<PAGE>
As filed with the Securities and Exchange Commission on August 18, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TRAINING DEVICES INTERNATIONAL, INC.
(Name of small business issuer in its charter)
COLORADO 3699 84-1294499
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
7367 S. REVERE PARKWAY, BLDG. #2-C
ENGLEWOOD, COLORADO 80112-3931
(303) 792-3792
(Address and telephone number of principal executive offices)
(Address of principal place of business or
intended principal place of business)
-------------------
RONALD C. ELLINGTON
CHIEF EXECUTIVE OFFICER
TRAINING DEVICES INTERNATIONAL, INC.
7367 S. REVERE PARKWAY, BLDG. #2C
ENGLEWOOD, COLORADO 80112-3931
(303) 792-3792
(Name, address and telephone number of agent for service)
-------------------
COPIES TO
MARK R. LEVY, ESQ. W. CHRIS COLEMAN, ESQ.
HOLLAND & HART LLP MCAFEE & TAFT A PROFESSIONAL CORPORATION
555 17TH STREET, SUITE 3200 TWO LEADERSHIP SQUARE, 10TH FLOOR
DENVER, COLORADO 80202 OKLAHOMA CITY, OKLAHOMA 73102
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Approximate date of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, no par value per share 2,300,000 shares $10.00 $23,000,000 $6,394.00
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Representative's Warrants (3) 200,000 -0- -0- -0-
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Common Stock issuable upon exercise of 200,000 shares $12.00 $2,400,000 $667.20
Representative's Warrants (4)
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Total Registration Fee $7,061.20
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</TABLE>
(1) Includes 300,000 shares issuable upon exercise of underwriters'
over-allotment option.
(2) Estimated solely for purposes of determining the
registration fee pursuant to Rule 457 under the Securities Act.
(3) No registration fee required pursuant to Rule 457(g) under the Securities
Act.
(4) Pursuant to Rule 416 under the Securities Act, there are also being
registered hereby such additional indeterminate number of shares as may
become issuable pursuant to the anti-dilution provisions of the
representative's warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
Subject to completion, dated August 18, 1999
2,000,000 SHARES
[LOGO]
TRAINING DEVICES INTERNATIONAL, INC.
COMMON STOCK
This is our initial public offering. We are offering 2,000,000 shares of
common stock. We currently estimate that the share price will be $10.00. No
public market currently exists for these shares.
We anticipate that the common stock will be approved for listing on the
American Stock Exchange under the symbol "___________."
INVESTMENT IN OUR SHARES INVOLVES SIGNIFICANT RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price $10.00 $20,000,000
Underwriting discounts and commissions $0.80 $1,600,000
Proceeds before expenses to Training Devices
International, Inc. $9.20 $18,400,000
</TABLE>
Solely to cover any over-allotments, we have granted the representative of
the underwriters a 45-day option to purchase up to an additional 15% of the
shares of common stock sold in this offering on these same terms. This offering
is made on a firm commitment basis.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. IT IS A CRIME TO MAKE ANY REPRESENTATION TO
THE CONTRARY.
CAPITAL WEST SECURITIES, INC.
__________________
__________________
__________________
Prospectus dated ______________, 1999.
The information contained herein is not complete and may be changed. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold until the
registration statement is effective. This prospectus is not an offer to sell
these securities and we are not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
<PAGE>
[PICTURE OF FULL
FLIGHT SIMULATOR]
We intend to furnish our stockholders annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
2
<PAGE>
TRAINING DEVICES INTERNATIONAL, INC.
PROSPECTUS
INTRODUCTION
Please read this prospectus carefully. It describes our business, our
products and services and our finances. We have prepared this prospectus so
that you will have the information necessary to make an investment decision.
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of common stock.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Basis of Information in this Prospectus. . . . . . . . . . . . . . . . .18
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . .18
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . .24
Management's Discussion and
Analysis of Financial Condition and Results of Operations . . . . . .26
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . .59
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . .61
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . .63
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . .67
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Where You Can Find More
Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . .F-1
Financial Statements of Training Devices International, Inc. . . . . . .F-2
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION THAT WE PRESENT MORE FULLY IN
OTHER SECTIONS OF THIS PROSPECTUS. TO UNDERSTAND THIS OFFERING, YOU SHOULD READ
THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" AND "FINANCIAL
STATEMENTS OF TRAINING DEVICES INTERNATIONAL, INC." IN THIS PROSPECTUS, WE USE
THE TERM "SIMULATOR" TO REFER TO BOTH FULL FLIGHT SIMULATORS AND FLIGHT TRAINING
DEVICES.
THE COMPANY
We develop and manufacture technology-based full flight simulators and
flight training devices for the training of commercial aviation pilots. Since
beginning our operations in 1996, we have designed, made and sold four
simulators and modernized one simulator for customers. In 1998, we were the
first new manufacturer in 13 years to receive the qualification of the Federal
Aviation Administration for a new full flight simulator.
At the core of our manufacturing process is a software technology unique in
our industry. We developed this software with an advanced architecture which
has modules that simulate individual airplane functions. The modular software
allows us to adapt readily the software from one simulator for a specific
airplane to a simulator for a different airplane, thereby reducing manufacturing
time and cost.
Building on our manufacturing expertise, we intend to make simulators for
use primarily for our own training centers. We will administer and maintain our
centers, and we will offer fractional ownership interests in these simulators to
regional airlines. We believe that regional airlines are an industry segment
with a growing demand for simulator training. We believe that we will be the
first manufacturer of simulators to sell fractional ownership interests in
simulators.
Our fractional ownership program is called "NEXUSim." Our plan is to
manufacture simulators of selected airplanes used by the regional airlines,
including regional jets. The NEXUSim program will permit an airline to purchase
a fractional, undivided ownership interest in a simulator for a specific number
of pilot training hours per year. The airline will realize a lower up-front cost
when compared to buying a simulator and lower hourly rates for training its
pilots as compared to current options available to the airline.
In addition to the revenue from the sale of the fractional ownership
interests, we expect that the training centers will generate additional monthly
revenues to us from:
4
<PAGE>
- Hourly fees charged to owners of fractional interests for the variable
costs of operating simulators at the training centers;
- Monthly fees to those owners for the administration of the training
centers and maintenance of the simulators;
- Hourly fees for use of simulators by non-owners for any fractional
ownership interest we retain.
In lieu of selling fractional interests, we may sell a simulator, or
interests in a simulator, to a leasing company, leaseback the simulator and
contract with airlines for their use of the simulator at one of our training
centers for allotted times. We would then receive revenue from the sale of the
simulator and recurring revenue from the use of the simulator. We have included
this feature in the NEXUSim program in order to meet the needs of a potential
customer who does not wish to have a long-term ownership interest in a simulator
for a specific airplane, whether because of a possible change in the customer's
airplane fleet or for other reasons.
The anticipated revenue from the sale of fractional interests and from any
sale-leaseback of a simulator with a leasing company, together with the
recurring revenue from training centers, will provide us a return of development
and manufacturing costs for the simulators and cash flow to make additional
simulators.
Initially, we intend to open three training centers located strategically
in the United States and possibly Canada to service customers for our
simulators. We may, in addition to or instead of opening a new training center,
acquire existing simulators or pilot training businesses. An acquisition of
this type would allow us (1) to provide training services earlier than is
possible by establishing our own training centers or (2) if done at a later
time, to expand our training services.
