation on the National
Association of Securities Dealers, Inc. OTC Bulletin Board for such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(j).
k. The Company shall cooperate with the Warrant Holders who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Warrant Holders may
reasonably request and registered in such names as the Warrant Holders may
request.
l. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
m. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
n. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
o. Within two (2) business days after a Registration Statement which
covers Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Warrant
Holders whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as EXHIBIT A.
p. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Warrant Holders of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE WARRANT HOLDERS.
Each Warrant Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
the first sentence of 3(e), such Warrant Holder will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Warrant Holder's receipt of the
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copies of the supplemented or amended prospectus contemplated by Section 3(e) or
receipt of notice that no supplement or amendment is required. Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to deliver
unlegended certificates for shares of Common Stock to a transferee of an Warrant
Holder in accordance with the terms of the Placement Agreement in connection
with any sale of Registrable Securities with respect to which an Warrant Holder
has entered into a contract for sale prior to the Warrant Holder's receipt of a
notice from the Company of the happening of any event of the kind described in
Section 3(f) or the first sentence of 3(e) and for which the Warrant Holder has
not yet settled.
5. EXPENSES OF REGISTRATION.
All expenses incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company.
6. INDEMNIFICATION.
With respect to Registrable Securities which are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Warrant Holder, the
directors, officers, partners, employees, agents, representatives of, and each
Person, if any, who controls any Warrant Holder within the meaning of the 1933
Act or the 1934 Act (each, an "INDEMNIFIED PERSON"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several
(collectively, "CLAIMS") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation there under relating to the
offer or sale of the Registrable Securities pursuant to a Registration Statement
(the matters in the foregoing clauses (i) through (iii) being, collectively,
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"VIOLATIONS"). The Company shall reimburse the Warrant Holders and each such
controlling person promptly as such expenses are incurred and are due and
payable, for any legal fees or disbursements or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (x) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (y) shall not be available to the extent such Claim is based
on a failure of the Warrant Holders to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(e); and (z) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Warrant
Holders pursuant to Section 9.
b. In connection with a Registration Statement, each Warrant Holders
agrees to severally and not jointly indemnify, hold harmless and defend, to the
same extent and in the same manner as is set forth in Section 6(a), the Company,
each of its directors, each of its officers who signs the Registration Statement
and each Person, if any, who controls the Company within the meaning of the 1933
Act or the 1934 Act (each an "INDEMNIFIED Party"), against any Claim or
Indemnified Damages to which any of them may become subject, under the 1933 Act,
the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise
out of or is based upon any Violation, in each case to the extent, and only to
the extent, that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Warrant Holders expressly
for use in connection with such Registration Statement; and, subject to Section
6(d), such Warrant Holders will reimburse any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6(b)
and the agreement with respect to contribution contained in Section 7 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Warrant Holders, which consent shall
not be unreasonably withheld; provided, further, however, that the Warrant
Holders shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to such Warrant
Holders as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Warrant
Holders pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
prospectus was corrected and such new prospectus was delivered to each Warrant
Holders prior to such Warrant Holders' use of the prospectus to which the Claim
relates.
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c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Warrant Holders holding a majority in interest
of the Registrable Securities included in the Registration Statement to which
the Claim relates. The Indemnified Party or Indemnified Person shall cooperate
fully with the indemnifying party in connection with any negotiation or defense
of any such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
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Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Warrant Holders the benefits
of Rule 144 promulgated under the 1933 Act or any similar rule or regulation of
the SEC that may at any time permit the Warrant Holders to sell securities of
the Company to the public without registration ("RULE 144") the Company agrees
to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Placement Agreement) and the filing of such reports and other documents is
required for the applicable provisions of Rule 144; and
c. furnish to each Warrant Holder so long as such Warrant Holder
owns Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule 144,
the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Warrant Holders to sell such securities pursuant to Rule 144 without
registration.
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<PAGE>
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Warrant Holders to any transferee of all or any portion of Registrable
Securities if: (i) the Warrant Holder agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) at or before the time the Company receives the
written notice contemplated by clause (ii) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein; and (iv) such transfer shall have been made in accordance with
the applicable requirements of the Placement Agent Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Warrant Holders who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Warrant Holders and the Company. No such amendment
shall be effective to the extent that it applies to fewer than all of the
holders of the Registrable Securities. No consideration shall be offered or paid
to any Person to amend or consent to a waiver or modification of any provision
of any of this Agreement unless the same consideration also is offered to all of
the parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
receipt is received by the sending party; or (iii) one business day after
deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
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<PAGE>
EUROPEAN MICRO HOLDINGS, INC.