Three of our senior executive officers each have over 25 years of
experience in designing, engineering and manufacturing simulators.
We were incorporated in Colorado in January, 1995. Our corporate name is
Training Devices Incorporated. We are changing our corporate name to Training
Devices International, Inc., which we use as a trade name. Our executive
offices are located at 7367 South Revere Parkway, Building #2C, Englewood,
Colorado 80112. Our telephone number is (303) 792-3792. Our Website address is
www.tdisim.com.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by us. . 2,000,000 shares
Common Stock to be outstanding
after the offering . . . . . 3,268,530 shares
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Use of proceeds . . . . . . . To repay 14% Notes in the principal amount of
$890,000; to fund the development and
manufacture of simulators for the NEXUSim
program and our proposed initial training
centers; to fund corporate purposes,
including overhead and operating losses; and
possibly to make complementary acquisitions
of existing simulators or businesses with
simulators for training pilots.
Proposed American Stock
Exchange symbol . . . . . . . ____
</TABLE>
The number of shares of common stock to be outstanding after this offering
does not include shares we have either agreed to issue or reserved for issuance
under our stock option plans and under our outstanding warrants. For more
information, please read the "Capitalization" section on page 20.
Unless the context requires otherwise, "TDI," "we," "us" and "our" in this
prospectus refer to Training Devices International, Inc.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table summarizes financial data for our business. In
addition to this information, please read "Financial Statements of Training
Devices International, Inc." starting on page F-1 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 26.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
----------------------------- ------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED)
-----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues........................... $ 2,201 $ 1,498 $ 484 $ 856
Cost of sales...................... 2,129 2,228 876 777
Gross margin (loss)................ 73 (730) (391) 79
Selling, General and
Administrative................... 523 895 366 564
Loss from operations............... (450) (1,625) (758) (485)
Interest expense (income), net..... 3 10 (2) 28
6
<PAGE>
Other expense...................... -- 3 -- --
Net loss........................... (454) (1,637) (756) (513)
Basic net loss per
share............................ (.66) (1.29) (.60) (.39)
Weighted average number
of common shares outstanding..... 684 1,267 1,266 1,269
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------
PRO FORMA
DECEMBER 31, 1998 ACTUAL AS ADJUSTED
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash 174 -- 16,446
Working capital deficit (928) (866) 15,580
Total assets 571 448 16,894
Total stockholders' deficit (780) (721) 15,725
</TABLE>
The Pro Forma As Adjusted column reflects our receipt of the estimated
net proceeds from the sale of 2,000,000 shares of common stock at an assumed
initial public offering price of $10.00 per share, after deducting
underwriting discounts and other estimated offering expenses and subsequent
repayment of the 14% Notes plus estimated accrued interest due upon the
completion of this offering.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE YOU DECIDE TO BUY OUR COMMON
STOCK. THE RISKS AND UNCERTAINTIES WE DESCRIBE BELOW ARE NOT THE ONLY RISKS
WE FACE. YOU SHOULD CONSIDER ALL OF THESE RISK FACTORS ALONG WITH THE OTHER
INFORMATION CONTAINED IN THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU.
IF ANY OF THE ADVERSE EVENTS DESCRIBED IN THE FOLLOWING RISK FACTORS
ACTUALLY OCCUR OR WE DO NOT ACCOMPLISH NECESSARY EVENTS DESCRIBED IN THE RISK
FACTORS, OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS COULD BE
MATERIALLY AND ADVERSELY AFFECTED, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
WE HAVE EXPERIENCED LOSSES AND NEGATIVE CASH FLOW SINCE WE BEGAN OUR OPERATIONS,
AND THESE MAY CONTINUE.
We have experienced a net loss of $453,803 and $1,637,939 for the 1997 and 1998
years, respectively, and $513,287 for the six months ended June 30, 1999. We had
a negative net worth of $780,282 at December 31, 1998 and $721,272 at June 30,
1999. Among other things, the volume of products we have manufactured and sold
have not been sufficient to cover our fixed and variable costs. Our success
depends on our ability to sell our simulators and to increase revenues in order
to offset our expenses. If our revenues are less than we expected, or if
operating expenses are more than we expected, our business, financial condition
and operating results will be materially and adversely affected.
We expect to have a net loss and negative cash flow in the 1999 and 2000
years. We plan to use the proceeds of this offering to manufacture simulators
for our fractional ownership program. Because customers will not acquire
interests in a simulator until either shortly before or after the FAA qualifies
the simulator, we will not receive any revenue from the sale of fractional
ownership interests until the second half of 2000 and it could be later.
In order to avoid ongoing losses and negative cash flow in the future, we
must:
- Manufacture and sell more products so that revenues cover fixed and
variable costs, even as those costs rise by the addition of
employees to handle the increased volume.
- Control manufacturing costs.
8
<PAGE>
- Avoid delays in the manufacture and sale of products when compared
to the Company's proposed time schedule.
- Maintain low, competitive prices, while still covering our costs.
IF OUR COSTS FOR MANUFACTURING SIMULATORS WITH PROCEEDS FROM THIS OFFERING
EXCEED BUDGETED AMOUNTS, WE MAY NEED TO OBTAIN ADDITIONAL EXTERNAL FINANCING
TO COVER CASH NEEDS DURING THE MANUFACTURING PROCESS.
We must expend manufacturing costs for simulators used in the NEXUSim
program before we sell any fractional ownership interests or sell simulators
to a leasing company. Manufacturing a simulator can take from 12 to 24
months, or longer if we experience a delay. We will not receive payments
from proposed customers or a leasing company in the NEXUSim program until we
receive FAA qualification of a simulator. Thus, any costs above our budgeted
amounts must come from cash on hand or an external financing. We do not know
whether a financing, if needed by us, will be available or whether the terms
of any available financing would be burdensome.
NO BINDING CONTRACTS EXIST FOR OUR SALE OF FRACTIONAL OWNERSHIP INTERESTS IN
THE SIMULATORS WE PLAN TO BUILD WITH THE PROCEEDS FROM THIS OFFERING.
Although we have obtained some letters of interest regarding fractional
ownership interests in simulators, we cannot assure you that anyone will
purchase fractional ownership interests in our simulators. If all of the
fractional ownership interests in a simulator are not sold or leased, we will
need to:
- contract with third parties to use the simulator in our training
center for those time periods corresponding to unsold fractional
ownership interests, or
- find a third-party buyer for the entire simulator.
We also do not have any contracts for either a sale-leaseback with a
leasing company or a contract for use of a simulator by a potential customer.
Not selling a fractional ownership interest or not engaging in the
alternative of a sale-leaseback transaction with a leasing company would
affect our liquidity. In such a case, we would have to recover our
manufacturing costs over an extended period of time through monthly invoicing
of hourly fees for operation of the training center, and we could run out of
funds or slow the manufacture of other products. We could seek external
financing; however, we do not know whether financing would be available or
whether the terms of any available financing would be burdensome.
Accordingly, our inability to sell a fractional ownership interest in a
simulator or to
9
<PAGE>
engage in a sale-leaseback transaction for a simulator would decrease our
overall revenues, operating results and cash flow, which could affect our
ability to survive.
WE HAVE NOT MADE ARRANGEMENTS FOR OUR SELLING ANY SIMULATOR TO A LEASING
COMPANY AND THEN OUR LEASING BACK THE SIMULATOR. IF A SALE-LEASEBACK
TRANSACTION IS COMPLETED, IT WILL DECREASE OUR CASH FLOW AT THE TIME OF THE
TRANSACTION WHEN COMPARED TO A SALE TO CUSTOMERS.
We have talked informally with a leasing company, but we can give no
assurance that a sale-leaseback transaction could be completed. We also do
not know the terms that a leasing company might require or the amount that
the leasing company would pay us for the simulator.
The purpose of the sale-leaseback is to provide us with a return of as
much as possible of our manufacturing cost for the simulator. We expect that
any sale of a simulator to a leasing company, followed by a leaseback of the
simulator to us, would result in our receiving a discount of the sales price
that we would otherwise charge for the simulator to customers which use the
simulator. The leasing company will include discounts for the use of money
invested in the simulator and the risk of realizing a return on the
investment. The amount that we receive in the sale-leaseback may or may not
be the cost of manufacturing the simulator. We would receive later
additional cash from any contracts with customers for the use of that
simulator. If our customers request contracts for the use of the simulator,
rather than purchases of fractional interest, on more than a few occasions,
it could materially and adversely affect our cash flow.
WE DO NOT HAVE A BACKLOG OF CONTRACTS, EXCEPT FOR OUR CURRENT CONTRACTS WHICH
WILL BE COMPLETED BY THE FOURTH QUARTER OF 1999.
In businesses manufacturing simulators or other equipment requiring
significant capital expenditures of the customers, firm contracts in hand for
the equipment are a means to assure ongoing manufacturing activities and
sales of the products. Our NEXUSim program involves building a simulator
without a firm contract, and accordingly we can expect to have little or no
backlog of contracts.
OUR PROPOSED EXPANSION INTO HIGHER PRODUCTION VOLUMES OF SIMULATORS AND INTO
TRAINING CENTERS IS UNPROVEN AND EVOLVING.
If our plans for the NEXUSim program or training centers are not
successful for any reason, we may have to change all or parts of our plans
for future operations. As an example, we might own a simulator placed into a
training center established by us. Any changes could delay our sales of
simulators or our operation of training centers, with the possibility of
continuing losses and negative cash flow.
10
<PAGE>
OUR MANAGEMENT DOES NOT HAVE EXPERIENCE ESTABLISHING OR ADMINISTERING
TRAINING CENTERS FOR COMMERCIAL PILOTS.
We may experience unexpected developments while trying to enter the
business of operating and maintaining training centers for pilots. A key
factor in our success will be our ability to hire people with experience
regarding these types of training centers.
We do not have an established reputation with regard to training centers
and may be at a competitive disadvantage as a result.
ANY DELAYS IN MANUFACTURING A SIMULATOR WILL ADVERSELY AFFECT OUR BUSINESS,
CASH FLOW, FINANCIAL CONDITION AND OPERATING RESULTS.
Manufacturing delays will cause sales of our products and payments to us
to be delayed. If a manufacturing delay occurs, we would continue to have
ongoing manufacturing and overhead costs and would incur higher overall costs
for the simulator. Manufacturing delays could also affect the willingness of
any actual or proposed customer to purchase or use a simulator, could delay
the establishment and operation of a training center and could affect our
credibility in the industry.
Manufacturing delays could result from a variety of reasons, including:
- Delays for any reason by a supplier to provide components for a
simulator. The reasons could include a cancellation, bankruptcy of the
supplier or other events. Also, if we switch suppliers in the course
of manufacturing a product, it could take an additional five or more
months to bring the new supplier into our manufacturing process.
- Quality or other issues arising during the manufacturing process.
- Our inability to receive a complete set of data from the airplane
manufacturer or a third-party supplier about the physical
configuration and flight characteristics of an airplane being
simulated.
- Failure to obtain FAA qualification of a simulator.
- Any fire or other major disruptions for any reason.
Other risk factors described in this "Risk Factors" section could also
cause manufacturing delays.
11
<PAGE>
IF THE NEXUSIM PROGRAM CUSTOMERS CANNOT ARRANGE FINANCING TO PURCHASE
FRACTIONAL OWNERSHIP INTERESTS IN A SIMULATOR, OUR BUSINESS MAY NOT BE
SUCCESSFUL.
We do not expect most of our customers to have sufficient cash, or to
want to use their available cash, to buy a fractional ownership interest in a
simulator. As a result, the customers will need to arrange for financing the
purchase. Some customers, such as small regional airlines, may have
difficulty obtaining a financing because of their credit rating or lack of
collateral.
We also are not certain whether the features and terms of the NEXUSim
program are satisfactory for a potential lender to provide financing of a
customer's purchase of a fractional ownership interest in a simulator. In
informal contacts, a few potential lenders have indicated financing for
customers may be possible, but a proposed lender would need to consider both
the specific terms of the NEXUSim program and information on the customer.
If necessary, we might revise our NEXUSim program in an attempt to make
financing options available for our potential customers.
WE HAVE NEVER MANUFACTURED MORE THAN THREE SIMULATORS AT THE SAME TIME. OUR
PROPOSED EXPANSION OF MANUFACTURING REQUIRES COORDINATION AND INTEGRATION OF
OUR WORK FLOW PROCESS, FINANCIAL AND INFORMATION MANAGEMENT SYSTEMS AND NEW
AND EXISTING EMPLOYEES.
This type of expansion also places a substantial burden on our
management and financial controls. As part of our expansion, we plan to
manufacture up to six simulators at the same time. We anticipate that our
full-time employees will grow from 20 up to approximately 60 over the next
three years. Unless we modify and integrate our processes and systems
successfully, we could experience higher costs, delays and quality or other
problems in manufacturing the simulators, and we might not be able to have in
process at the same time enough simulators to be profitable.
OUR BUSINESS DEPENDS ON OUR REPUTATION WITHIN A SMALL GROUP OF POTENTIAL
CUSTOMERS.
We expect our customers for simulators and pilot training centers,
whether through the NEXUSim program or the outright sale of a simulator to
one customer, to be limited to approximately 70 regional airlines in North
America and other parties in commercial aviation. Our reputation with, and
ability to sell to, this small group could be affected by dealings with, or
performance for, any one customer.
The Company has in the past worked with, and will in the future work
with, a few customers for the outright purchase of an entire simulator. The
potential customer base for the NEXUSim program will also be relatively
small. We will sell up to seven fractional shares in a simulator, and we
expect that any contracts for use
12
<PAGE>
of a simulator will also be with up to seven customers. The loss of even one
existing or proposed customer could have a material, negative impact on our
business.
WE HAVE NO LONG-TERM CONTRACTS WITH SUPPLIERS.
A supplier may decline to deal with us. Suppliers can also change
prices for parts used in our simulators and may assert more control over the
delivery time for parts. If we obtain a component for simulators from
different suppliers, we may experience some differences in the component that
could require adjustments in our manufacturing process and could increase our
costs.
THE LOSS OF ANY KEY PERSONNEL COULD HARM US AND OUR BUSINESS. WE ALSO MUST
BE ABLE TO ATTRACT AND RETAIN HIGHLY SKILLED PERSONNEL.
We believe that our success depends upon the continued services of our
senior management team, particularly Ronald C. Ellington (the Chief Executive
Officer), Bruce Betschart (a founder and Chief Operating Officer), Robert E.