6073 N.W. 167th Street
Unit C-25
Miami, Fl 33015
Telephone: (305) 825-2458
Facsimile: (305) 362-4854
Attention: John B. Gallagher
With Copy to:
If to a Warrant Holder, to its address and facsimile number on the Schedule of
Warrant Holders attached hereto, with copies to such Warrant Holder's
representatives as set forth on the Schedule of Warrant Holders or to such other
address and/or facsimile number and/or to the attention of such other person as
the recipient party has specified by written notice given to each other party
five days prior to the effectiveness of such change. Written confirmation of
receipt (A) given by the recipient of such notice, consent, facsimilie waiver or
other communication, (B) provided by a courier or overnight courier service
shall be rebuttable evidence of personal service, receipt by facsimile or
receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. The corporate laws of the State of Nevada shall govern all issues
concerning the relative rights of the Company and the Warrant Holders as its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, Borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
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<PAGE>
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
e. This Agreement, the Placement Agent Agreement and the Escrow
Agreement constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Placement Agent Agreement and the Escrow Agreement
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the Warrant
Holders pursuant to this Agreement shall be made, unless otherwise specified in
this Agreement, by Warrant Holders holding a majority of the Registrable
Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
EUROPEAN MICRO HOLDINGS, INC.
By: ____________________________________
Name: John B. Gallagher
Title: Co-President
MAY DAVIS GROUP, INC.
By: ____________________________________
Name: Michael Jacobs
Title:ManagingDirector
E-14
<PAGE>
SCHEDULE OF WARRANT HOLDERS
--------------------------------------------------------------------------------
WARRANT HOLDER'S
WARRANT HOLDER ADDRESS REPRESENTATIVES' ADDRESS
WARRANT HOLDER NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER
--------------------------------------------------------------------------------
Mark A. Angelo
Joseph Donahue One World Trade Center One World Trade Center
Robert Farrell 87th Floor 87th Floor
Hunter Singer New York, NY 10048 New York, NY 10048
Persia Consulting Facsimile : (212) 774-8166 Facsimile : (212) 774-8166
Group
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<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
ATTN:
-------------------
Re: EUROPEAN MICRO HOLDINGS, INC.
Ladies and Gentlemen:
We are counsel to European Micro Holdings, Inc., a Nevada corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Equity Line of Placement Agent Agreement (the "PLACEMENT AGENT AGREEMENT")
entered into by and among the Company and the Warrant Holders named therein
(collectively, the "WARRANT HOLDERS") pursuant to which the Company issued to
the Warrant Holders shares of its Common Stock, par value $0.01 per share (the
"COMMON STOCK") upon conversion of the Warrants. Pursuant to the Placement Agent
Agreement, the Company also has entered into a Registration Rights Agreement
with the Warrant Holders (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which
the Company agreed, among other things, to register the Registrable Securities
(as defined in the Registration Rights Agreement) under the Securities Act of
1933, as amended (the "1933 ACT"). In connection with the Company's obligations
under the Registration Rights Agreement, on ____________ ____, the Company filed
a Registration Statement on Form ________ (File No. 333-_____________) (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Warrant
Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
---------------------------------
cc: [LIST NAMES OF WARRANT HOLDERS]
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<PAGE>
APPENDIX "F"
EUROPEAN MICRO HOLDINGS, INC..
PLACEMENT AGENT AGREEMENT
Dated as of: August 24, 2000
May Davis Group, Inc.
One World Trade Center - Suite 8735
New York, New York, 10048
Ladies and Gentlemen:
The undersigned, European Micro Holdings, Inc., (the "Company"), hereby
agrees with May Davis Group, Inc. ("May Davis") as follows:
1. OFFERING. The Company hereby engages May Davis to act as its exclusive
placement agent in connection with the Credit Agreement (as defined herein) for
the issuance and sale by the Company (the "Offering") of the Company's Common
Stock, $0.01 par value per share (the "Common Stock"), at a price per share
equal to the Purchase Price, as that term is defined in the Equity Line of
Credit Agreement dated the date hereof between the Company and the investor
named therein ( the "Credit Agreement"), for an aggregate price of $20,000,000.
All capitalized terms used herein and not otherwise defined shall have the same
meaning ascribed to them as in the Credit Agreement. The Investor will be
granted certain registration rights with respect to the Common Stock as more
fully set forth in the Registration Rights Agreement between the Company and the
Investor dated the date hereof, and May Davis will be granted common stock
purchase warrants and certain registration rights as described herein. The
documents to be executed and delivered in connection with the Offering,
including but not limited to this Agreement, the Credit Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Placement Agent's
Warrants (as hereinafter defined) and the Placement Agent's Registration Rights
Agreement (as hereinafter defined) are referred to sometimes hereinafter
collectively as the "Offering Materials." The Company's Common Stock and the
Placement Agent's Warrants are sometimes referred to hereinafter collectively as
the "Securities." May Davis shall not be obligated to sell any Securities and
this Offering by May Davis shall be solely on a "best efforts basis."
2. INFORMATION.
A. Upon the occurrence of each Closing, the funds received in
respect of the shares of Common Stock purchased by the Investor will be
disbursed in accordance with the terms of the Credit Agreement, net of (i)
the commission payable to May Davis, equal to seven percent (7%) of the gross
proceeds from the sale of Common Stock, and (ii) legal fees and other
expenses related thereto due to May Davis's counsel and the Escrow Agent.
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<PAGE>
B. In addition to the foregoing compensation, the Company shall issue to
May Davis upon the execution of the Credit Agreement the following: (i) a
warrant in substantially the form annexed hereto to purchase 500,000 shares of
Common Stock at an exercise price per share of $7.00, exercisable in part or in
whole at any time by May Davis at its discretion for a period of sixty (60)
months from the date of issuance (the "Class A Warrant"), and (ii) a warrant in
substantially the same form annexed hereto to purchase 500,000 shares of Common
Stock at an exercise price equal of $10.00, exercisable pro rata on the basis of
the number of shares of Common Stock issuable on each Advance Date for a period
of sixty months from the date of issuance (the "Class B Warrant"), (the Class A
Warrant and the Class B Warrant are referred to collectively as the "Placement
Agent's Warrants"). The Placement Agent's Warrants shall be issued to the
individuals and in the amounts set forth on Schedule A. The Company may redeem
the "A" Warrants at a redemption price of $.01 per share provided that the Bid
Price for the Common Stock equals $10.00 or higher per share for a period of ten
(10) consecutive Trading Days, as described in the Placement Agent's Warrants
and redeem the "B" Warrants at a redemption price of $.01 per share provided
that the Bid Price for the Common Stock equals $15.00 or higher per share for a
period of ten (10) consecutive Trading Days, as described in the Placement
Agent's Warrants. May Davis shall be entitled to certain demand registration
rights with respect to the shares of Common Stock issuable upon exercise of the
Warrants pursuant to a registration rights agreement in substantially the same
form annexed hereto (the "Placement Agent's Registration Rights Agreement").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF MAY DAVIS.
A. May Davis represents, warrants and covenants as follows:
(i) May Davis has the necessary power to enter into this Agreement,
the Placement Agent's Warrants, the Placement Agent's Registration Rights
Agreement and to consummate the transactions contemplated hereby and thereby.
(ii) The execution and delivery by May Davis of this Agreement, the
Placement Agent's Warrants, the Placement Agent's Registration Rights Agreement
and the consummation of the transactions contemplated herein and therein will
not result in any violation of, or be in conflict with, or constitute a default
under, any agreement or instrument to which May Davis is a party or by which May
Davis or its properties are bound, or any judgment, decree, order or, to May
Davis's knowledge, any statute, rule or regulation applicable to May Davis. This
Agreement, the Placement Agent's Warrants and the Placement Agent's Registration
Rights Agreement when executed and delivered by May Davis, will constitute the
legal, valid and binding obligations of May Davis, enforceable in accordance
with their respective terms, except to the extent that (a) the enforceability
hereof or thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect and affecting the rights
of creditors generally, (b) the enforceability hereof or thereof is subject to
general principles of equity, or (c) the indemnification provisions hereof or
thereof may be held to be vilative of public policy.
(iii) Upon receipt of an executed Credit Agreement, a Registration
Rights Agreement and Escrow Agreement and the documents related thereto, May
Davis will, through the Escrow Agent, promptly forward copies of the Credit
Agreement, Registration Rights Agreement and Escrow Agreement and the documents
related thereto to the Company or its counsel.
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<PAGE>
(iv) May Davis will not deliver any documents related to the
Offering to any person it does not reasonably believe to be an Accredited
Investor.
(v) May Davis will not intentionally take any action that it
reasonably believes would cause the Offering to violate the provisions of the
1933 Act, the 1934 Act, the respective rules and regulations promulgated there
under (the "Rules and Regulations") or applicable "Blue Sky" laws of any state
or jurisdiction.
(vi) May Davis shall use all reasonable efforts to determine (a)
whether the Investor is an Accredited Investor and (b) that any information
furnished by the Investor is true and accurate. May Davis shall have no
obligation to insure that (x) any check, note, draft or other means of payment
for the Common Stock will be honored, paid or enforceable against the Investor
in accordance with its terms, or (y) subject to the performance of May Davis's
obligations and the accuracy of May Davis's representations and warranties
hereunder, (1) the Offering is exempt from the registration requirements of the
1933 Act or any applicable state "Blue Sky" law or (2) the Investor is an
Accredited Investor.
(vii) May Davis is a member of the National Association of
Securities Dealers, Inc., and is a broker-dealer registered as such under the
1934 Act and under the securities laws of the states in which the Securities
will be offered or sold by May Davis, unless an exemption for such state
registration is available to May Davis. May Davis is in compliance with all
material rules and regulations applicable to May Davis generally and applicable
to May Davis's participation in the Offering.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
A. The Company represents and warrants as follows:
(i) The execution, delivery and performance of each of this
Agreement, the Credit Agreement, the Escrow Agreement, the Placement Agent's
Registration Rights Agreements, the Placement Agent's Warrants and the
Investor's Registration Rights Agreement has been or will be duly and validly
authorized by the Company and is, or with respect to this Agreement, the Credit
Agreement, the Escrow Agreement, the Placement Agent's Registration Rights
Agreements, the Placement Agent's Warrants and the Investor's Registration
Rights Agreement will be, a valid and binding agreement of the Company,
enforceable in accordance with its respective terms, except to the extent that
(a) the enforceability hereof or thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally, (b) the enforceability
hereof or thereof is subject to general principles of equity or (c) the
indemnification provisions hereof or thereof may be held to be violative of
public policy. The Securities to be issued pursuant to the transactions
contemplated by this Agreement, the Credit Agreement and the Placement Agent's
Warrants have been duly authorized and, when issued and paid for in accordance
with (x) this Agreement, the Credit Agreement and the Placement Agent's Warrants
and the certificates/instruments representing such Securities, (y) will be valid
and binding obligations of the Company, enforceable in accordance with their
respective terms, except to the extent that (1) the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect and affecting the rights of creditors generally, and
(2) the enforceability thereof is subject to general principles of equity. All
corporate action required to be taken for the authorization, issuance and sale
of the Securities has been duly and validly taken by the Company.