Sawyer, Jr. (a founder and Vice President-Engineering), and Charles Douglas
(Vice President-Operations). We have no key man life insurance at this time
for our management. The loss of the services of any senior management member
or other key employees could adversely affect our operations and thereby our
financial condition and operating results.
Our manufacturing process requires technicians and engineers and is not
a simple assembling process, but rather a complex integration of components
and software. Maintenance of simulators is also a skilled position. Our
expansion depends on our ability to identify, attract, hire, train, retain
and motivate highly skilled technical, managerial, sales and marketing
personnel. Competition for this type of personnel is intense, and we may not
be able to hire or retain sufficient qualified personnel. Any delay in
filling these positions could adversely impact our manufacturing schedule,
revenues and cash flow.
OUR COMPETITORS HAVE SIGNIFICANT ADVANTAGES IN OUR INDUSTRY.
We are a relatively new simulator manufacturer, and we are a small
company. We propose to be a new entrant in the operation of pilot training
centers. Airlines and other customers in the commercial aviation industry
rely on name recognition and past experience when deciding whether a supplier
can provide products and training services in a reliable and timely manner.
Our size and limited experience are disadvantages.
Our principal competitors make most of the simulators used in North
America. They are significantly larger than us, have established reputations,
and have more financing, personnel and technological and marketing resources.
One of the
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<PAGE>
competitors, FlightSafety International, Inc., may have long-term contracts
with some regional airlines for the use of training centers, and these
long-term contracts could interfere with the ability of the Company to sell
fractional ownership interests in a simulator to a regional airline.
Our ability to compete depends in part on being able to offer simulators
for particular airplanes and to offer products and training services at
relatively low overall costs for the customer. However, we can charge low
prices and make a profit only if we increase our volume and control costs.
Competitors may be able to charge lower prices for simulators or training
services because of their greater resources and size.
A SHIFT IN THE DEMAND AND SUPPLY OF SIMULATORS COULD MATERIALLY AND ADVERSELY
AFFECT OUR ABILITY TO COMPETE.
We believe that the demand for simulators for airplanes of regional
airlines currently exceeds the supply and that this trend will continue for
the next several years. If our competitors increase their supply of
simulators for specific airplanes used by regional airlines, the demand for
our simulators could materially decrease. Any decrease in our proposed sales
of simulators or our proposed contracts with customers for the use of
simulators would materially and adversely affect our business.
Commercial aviation and the profitability and growth of related
industries depends in part upon a prosperous economy. Any economic or other
events (such as a fuel shortage) could cause a slow-down in the use of
commercial airplanes, including the number of passengers flying on regional
airlines. Such an event could adversely and materially affect the demand for
our simulators and for our pilot training centers.
TECHNOLOGICAL CHANGES IN OUR INDUSTRY COULD MATERIALLY AND ADVERSELY AFFECT
OUR BUSINESS.
Our products and the software used in them, are technologically
advanced. We spend little on research and development. Instead, we buy our
major components from established third-party suppliers. If we fail because
of limited resources or otherwise to respond to technological developments
and enhancements in our software, product integration and training services,
our business could be adversely affected.
The components purchased by us for integration into simulators may be
affected by technological changes. If we could not purchase components with
technological changes or improvements from our existing suppliers or new
suppliers, we could experience a material and adverse effect on our ability
to compete.
14
<PAGE>
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY ADVERSELY AFFECT
OUR COMPETITIVE POSITION.
Our products and techniques are not trademarked or patented. We rely
upon copyrights, common law rights on names and marks, trade secret
protection and a single-use license with our customers with regard to our
proprietary technology, including the sophisticated software used in our
simulators. We also have confidentiality agreements with our employees.
These protective measures may not be adequate to protect our proprietary
rights, and we may not be able to prevent others from claiming violations of
their proprietary rights.
The misappropriation of any of our proprietary rights could adversely
affect our business. If we have to bring legal action to enforce our
proprietary rights, the proceedings could be burdensome and expensive, and
the outcome of any legal proceeding would be uncertain.
CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT WOULD EXPOSE US TO COSTS AND
POTENTIAL LOSSES.
We are not aware that we are infringing any proprietary rights of third
parties. However, it is possible that we may be made the subject of claims
alleging infringement of a third party's proprietary rights. If we
discovered that we were infringing rights of third parties, we might not be
able to obtain permission to use those rights on commercially reasonable
terms. We would then need to change our manner of doing business and
discontinue the infringing aspect of the product or service. Any claim of
infringement could cause us to incur substantial costs in defending against
the claim, even if the claim is invalid, and could distract the management
from our business. If any claim of this nature resulted in a judgment, we
might be required to pay substantial damages or change our products or
services.
A CHANGE IN GOVERNMENT REGULATIONS COULD INCREASE OUR COST OF DOING BUSINESS
OR CAUSE US TO CHANGE THE WAY WE CONDUCT OUR BUSINESS.
The FAA has requirements concerning simulators and the use of
simulators. The FAA also regulates training centers for commercial pilots. A
change in FAA regulations could impose additional burdens on us and our
competitors and limit our ability to serve our customers.
OUR LIABILITY INSURANCE MAY NOT BE ADEQUATE TO COVER OUR EXPOSURE TO
POTENTIAL LIABILITIES.
The equipment that we manufacture is dangerous and can cause injury or
death. In addition, claims alleging responsibilities for pilot errors in
airplane accidents have been made against training organizations and
simulator manufacturers,
15
<PAGE>
alleging responsibilities for pilot errors in airplane accidents. We do not
know whether our insurance is adequate to cover potential liabilities. We
also cannot assure you that liability insurance will continue to be available
on acceptable terms, or whether it will be available at all.
ANY ACQUISITIONS OF PILOT TRAINING EQUIPMENT OR BUSINESSES COULD DILUTE
MATERIALLY THE INTERESTS OF OUR SHAREHOLDERS AND PRESENT OTHER RISKS.
We may in the future purchase existing simulators or pilot training
businesses. An acquisition by means of stock, or cash raised through the
sale of stock, could dilute the existing shareholders in terms of their
ownership interests and earnings (or loss) per share.
We have not previously acquired other businesses. Acquisitions involve
a number of risks, including adverse affects on operating results, burdens on
management's time and financial controls, dependence upon retaining or hiring
of key personnel for the acquired business, unanticipated problems of
integration into our businesses, legal liabilities and the amortization of
any acquired intangible assets.
THE FUTURE SALE OF SHARES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD
CAUSE THE STOCK PRICE TO FALL AND DECREASE THE VALUE OF AN INVESTMENT IN OUR
COMMON STOCK.
The market price for our common stock could fall if stockholders sell
substantial amounts of common stock, including shares issued upon the
exercise of outstanding options, warrants or conversion rights, in the public
market following this offering. These types of sales might also make it more
difficult for us to sell equity securities in the future. For example, our
present shareholders have approximately 342,000 shares of common stock that
may be freely sold on the public market after nine months from completion of
this offering and approximately 436,000 shares that are freely transferable
after one year.
Restrictions under certain lock-up agreements, with terms ranging from
nine months to two years, limit the number of shares of common stock
available for sale in the public market. However, the underwriters may
release all or any portion of the securities subject to the lock-up
agreements.
Upon closing of this offering, some stock and warrant holders are
entitled to certain registration rights. The exercise of those registration
rights could adversely affect the market price of our common stock because
investors may view the registered shares as a supply of shares overhanging
the market.