F-3
<PAGE>
(ii) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Credit Agreement. The Company is not a party
to or bound by any instrument, agreement or other arrangement providing for it
to issue any capital stock, rights, warrants, options or other securities,
except for this Agreement and the agreements described herein and as described
in the Credit Agreement. All issued and outstanding securities of the Company,
have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission or preemptive
rights with respect thereto and are not subject to personal liability solely by
reason of being security holders; and none of such securities was issued in
violation of the preemptive rights of any holders of any security of the
Company. The Company has 20,000,000 shares of authorized Common Stock, 4,933,900
of which will be issued and outstanding as of the date hereof.
(iii) The Common Stock to be issued in accordance with Credit
Agreement has been duly authorized and when issued and paid for in accordance
with the this Agreement, the Credit Agreement, the Placement Agent's Warrants
and the certificates/instruments representing such Common Stock, will be validly
issued, fully-paid and non-assessable; the holders thereof will not be subject
to personal liability solely by reason of being such holders; such securities
are not and will not be subject to the preemptive rights of any holder of any
security of the Company.
(iv) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
necessary to conduct its business (including, without limitation any real or
personal property stated in the Offering Materials to be owned or leased by the
Company), free and clear of all liens, encumbrances, claims, security interests
and defects of any material nature whatsoever, other than those set forth in the
Offering Materials and liens for taxes not yet due and payable.
(v) There is no litigation or governmental proceeding pending or, to
the best of the Company's knowledge, threatened against, or involving the
properties or business of the Company, except as set forth in the Offering
Materials.
(vi) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Nevada. Except as
set forth in the Offering Materials, the Company does not own or control,
directly or indirectly, an interest in any other corporation, partnership,
trust, joint venture or other business entity. The Company is duly qualified or
licensed and in good standing as a foreign corporation in each jurisdiction in
which the character of its operations requires such qualification or licensing
and where failure to so qualify would have a material adverse effect on the
Company. The Company has all requisite corporate power and authority, and all
material and necessary authorizations, approvals, orders, licenses, certificates
and permits of and from all governmental regulatory officials and bodies
(domestic and foreign) to conduct its businesses (and proposed business) as
described in the Offering Materials. Any disclosures in the Offering Materials
concerning the effects of foreign, federal, state and local regulation on the
Company's businesses as currently conducted and as contemplated are correct in
all material respects and do not omit to state a material fact. The Company has
all corporate power and authority to enter into this Agreement, the Credit
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Placement Agent's Warrants and the Placement Agent's Registration Rights
Agreement to carry out the provisions and conditions hereof and thereof, and all
consents, authorizations, approvals and orders required in connection herewith
and therewith have been obtained. No consent, authorization or order of, and no
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<PAGE>
filing with, any court, government agency or other body is required by the
Company for the issuance of the Securities or execution and delivery of the
Credit Agreement, Registration Rights Agreement, the Escrow Agreement, the
Placement Agent's Warrants and the Placement Agent's Registration Rights
Agreement except for applicable federal and state securities laws. The Company,
since its inception, has not incurred any liability arising under or as a result
of the application of any of the provisions of the 1933 Act, the 1934 Act or the
Rules and Regulations.
(vii) There has been no material adverse change in the condition or
prospects of the Company, financial or otherwise, from the latest dates as of
which such condition or prospects, respectively, are set forth in the Offering
Materials, and the outstanding debt, the property and the business of the
Company conform in all material respects to the descriptions thereof contained
in the Offering Materials.
(viii) Except as set forth in the Offering Materials, the Company is
not in breach of, or in default under, any term or provision of any material
indenture, mortgage, deed of trust, lease, note, loan or credit agreement or any
other material agreement or instrument evidencing an obligation for borrowed
money, or any other material agreement or instrument to which it is a party or
by which it or any of its properties may be bound or affected. The Company is
not in violation of any provision of its charter or by-laws or in violation of
any franchise, license, permit, judgment, decree or order, or in violation of
any material statute, rule or regulation. Neither the execution and delivery of
this Agreement, the Credit Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Placement Agent's Warrants, the Placement Agent's
Registration Rights Agreement nor the issuance and sale or delivery of the
Securities, nor the consummation of any of the transactions contemplated herein
or in the Credit Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Placement Agent's Warrants, or the Placement Agent's Registration
Rights Agreement, nor the compliance by the Company with the terms and
provisions hereof or thereof, has conflicted with or will conflict with, or has
resulted in or will result in a breach of, any of the terms and provisions of,
or has constituted or will constitute a default under, or has resulted in or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or pursuant to the terms of any
indenture, mortgage, deed of trust, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company may be bound or to which any
of the property or assets of the Company is subject except (a) where such
default, lien, charge or encumbrance would not have a material adverse effect on
the Company and (b) as described in the Offering Materials; nor will such action
result in any violation of the provisions of the charter or the by-laws of the
Company or, assuming the due performance by May Davis of its obligations
hereunder, any material statute or any material order, rule or regulation
applicable to the Company of any court or of any foreign, federal, state or
other regulatory authority or other government body having jurisdiction over the
Company.