16
<PAGE>
CERTAIN PROVISIONS IN OUR CORPORATE DOCUMENTS MAY DISCOURAGE AN ACQUISITION
BY OTHERS AND DEPRESS THE PRICE OF OUR STOCK.
Some of the provisions in our corporate documents could make it more
difficult for a third party to acquire us, even if a change in control would
benefit the stockholders. These provisions include a two-thirds vote of
shareholders for a merger or a sale of substantially all of our assets, the
staggered election of directors for three-year terms, the requirement that
directors can only be removed for cause and the availability of a large
number of authorized but unissued shares of common and preferred stock.
These provisions may discourage, delay or prevent a change in control or
a change in our management. The provisions could also limit the price that a
potential investor might be willing to pay for our common stock.
17
<PAGE>
BASIS OF INFORMATION IN THIS PROSPECTUS
Unless otherwise indicated, all information in this prospectus assumes:
- the filing and effectiveness of our Amended and Restated Articles of
Incorporation and our plan of recapitalization for a 3 to 1 reverse
stock split; and
- the underwriters do not exercise their over-allotment option or their
warrants and that no other person exercises any other outstanding
option or warrant.
The new provisions in our Amended and Restated Articles of Incorporation
and the 3 to 1 reverse stock split are not reflected in our financial
statements.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements that involve
risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "believes," "expects," "estimates," "anticipates,"
"intends," "plans" and similar expressions. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of various factors, including all the risk discussed in "Risk Factors" and
elsewhere in this prospectus.
USE OF PROCEEDS
We estimate that, after deducting underwriting discounts and
commissions, a non-accountable expense allowance of the underwriters, and the
estimated offering expenses, it will receive net proceeds from this offering
of approximately $17,388,000 or $20,073,000 if the underwriters exercise
their over-allotment option in full. Each of these amounts is based upon an
assumed initial public offering price of $10.00 per share.
We intend to use the estimated net proceeds for the following purposes
and in the following priorities:
18
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT OF
NET PROCEEDS
------------
<S> <C>
Pay the principal and accrued interest on our 14% Notes
due upon completion of this offering ....................... $ 942,000
Fund the development and manufacture of simulators ........... $15,000,000
Fund general corporate purposes, including the payment
of selling, general and administrative expenses, the
payment of current liabilities, and possibly
complementary acquisitions of existing simulators or
businesses with simulators for training pilots ............... $ 1,446,000
-----------
Total ............................................... $17,388,000
</TABLE>
We issued the above-mentioned 14% Notes in May through August 17, 1999 in
order to provide working capital and to pay for part of this offering. The
above table utilizes the balance outstanding of the 14% Notes as of August 17,
1999 plus estimated accrued interest to the date of the completion of this
offering.
We currently have no understandings, commitments or agreements for any
material acquisition or investment.
The foregoing discussion of the use of proceeds is only an estimate
based upon our current business plan. Our actual expenditures may vary
depending upon circumstances that occur, such as the timing of the
manufacture of simulators and any financing received by us as part of
proposed or future joint arrangements for the use of simulators, such as
arrangements with the Aims Foundation described on page 46 of this
prospectus.
Pending use of the net proceeds of this offering, we intend to invest
the net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We currently expect to retain future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999.
Our capitalization is presented:
(1) On an actual basis; and
(2) On an pro forma as adjusted basis to reflect the receipt of the
estimated net proceeds from the sale of 2,000,000 shares of common stock at
an assumed initial public offering price of $10.00 per share, after deducting
underwriting discounts and estimated offering expenses.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------
PRO FORMA
ACTUAL ADJUSTED
------ ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
10% convertible notes, due January 2, 2001,
payable to related parties ..................... $ 120 $ 120
Preferred stock, no par value per share;
10,000,000 shares authorized; no shares
issued, actual and pro forma as adjusted ....... -- --
Common stock and additional paid in capital,
no par value per share, 20,000,000 shares
authorized, 1,268,530 shares issued and
outstanding, actual; and 3,268,530 shares
issued and outstanding pro forma as adjusted ... 3,913 21,301
Accumulated deficit ................................ (4,634) (4,634)
------- -------
Total capitalization ............................... $ (601) $16,787
------- -------
------- -------
</TABLE>
We expect there to be 3,268,530 shares of common stock outstanding after
this initial public offering. In addition to the shares outstanding after the
offering, we may issue additional shares of common stock under the following
plans and arrangements:
20
<PAGE>
- 235,667 shares issuable upon the exercise of stock options outstanding
under the 1997 Incentive and Nonstatutory Stock Option Plan, as
amended, at a weighted average exercise price of $3.00 per share;
- 400,000 additional shares which have been reserved for issuance under
our 1999 Stock Option Plan; we intend to grant options for 400,000
shares under the 1999 Stock Option Plan, with an exercise price equal
to the fair market value at the date of grant, after completion of
this initial public offering;
- 100,000 shares issuable upon exercise of an option held by a former
director of ours granted under an option agreement exercisable at a
price of $3.00 per share.
- 32,000 shares issuable upon the conversion of two outstanding
unsecured convertible promissory notes, in the principal amounts of
$100,000 and $20,000 each, accruing interest at a fixed rate of 10%
per annum, each with a maturity date of January 2, 2001 and a
conversion rate of one share of common stock for each $3.75 of
principal.
- 264,750 shares of common stock reserved for issuance under outstanding
warrants for common stock at a weighted average exercise price of
$6.23 per share; and
- 200,000 shares issuable upon the exercise of warrants being granted to
the Underwriters in connection with this Offering, with an exercise
price of 120% of the public offering price for shares in this Offering.
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was a deficit
of $(843,114), or approximately $(0.66) per share. Pro forma net tangible
book value (deficit) per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of common
stock outstanding.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of common stock in
this offering and the net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to the sale
of 2,000,000 shares of common stock offered at an assumed initial public
offering price of $10.00 per share, and after deducting the underwriting
discounts and estimated offering expenses payable by us, our pro forma net
tangible book value at June 30, 1999 would have been $16,617,266 or $5.08 per
share. This represents an immediate increase in pro forma net tangible book
value of $5.74 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $4.92 per share to purchasers of common
stock in this offering. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share...................................... $10.00
Pro forma net tangible book value per share at June 30, 1999................. $(0.66)
Increase in pro forma net tangible book value per share attributable to new
investors............................................................... $ 5.74
Pro forma net tangible book value per share after this offering.............. $ 5.08
Dilution in pro forma net tangible book value per share to new
investors............................................................... $ 4.92
------
------
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share by existing holders
of common stock and by the new investors at an assumed public offering price of
$10.00 per share, before deducting underwriting discounts and other estimated
offering expenses payable by us:
22
<PAGE>
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 1,268,530 39% $ 3,276,090 14% $ 2.58
New investors................ 2,000,000 61% $20,000,000 86 $10.00
--------- --- ----------- --- ------
Total............... 3,268,530 100% $23,276,090 100% $ 7.12
--------- --- ----------- --- ------
--------- --- ----------- --- ------
</TABLE>
All of the above computations assume no exercise of options or warrants
to purchase common stock, which options or warrants are either outstanding or
will be issued upon completion of this offering. Those options and warrants
are listed in the preceding section called "Capitalization." If any of those
options or warrants are exercised, new investors will suffer further dilution.
23
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data at and for each of the two fiscal
years in the period ended December 31, 1998 have been derived from our financial
statements which have been audited by Arthur Andersen, LLP, independent public
accountants. The selected financial data at June 30, 1999 and for the six months
ended June 30, 1998 and June 30, 1999 have been derived from unaudited financial
statements, which in the opinion of our management reflect all necessary
adjustments (consisting of only normal, recurring adjustments) for a fair
presentation of such six months' results when read in conjunction with the
audited financial statements and notes thereto. The historical results of
operations are not necessarily indicative of the results which may be expected
for any future period. The data set forth below should be read together with the
financial statements and notes included elsewhere in this prospectus and also
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
----------------------------- --------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1998 1999
------------ ------------ -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues ................................. $ 2,201 $ 1,498 $ 484 $ 856
Cost of sales ............................ 2,129 2,228 876 777
Gross margin (loss) ...................... 73 (730) (391) 79
Selling, General and
Administrative ....................... 523 895 366 564
Loss from operations ..................... (450) (1,625) (758) (485)
Interest expense, net .................... 3 10 (2) 28
Other expense ............................ -- 3 -- --
Net loss ................................. (454) (1,637) (756) (513)
Basic net loss per
share ................................ (.66) (1.29) (.60) (.39)
Weighted average number
of common shares
outstanding .......................... 684 1,267 1,266 1,269
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------
PRO FORMA
DECEMBER 31, 1998 ACTUAL AS ADJUSTED
----------------- ------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash 174 -- 16,446
Working capital deficit (928) (866) 15,580
Total assets 571 448 16,894
Total stockholders' deficit (780) (721) 15,725
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We commenced operations in 1996, and in 1998 became the first new
manufacturer to receive FAA qualification of a full flight simulator in 13
years. We have spent three years enhancing our sophisticated modular
software, developing our manufacturing systems and training our manufacturing
team. Since inception we have raised total equity capital of approximately
$3,000,000 and had an accumulated deficit of approximately $4,400,000 as of
December 31, 1998.
We have experienced operating deficits for all years of operation due to
(a) a lack of sufficient capitalization, which impaired our ability to order
parts timely and extended our manufacturing time and costs; (b) insufficient
manufacturing volume to generate enough revenue to offset our overhead; and
(c) heavy non-recurring development costs (such as customizing software and
engineering) incurred in 1997 in the manufacturing of our first full flight
simulator.
We believe that our historical operating results are not indicative of
future performance for the following reasons, among others:
- - The receipt of the proceeds of this offering and a loan contemplated from
Aims Community College Foundation will provide sufficient liquidity to fund
the manufacturing of our initial simulators for our own training centers
through the year 2000;
- - We are entering a new market segment (airline pilot training centers);
- - Our proposed training centers are expected to generate recurring revenues
at higher margins than are generated by manufacturing and selling
simulators to independent third parties as we have historically done;
- - The sale of fractional ownership interests in the simulators will allow us
to recover our development cost and reinvest the funds in the manufacturing
of subsequent simulators; and
- - We have our software and manufacturing capabilities in place.
We do not expect to receive any significant revenue for at least 12
months while we are manufacturing up to three simulators. Earnings,
therefore, will not be achieved for at least 12 months due to the lengthy
time it takes (12-24 months) to manufacture a simulator. Revenues and related
earnings are projected to occur as
26
<PAGE>
fractional interests are sold, simulators are placed in service in our
training centers and monthly service fees from fixed term contracts are
achieved.
We have historically used the percentage of completion revenue
recognition method for third party manufacturing contracts. We will
capitalize the cost of the simulators we build for our own training centers
and will recognize the expense as cost of sales when revenue from the sale of
fractional ownership interests is realized.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Revenues were $2,201,403 and $1,498,192 in fiscal years 1997 and 1998,
respectively. We recognize revenue from third party manufacturing contracts
on the percentage completion method. This $703,211 decrease of 31.9% resulted
primarily from completing two contracts early in 1998 for which the bulk of
the work was completed and revenue recognized in 1997.
We did not have replacement projects until later in 1998.
GROSS MARGIN (LOSS)
Gross Margin (loss) consists of net sales less cost of sales. Cost of
sales consists primarily of the cost of material, assembly and test costs,
labor, and subcontractors cost. Our gross margin (loss) was $72,639 and
($729,548) in fiscal years 1997 and 1998, respectively. This represents 3.3%
in fiscal 1997 and (48.7%) in fiscal 1998 as a percentage of revenues. We
accepted a contract in 1996 that gave us our opportunity to build and FAA
qualify our first simulator and demonstrate our manufacturing capability to
the market. To secure the contract we agreed to co-fund the research and
development cost by reducing the sales price of the simulator by $1,300,000,
which provided an estimated loss of $1,100,000 on the total contract which
was recognized in 1996. We completed the bulk of the work on this contract
during 1997 and no margin was realized during that period. In 1998, as we
neared completion of the simulator, we accommodated multiple change orders
which approximated $130,000. These amounts were not billed to the purchaser,
and accordingly these amounts were recognized as losses during 1998. In
addition to the loss previously described, the $802,107 decrease in gross
margin in fiscal 1998 resulted from a loss of $242,000 being recognized on a
new contract. The primary reason for the loss on the new contract is that we
had originally intended on completing multiple flight training devices of the
same type, thereby spreading the development cost. The higher projected
volumes, however, did not occur and the total development cost was recognized
on this one contract.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses consist primarily of
salaries and related costs of management, customer support costs, sales and
marketing, rent, basic office expenses, and professional services. SG&A
expenses were $523,149 and $895,329 in fiscal years 1997 and 1998,
respectively. This represents 23.8% for fiscal 1997 and 59.8% for fiscal 1998
as a percentage of net
27
<PAGE>
revenues. The $372,180 increase is primarily due to increased sales and
marketing expenses, increased rent from relocating to a second manufacturing
facility (until the initial facility was partially subleased), which were
incurred to prepare us for growth, and reserves and accruals for expenses
incurred in 1998 and expected to be paid in 1999.
INCOME TAXES
Income taxes will consist of federal, state and local taxes, when
applicable. We expect net operating losses for tax purposes for the remainder
of 1999 and all of 2000. We have recorded no provision or benefit for federal
and state income taxes because we incurred net operating loses from inception
through December 31, 1998. We have, as of December 31, 1998, approximately
$3,600,000 of federal and state net operating loss carry-fowards available to
offset future taxable income which expire in varying amounts beginning in
2012. We project having taxable income in 2001 against which to start
utilizing our carry-forwards subject to certain limitations.
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUES
Revenues were $484,988 and $855,988 for the six months ended June 30,
1998 and 1999, respectively. This was an increase of $371,704 or 76.8% over
the same period in the prior year. The increase is primarily due to two new
manufacturing contracts that started in late 1998 and carried forward into
the first half of 1999.
GROSS MARGIN (LOSS)
Our gross margin (loss) was ($391,293) and $79,259 for the six months
ended June 30, 1998 and 1999, respectively. This increase in gross margin is
primarily due to increased revenues from the new contracts and decreased cost
for subcontractors and indirect labor. We also had losses on contracts in
progress in 1998 totaling approximately $116,000 because our initial pricing
was based on higher projected volumes that did not occur.