(ix) Subsequent to the dates as of which information is given in the
Offering Materials, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (a) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, or (b)
entered into any transaction other than in the ordinary course of business, or
(c) declared or paid any dividend or made any other distribution on or in
respect of its capital stock. Except as described in the Offering Materials, the
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<PAGE>
Company has no outstanding obligations to any officer or director of the
Company.
(x) There are no claims for services in the nature of a finder's or
origination fee with respect to the sale of the Common Stock or any other
arrangements, agreements or understandings that may affect May Davis's
compensation, as determined by the National Association of Securities Dealers,
Inc.
(xi) The Company owns or possesses, free and clear of all liens or
encumbrances and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses necessary
to conduct its business (including, without limitation, any such licenses or
rights described in the Offering Materials as being owned or possessed by the
Company) and, except as set forth in the Offering Materials, there is no claim
or action by any person pertaining to, or proceeding, pending or threatened,
which challenges the exclusive rights of the Company with respect to any
trademarks, service marks, copyrights, service names, trade names, patents,
patent applications and licenses used in the conduct of the Company's businesses
(including, without limitation, any such licenses or rights described in the
Offering Materials as being owned or possessed by the Company) except any claim
or action that would not have a material adverse effect on the Company; the
Company's current products, services or processes do not infringe or will not
infringe on the patents currently held by any third party.
(xii) Except as described in the Offering Materials, the Company is
not under any obligation to pay royalties or fees of any kind whatsoever to any
third party with respect to any trademarks, service marks, copyrights, service
names, trade names, patents, patent applications, licenses or technology it has
developed, uses, employs or intends to use or employ, other than to their
respective licensors.
(xiii) Subject to the performance by May Davis of its obligations
hereunder, the Credit Agreement and the offer and sale of the Securities comply,
and will continue to comply, up to the Commitment Period (as defined in the
Credit Agreement) in all material respects with the requirements of Rule 506 of
Regulation D promulgated by the SEC pursuant to the 1933 Act and any other
applicable federal and state laws, rules, regulations and executive orders.
Neither the Offering Materials nor any amendment or supplement thereto nor any
documents prepared by the Company in connection with the Offering will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. All
statements of material facts in the Offering Materials are true and correct as
of the date of the Offering Materials and will be true and correct on the date
of the Closing.
(xiv) All material taxes which are due and payable from the Company
have been paid in full or adequate provision has been made for such taxes on the
books of the Company except for those taxes disputed in good faith the Company
does not have any tax deficiency or claim outstanding assessed or proposed
against it.
(xv) None of the Company nor any of its officers, directors,
employees or agents, nor any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency or instrumentality
F-6
<PAGE>
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who is or may be in a position to
help or hinder the business of the Company (or assist it in connection with any
actual or proposed transaction) which (A) might subject the Company to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, or (B) if not given in the past, might have had a materially adverse
effect on the assets, business or operations of the Company as reflected in any
of the financial statements contained in the Offering Materials, or (C) if not
continued in the future, might adversely affect the assets, business, operations
or prospects of the Company in the future.
5. CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY.
The Company covenants and agrees at its expense and without any expense to
May Davis as follows:
A. To advise May Davis of any material adverse change in the Company's
financial condition, prospects or business or of any development materially
affecting the Company or rendering untrue or misleading any material statement
in the Offering Materials occurring at any time prior to any Advance Date as
soon as the Company is either informed or becomes aware thereof.
B. To use its best efforts to cause the Common Stock issuable in
connection with the Credit Agreement and upon exercise of the Placement Agent's
Warrants to be qualified or registered for sale on terms consistent with those
stated in the Investor's Registration Rights Agreement and the Placement Agent's
Registration Rights Agreement, respectively, and under the securities laws of
such jurisdictions as May Davis and the Investor shall reasonably request,
provided that such states and jurisdictions do not require the Company to
qualify as a foreign corporation. Qualification, registration and exemption
charges and fees shall be at the sole cost and expense of the Company.
C. Upon written request, to provide and continue to provide the to each
holder of Securities, copies of all quarterly financial statements and audited
annual financial statements prepared by or on behalf of the Company, other
reports prepared by or on behalf of the Company for public disclosure and all
documents delivered to the Company's stockholders.
D. To deliver, during the Commitment Period, to May Davis, upon May
Davis's request, in the manner provided in Section 10(B) of this Agreement,
within forty five (45) days after the end of each of the first three quarters of
each fiscal year of the Company, commencing with the first quarter ending after
the Commitment Period, a statement of its income for each such quarterly period,
and its balance sheet and a statement of changes in stockholders' equity as of
the end of such quarterly period, all in reasonable detail, certified by its
principal financial or accounting officer; (ii) within ninety (90) days after
the close of each fiscal year, its balance sheet as of the close of such fiscal
year, together with a statement of income, a statement of changes in
stockholders' equity and a statement of cash flow for such fiscal year, such
balance sheet, statement of income, statement of changes in stockholders' equity
and statement of cash flow to be in reasonable detail and accompanied by a copy
of the certificate or report thereon of independent auditors if audited
financial statements are prepared; and (iii) a copy of all documents, reports
and information furnished to its stockholders at the time that such documents,
reports and information are furnished to its stockholders.