SELLING, GENERAL AND ADMINISTRATIVE
Our SG&A expenses were $366,438 and $564,353 for the six months ended
June 30, 1998 and 1999, respectively. This is 75.7% and 65.9%, respectively
as a percentage of revenue. This increase of $197,915, or 53.2%, is primarily
due to a
28
<PAGE>
one-time non-cash expense of $287,057 for options granted in 1999 with
exercise prices less than fair market value at the date of grant.
INTEREST EXPENSE (INCOME)
Interest expense (income) was ($1,595) and $28,193 for the six months
ended June 30, 1998 and June 30, 1999, respectively. This represents .3% and
3.3%, respectively, as a percentage of net revenues. This increase is
primarily due to bridge loan fees for borrowings in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Prior to this offering, we have financed our operations through the net
proceeds generated from the issuance of common stock, contract revenues and
to a lesser extent from short-term borrowings, including convertible debt,
some of which was subsequently converted into common stock. We have received
net proceeds from the issuance of common stock and short-term borrowings
aggregating approximately $3,900,000.
We used $530,000 more in cash in operating activities for the first six
months of fiscal 1999 than we generated. We increased our borrowings starting
in May 1999 through a bridge loan from private investors, and obtained net
proceeds of $458,505 from it through June 30, 1999. In August 1999, we
completed the bridge loan financing with proceeds of approximately $830,000
($756,000, net) and also received a loan on the same terms from two executive
officers and directors of the Company in the amount of $60,000. These loans
are repayable at the earlier of May 2000 or from the net proceeds of this
offering. We did not raise any additional equity in 1999 as we did in the
prior period in 1998.
We had a working capital deficit of ($866,422) as of June 30, 1999. Our
principal commitments at June 30, 1999 consisted of $586,095 of accounts
payable and accrued expenses.
We had no material commitments for capital expenditures as of June 30,
1999. Our future capital expenditures will be primarily directed at building
out additional leased space for our training centers, expanding our
manufacturing facility and purchasing simulator spare parts. These amounts in
year 2000 are expected to be approximately $250,000.
We believe that our working capital and capital resource needs will
continue to be met temporarily by operations, the borrowings under our bridge
loan offering and a contemplated loan from Aims Community College Foundation.
We are currently in negotiations with the Aims Foundation to secure a
$2,000,000 debt facility to be used to fund the commencement of manufacturing
our first simulator for our own training center to be located on the college
campus in Greeley, Colorado. The Board of the Foundation has approved the
transaction subject to its being able to borrow
29
<PAGE>
$2,000,000 from a local bank under suitable terms and entering into
satisfactory contracts with us. One of our primary component manufacturers
has stated its intent to provide $1,500,000 in vendor financing. This loan is
non-interest bearing and will be repaid after FAA qualification of the
simulator.
We believe that the net proceeds from the sale of our common stock
offered hereby and the other sources discussed will satisfy our projected
needs for working capital, capital expenditures, fund operating losses and
other cash requirements through at least the end of fiscal 2000. These
sources include the net proceeds, the Aims Foundation loan, vendor financing,
and the sale of fractional interests in the second half of 2000. These funds
will be used primarily to manufacture simulators (the first three of which
will cost approximately $12,500,000 through the year 2000) and to provide
needed working capital of approximately $1,800,000 per year.
Funds for the manufacturing of subsequent simulators and for ongoing
operations will come from the monthly contract revenue from the training
centers and the sales of fractional ownership interests to regional airlines.
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BUSINESS
GENERAL
We develop and manufacture technology-based flight training products for
the commercial aviation market. Our products are full flight simulators
(which include motion) and flight training devices for the training of
pilots. Our products incorporate sophisticated software with modules relating
to individual airplane functions.
We intend to use our manufacturing capabilities and knowledge about
simulators to enter into the service business of providing training centers
for airline pilots. Our establishment of these training centers will involve
manufacturing full flight simulators for the centers, selling fractional
ownership interests in these simulators and possibly entering into contracts
with customers for their use of simulators.
We plan to exploit the shortage of simulators for training regional
airline pilots in North America. Our proposed simulators are for airplanes
used by regional airlines. Also, based on our projections, our fractional
ownership interest program will offer an airline a lower upfront cost and
lower hourly rates for training its pilots when compared to the current
options of purchasing a simulator or paying the hourly rates of our
competitors.
In order for an airline to use a simulator to satisfy pilot training
requirements of the FAA, the FAA must have qualified the simulator. We are
one of four companies that manufactures FAA qualified full flight simulators
used in North America. To our knowledge, in North America only one other
company, FlightSafety International, Inc., manufactures flight simulators for
its own pilot training centers.
STRATEGY
Our objective is to increase significantly our revenues by increasing
the volume of simulators we manufacture and sell and by providing training
centers for airline pilots. In order to achieve this objective, we plan to:
- Utilize our experience with simulators to establish training centers
with recurring revenues.
- Maintain our position as a low cost provider of simulators, which in
turn involves the use of modular software developed by us and the use
of manufacturing team members who have been trained by us over the
last three years.
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- Build simulators primarily for our training centers, with only a
portion of our manufacturing capacity used for products sold to
unaffiliated third parties.
- Sell fractional ownership interests in our training center simulators.
Alternatively, engage in a sale-leaseback transaction with a leasing
company for a simulator in order to realize cash at the time of
completing a simulator and enter into contracts with customers for the
use of the simulator.
- Provide services and maintenance related to the training centers and
simulators.
- Focus on regional airlines whose training needs our management expects
to grow and create higher demand for simulators.
- Consider acquisitions (whether outright or in joint ventures) of
existing simulators or training businesses to start or enhance
revenues from training services.
MARKET OVERVIEW
TRAINING AIRLINE PILOTS
Commercial airline pilot training in the United States includes initial,
upgrade, transition and recurrent training in the operation and performance
of airplanes. Initial training concerns instruction of pilots in the
operation of an airplane group (such as an airplane powered by
turbo-propellers or an airplane powered by jet engines) in which the pilot
has not previously been qualified. Upgrade training encompasses instruction
of a crew member to become a pilot in command or second in command of an
airplane. Transition training concerns the instruction of pilots in the
operation of a different airplane within the same group. Recurrent training
is to keep pilots adequately trained and proficient with respect to the
pilot's current airplane. Pilots in command and first officers must
successfully complete recurrent training every six months and 12 months,
respectively. The FAA requires all of these types of training.
Instruction for pilots can be in simulators, can be in-flight using an
actual airplane or can be a combination of these methods. Training in a
simulator enables a pilot and airline:
- To practice procedures and techniques in a controlled environment,
including maneuvers that would be hazardous or prohibitive in actual
flight,
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such as responding to a fire, an engine shutdown, a total system
failure or other emergencies that cannot be demonstrated on an
airplane.
- To eliminate risks of damage to the airplane.
- To realize significant cost savings when compared to the cost of
flying an airplane for training.
At the airline's option, a pilot can satisfy all or a significant portion of
the FAA training requirements in an FAA approved simulator. The FAA also
requires the use of simulators for high risk, low-altitude windshear flight
training.
Effective in March, 1997, the FAA issued a new regulation applicable to
all airlines that operate scheduled air carrier service in airplanes having
more than nine passenger seats. This new regulation encompasses regional
airlines, which, prior to this time, were subject to regulations for charter
operations. Among its provisions, the FAA regulations require all regional
airlines to conduct pilot training and reviews in accordance with the same
provisions that apply to major airlines. The FAA intended this significant
change to encourage one standard level of safety for all air carriers,
regardless of the size of their airplane fleet or the range of their flight
operations. In connection with this new regulation, the FAA also adopted a
policy of encouraging regional airlines to utilize simulator training for
pilots in addition to or in lieu of training in airplanes. These changes have
brought about a shortage of simulators as the demand for pilot training from
regional airlines and others in commercial aviation rises.