E. To comply with the terms of the Credit Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Placement Agent's
Warrants and the Placement Agent's Registration Rights Agreement.
F-7
<PAGE>
F. To keep available out of its authorized Common Stock solely for the
purpose of issuance upon the exercise of the Placement Agent's Warrant, such
number of shares of Common Stock as shall then be issuable upon the exercise or
conversion thereof.
G. To issue to May Davis, or May Davis's designee, upon the execution of
the Credit Agreement, the Placement Agent Warrants to purchase 1,000,000 shares
of Common Stock in the form substantially as annexed hereto.
H. To ensure that any transactions between or among the Company, or any of
its officers, directors and affiliates be on terms and conditions that are no
less favorable to the Company, than the terms and conditions that would be
available in an "arm's length" transaction with an independent third party.
6. INDEMNIFICATION.
A. The Company hereby agrees that it will indemnify and hold May
Davis and each officer, director, shareholder, employee or representative of May
Davis, and each person controlling, controlled by or under common control with
May Davis within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act or the SEC's rules and regulations promulgated there under (the "Rules
and Regulations"), harmless from and against any and all loss, claim, damage,
liability, cost or expense whatsoever (including, but not limited to, any and
all reasonable legal fees and other expenses and disbursements incurred in
connection with investigating, preparing to defend or defending any action, suit
or proceeding, including any inquiry or investigation, commenced or threatened,
or any claim whatsoever or in appearing or preparing for appearance as a witness
in any action, suit or proceeding, including any inquiry, investigation or
pretrial proceeding such as a deposition) to which May Davis or such indemnified
person of May Davis may become subject under the 1933 Act, the 1934 Act, the
Rules and Regulations, or any other federal or state law or regulation, common
law or otherwise, arising out of or based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in (a) Section 4 of this
Agreement, (b) the Offering Materials (except those written statements relating
to May Davis given by an indemnified person for inclusion therein), (c) any
application or other document or written communication executed by the Company
or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Common Stock under the securities laws
thereof, or any state securities commission or agency; (ii) the omission or
alleged omission from documents described in clauses (a), (b) or (c) above of a
material fact required to be stated therein or necessary to make the statements
therein not misleading; or (iii) the breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement. The Company further
agrees that upon demand by an indemnified person, at any time or from time to
time, it will promptly reimburse such indemnified person for any loss, claim,
damage, liability, cost or expense actually and reasonably paid by the
indemnified person as to which the Company has indemnified such person pursuant
hereto. Notwithstanding the foregoing provisions of this Paragraph 6(A), any
such payment or reimbursement by the Company of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final judgment by
a court of competent jurisdiction (after all appeals or the expiration of time
to appeal) is entered against May Davis or such indemnified person as a direct
result of May Davis or such person's gross negligence or willful misfeasance
will be promptly repaid to the Company.
F-8
<PAGE>
B. May Davis hereby agrees that it will indemnify and hold the Company and
each officer, director, shareholder, employee or representative of the Company,
and each person controlling, controlled by or under common control with the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act or the Rules and Regulations, harmless from and against any and all
loss, claim, damage, liability, cost or expense whatsoever (including, but not
limited to, any and all reasonable legal fees and other expenses and
disbursements incurred in connection with investigating, preparing to defend or
defending any action, suit or proceeding, including any inquiry or
investigation, commenced or threatened, or any claim whatsoever or in appearing
or preparing for appearance as a witness in any action, suit or proceeding,
including any inquiry, investigation or pretrial proceeding such as a
deposition) to which the Company or such indemnified person of the Company may
become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or
any other federal or state law or regulation, common law or otherwise, arising
out of or based upon (i) the conduct of May Davis or its officers, employees or
representatives in its acting as Placement Agent for the Offering or (ii) the
breach of any representation, warranty, covenant or agreement made by May Davis
in this Agreement (iii) any false or misleading information provided to the
Company by one of the May Davis indemnified persons.
C. Promptly after receipt by an indemnified party of notice of
commencement of any action covered by Section 6(A) or 6(B), the party to be
indemnified shall, within five (5) business days, notify the indemnifying party
of the commencement thereof; the omission by one indemnified party to so notify
the indemnifying party shall not relieve the indemnifying party of its
obligation to indemnify any other indemnified party that has given such notice
and shall not relieve the indemnifying party of any liability outside of this
indemnification if not materially prejudiced thereby. In the event that any
action is brought against the indemnified party, the indemnifying party will be
entitled to participate therein and, to the extent it may desire, to assume and
control the defense thereof with counsel chosen by it which is reasonably
acceptable to the indemnified party. After notice from the indemnifying party to
such indemnified party of its election to so assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under such
Section 6(A) or 6(B) for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof, but the
indemnified party may, at its own expense, participate in such defense by
counsel chosen by it, without, however, impairing the indemnifying party's
control of the defense. Subject to the proviso of this sentence and
notwithstanding any other statement to the contrary contained herein, the
indemnified party or parties shall have the right to choose its or their own
counsel and control the defense of any action, all at the expense of the
indemnifying party if, (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action at the expense of the indemnifying party, or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying party; provided, however, that the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstance, be liable for the reasonable fees and expenses of more than one
F-9
<PAGE>
separate firm of attorneys at any time for all such indemnified parties. No
settlement of any action or proceeding against an indemnified party shall be
made without the consent of the indemnifying party.
D. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 6(A) or 6(B)
is due in accordance with its terms but is for any reason held by a court to be
unavailable on grounds of policy or otherwise, the Company and May Davis shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with the investigation
or defense of same) which the other may incur in such proportion so that May
Davis shall be responsible for such percent of the aggregate of such losses,
claims, damages and liabilities as shall equal the percentage of the gross
proceeds paid to May Davis and the Company shall be responsible for the balance;
provided, however, that no person guilty of fraudulent misrepresentation within
the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 6(D), any person controlling, controlled by or under
common control with May Davis, or any partner, director, officer, employee,
representative or any agent of any thereof, shall have the same rights to
contribution as May Davis and each person controlling, controlled by or under
common control with the Company within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act and each officer of the Company and each director
of the Company shall have the same rights to contribution as the Company. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against the other party under this
Section 6(D), notify such party from whom contribution may be sought, but the
omission to so notify such party shall not relieve the party from whom
contribution may be sought from any obligation they may have hereunder or
otherwise if the party from whom contribution may be sought is not materially
prejudiced thereby. The indemnity and contribution agreements contained in this
Section 6 shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified person or any termination
of this Agreement.
7. PAYMENT OF EXPENSES.
The Company hereby agrees to bear all of the expenses in connection with
the Offering, including, but not limited to the following: filing fees, printing
and duplicating costs, advertisements, postage and mailing expenses with respect
to the transmission of Offering Materials, registrar and transfer agent fees,
Escrow Agent fees and expenses, fees of the Company's counsel and accountants,
issue and transfer taxes, if any, and counsel fees and expenses (such counsel
fees not to exceed $25,000 plus out of pocket expenses).
8. CONDITIONS OF EACH CLOSING
Each Closing shall be held at the offices of May Davis or its counsel. The
obligations of May Davis hereunder shall be subject to the continuing accuracy
of the representations and warranties of the Company herein as of the date
hereof and as of each Advance Date with respect to the Company as if it had been
made on and as of such Advance Date; the accuracy on and as of each Advance Date
of the statements of the officers of the Company made pursuant to the provisions
F-10
<PAGE>
hereof; and the performance by the Company on and as of each Closing of its
covenants and obligations hereunder and to the following further conditions:
A. At each Closing, May Davis shall receive the opinion of Kirkpatrick &
Lockhart_, dated as of the date of the Closing, which opinion shall be in form
and substance reasonably satisfactory to counsel for May Davis.
B. At or prior to each Closing, counsel for May Davis shall have been
furnished such documents, certificates and opinions as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in this Agreement and the Offering Materials, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
C. At and prior to each Closing, (i) there shall have been no material
adverse change nor development involving a prospective change in the condition
or prospects or the business activities, financial or otherwise, of the Company
from the latest dates as of which such condition is set forth in the Offering
Materials; (ii) there shall have been no transaction, not in the ordinary course
of business, entered into by the Company which has not been disclosed in the
Offering Materials or to May Davis in writing; (iii) except as set forth in the
Offering Materials, the Company shall not be in default under any provision of
any instrument relating to any outstanding indebtedness for which a waiver or
extension has not been otherwise received; (iv) except as set forth in the
Offering Materials, the Company shall not have issued any securities (other than
those to be issued as provided in the Offering Materials) or declared or paid
any dividend or made any distribution of its capital stock of any class and
there shall not have been any change in the indebtedness (long or short term) or
liabilities or obligations of the Company (contingent or otherwise); (v) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as indicated in the Offering Materials; and (v) no action,
suit or proceeding, at law or in equity, against the Company or affecting any of
its properties or businesses shall be pending or threatened before or by any
court or federal or state commission, board or other administrative agency,
domestic or foreign, wherein an unfavorable decision, ruling or finding could
materially adversely affect the businesses, prospects or financial condition or
income of the Company, except as set forth in the Offering Materials.
D. At each Closing, May Davis shall have received a certificate of the
Company signed by an executive officer and chief financial officer, dated as of
the applicable Advance Date, to the effect that the conditions set forth in
subparagraph (C) above have been satisfied and that, as of the applicable
Advance Date, the representations and warranties of the Company set forth herein
are true and correct.
E. At the initial Closing, the Company shall have duly executed and
delivered to May Davis, or its designees, the Placement Agent's Warrants, in the
names and denominations specified by May Davis.
9. TERMINATION.
This Agreement shall be co-terminus with, and terminate upon the same
terms and conditions as those set forth in, the Credit Agreement. The rights of
the Investor and the obligations of the Company under the Registration Rights
Agreement, and the rights of May Davis and the obligations of the Company under
the Placement Agent's Warrants and the Placement Agent's Registration Rights
Agreement shall survive the termination of this Agreement unabridged.
F-11
<PAGE>
10. MISCELLANEOUS.
A. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all which shall be
deemed to be one and the same instrument.
B. Any notice required or permitted to be given hereunder shall be given
in writing and shall be deemed effective when deposited in the United States
mail, postage prepaid, or when received if personally delivered or faxed ( upon
confirmation of receipt received by the sending party), addressed as follows:
To May Davis:
May Davis Group, Inc.
One World Trade Center - Suite 8735
New York, New York 10048
Attention: Michael Jacobs
with a copy to:
Butler Gonzalez LLP
1000 Stuyvesant Avenue
Suite #6
Union, NJ 07083
Fax: (908) 810-0973
Attention: David Gonzalez, Esq.
To the Company:
European Micro Holdings, Inc.
6073 N.W. 167th Street
Unit C-25
Miami, Fl 33015
Attention: John B. Gallagher
with copy to:
Kirkpatrick & Lockhart
201 Biscayne Blvd.
Suite 2000
Miami, Fl 33131
Attention: Clayton Parker, Esq.
or to such other address of which written notice is given to the others.
C. This Agreement shall be governed by and construed in all respects under
the laws of the State of New York, without reference to its conflict of laws
rules or principles. Any suit, action, proceeding or litigation arising out of
or relating to this Agreement shall be brought and prosecuted in such federal or
state court or courts located within the State of New York as provided by law.
The parties hereby irrevocably and unconditionally consent to the jurisdiction
of each such court or courts located within the State of New York and to service
of process by registered or certified mail, return receipt requested, or by any
F-12
<PAGE>
other manner provided by applicable law, and hereby irrevocably and
unconditionally waive any right to claim that any suit, action, proceeding or
litigation so commenced has been commenced in an inconvenient forum.
D. This Agreement and the other agreements referenced herein contain the
entire understanding between the parties hereto and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
E. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
[SIGNATURE PAGE TO FOLLOW]
F-13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EUROPEAN MICRO HOLDINGS, INC.
By:_______________________________
Name: John B. Gallagher
Title: Co-President
MAY DAVIS GROUP, INC.
By: ________________________
Name: Michael Jacobs
Title:Managing Director
F-14
<PAGE>
SCHEDULE A
CLASS A WARRANTS
NAME AMOUNT
Mark Angelo 113,000
Hunter Singer 113,000
Joseph Donahue 113,000
Robert Farrell 113,000
Persia Consulting 48,000
CLASS B WARRANTS
NAME AMOUNT
Mark Angelo 113,000
Hunter Singer 113,000
Joseph Donahue 113,000
Robert Farrell 113,000
Persia Consulting 48,000
<PAGE>
<TABLE>
<CAPTION>
FRONT OF CARD
<S> <C>
EUROPEAN MICRO HOLDINGS, INC. THIS PROXY IS SOLICITED ON BEHALF
6073 N.W. 167TH STREET, UNIT C-25 OF THE BOARD OF DIRECTORS. THE BOARD OF
MIAMI, FLORIDA 33015 DIRECTORS RECOMMENDS A VOTE FOR ALL
DIRECTOR NOMINEES.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
PROXY THE UNDERSIGNED HEREBY APPOINTS FRANK CRUZ AND JAY NASH
AS PROXIES, AND EACH OF THEM WITH FULL POWER OF SUBSTITUTION,
TO REPRESENT THE UNDERSIGNED AND TO VOTE ALL SHARES OF
COMMON STOCK OF EUROPEAN MICRO HOLDINGS, WHICH THE
UNDERSIGNED WOULD BE ENTITLED TO VOTE IF PERSONALLY PRESENT
AND VOTING AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
OCTOBER 30, 2000 OR ANY ADJOURNMENT UPON ALL MATTERS
COMING BEFORE THE MEETING.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS: THE ELECTION OF TWO DIRECTORS, JOHN B. GALLAGHER AND HARRY D. SHIELDS, FOR A THREE YEAR
TERM TO EXPIRE IN 2003.
FOR ALL_____ WITHHOLD AUTHORITY_____ FOR ALL, EXCEPT_____
nominees listed above. to vote For All nominees listed to withhold authority to vote,
above. mark "For All Except" and
write the Nominee's name on
the line below.
----------------------
2. ISSUANCE OF COMMON STOCK: TO APPROVE THE ISSUANCE OF SHARES OF THE COMPANY'S COMMON STOCK PURSUANT
TO AN EQUITY LINE OF CREDIT AGREEMENT DATED AS OF AUGUST 24, 2000, BETWEEN
THE COMPANY AND SPINNERET FINANCIAL SYSTEM, LTD., AS WELL AS THE ISSUANCE OF
SHARES OF THE COMPANY'S COMMON STOCK PURSUANT TO THE EXERCISE OF WARRANTS
ISSUED IN CONNECTION WITH THE EQUITY LINE OF CREDIT AGREEMENT.
FOR_____ ABSTAIN_____
the issuance of common stock. to vote For the issuance
of common stock.
</TABLE>
<PAGE>
BACK OF CARD
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting. This proxy, when properly
executed will be voted in the manner directed herein by the undersigned
stockholder. If no direction is made, the proxy will be voted for Proposal 1 and
Proposal 2.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership please sign in partnership name by authorized person.
DATED: , 2000
------------------- -----------------------------------------
Signature
-----------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