MARKET SEGMENTS
The market for training pilots in commercial aviation includes the
segments described below.
REGIONAL AIRLINES. Regional airlines means passenger-carrying
operations that are conducted (1) by jet powered airplanes, or airplanes
having more than nine passenger seats or airplanes with a certain payload,
and (2) between any points within the 48 contiguous states of the United
States, or entirely within any state, territory or possession of the United
States or between any point within the 48 contiguous states and any
specifically authorized point located outside of the 48 contiguous states. We
estimate that there are 60 to 70 regional airlines operating in the United
States and Canada. The market for the training of regional airline pilots is
growing because of:
- The FAA regulations as described above.
- The growth in regional airline passengers.
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- The increasing shift from turbo-propeller airplanes to regional jets.
- The effects of major airlines hiring pilots away from the regional
airlines.
In the United States, 71.1 million passengers boarded airplanes operated
by regional airlines in 1998, compared to 35.2 million in 1988. The number of
passengers increased 7% in 1998 over the 1997 year, and there has been a 25%
increase in U.S. passengers boarding regional airlines during the past four
years. (This data is from reports issued by AvStat Associates and the
Regional Airline Association.)
U.S. regional airlines operated 2,150 airplanes in 1998, an increase of
2% from the 1997 fleet. Regional jets have been providing an increasing
percentage of the regional airlines capacity, reaching 24% at the end of 1998
as measured by the number of passenger seats. (This data is from reports
issued by AvStat Associates and the Regional Airline Association.) These jets
are a significant reason for the growth of regional airlines. They fly
farther than turbo-propeller airplanes, which enables the airline to reach a
larger market share.
Pilot training requirements of a regional or other airline are directly
related to training events that take place. These training events include,
for example, recurrent training of an airline's existing pilots and promotion
of a co-pilot to the pilot in command.
Additional training events occur each time a pilot or co-pilot leaves an
airline. This attrition can be caused from a number of reasons, including
moving to a major airline or retiring. Major airlines are hiring new pilots
to meet their growth. The majority of the new pilots hired by major airlines
come from the regional airlines. For every pilot a major airline hires from a
regional airline, the regional airline must train the replacement pilot as
well as the other persons who become pilots or copilots as a result of that
replacement.
Another significant training event is the addition of a new airplane.
Regional airlines in general have ten pilots (five captains and five
co-pilots) to operate each airplane on a rotating schedule. Therefore, each
new airplane can result in ten pilot training events concerning the hiring of
new pilots or co-pilots to the new airplane. Other related training events
may also occur. For example, if an airline receives a new regional jet, it
may have five co-pilots of the same jet model become captains for the new
jet, resulting in upgrade training. Ten pilots in a turbo-propeller airplane
may then have transition or upgrade training so that they can become five of
the jet co-pilots on the new airplane and replace on the older jet the five
co-pilots that became captains. New pilots replacing those moving from the
turbo-propeller airplane may also be hired and have either initial or
transition training.
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MAJOR AIRLINES. Major airlines include air carriers conducting the same
operations as a regional airline and also having flights to destinations
outside the contiguous 48 states. Ten major airlines are headquartered in the
United States. Major airlines typically own and operate all training centers
necessary for their pilots and for that purpose purchase simulators.
CARGO CARRIERS. These airlines are generally carriers without fixed
schedules. They are treated like major or regional airlines for purposes of
FAA training requirements.
CORPORATE MARKET. The market for corporate airplanes is diversified and
includes many different types of airplanes and pilot training requirements. A
corporate pilot typically operates under FAA requirements for chartered
airplanes flying executive jets or small charter company airplanes.
FLIGHT SCHOOLS. This market consists of universities with aviation
programs and independent flight schools. There are estimated to be over
100 universities and over 350 flight schools in the United States.
We focus on regional airlines, although we may serve customers in other
market segments.
DEMAND EXCEEDING SUPPLY
The simulators which we plan to manufacture and place in our training
centers are for airplanes that are used by regional airlines and for which we
believe a sufficient number of simulators are not available to meet all of
the training demands of these airlines. The particular airplanes are the
Beech 1900, Bombardier CRJ jet, the Embraer ERJ jet and the Fairchild-Dornier
328 jet. The first three airplanes are part of the existing fleets of
regional airlines, and the Fairchild-Dornier 328 jet is a new jet, with first
deliveries to regional airlines scheduled to occur in the year 2000.
We have conducted for internal purposes, based on published data and
phone calls to airplane manufacturers, an analysis of full flight simulators
that we estimate regional airlines in North America could use for these four
airplane models. This analysis is calculated on the basis of (1) the number
of airplanes currently in the fleets of regional airlines in North America,
(2) the number of airplanes to be delivered to these regional airlines,
(3) the total number of pilots, (4) a 10% failure rate for recurrent
training, (5) a 30% annual pilot turnover for regional airlines, reflecting
the current average, and (6) the assumption that 100% of the FAA training
requirements are met through the use of a simulator, rather than in-flight
training. These factors allow a calculation of training events and a total
number of training hours that are required, including some training that will
be done in flight.
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The following table summarizes our internal analysis of simulators that
could have been used in 1998 for three airplane models as to which we intend
to manufacture simulators after this offering.
<TABLE>
<CAPTION>
[PICTURE OF [PICTURE OF [PICTURE OF
BEECH 1900 AIRPLANE] BOMBARDIER CRJ AIRPLANE] EMBRAER ERJ AIRPLANE]
Bombardier CRJ Embraer ERJ
Elements Beech 1900 100/200/700 145/135
- -------- ---------- -------------- -----------
<S> <C> <C> <C>
Number of airplanes 291 166 63
Number of new airplanes delivered 45 61 63
Total number of pilots 2,910 1,600 630
Total training hours required 86,567 60,688 35,784
Number of simulators required 12 8 5
Simulators currently available 6 5 3
Simulators needed to meet demand 6 3 2
</TABLE>
The following second table summarizes our internal analysis of
simulators that could be used in future years for four airplane models,
including the Fairchild-Dornier 328, to accommodate new airplanes delivered
to regional airlines IF the same number of new airplanes are delivered in a
future year as in 1998.
<TABLE>
<CAPTION>
Bombardier Embraer Fairchild-
CRJ ERJ Dornier
Element Beech 1900 100/200/700 145/135 D328
- ------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Number of airplanes delivered 45 61 63 60
Total number of new pilots 450 610 630 600
Total training hours required 11,160 15,128 15,624 14,880
Number of simulators required 1.6 2.2 2.3 2.1
</TABLE>
TRAINING PRODUCTS
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FULL FLIGHT SIMULATOR
Full flight simulators replicate the on-ground and in-flight performance
of an airplane and have a full-size cockpit environment. The cockpit includes
advanced day/night visual display systems. Actual airplane parts are utilized
to replicate the look, sound and feel of the airplane's on-ground and
in-flight operations. Full flight simulators include motion. The cockpit and
its instrumentation are connected to a hydraulically powered platform and
computer systems that move the cockpit and change the instrument readings in
response to action of the pilot trainee or the instructor. The instructor may
activate the computer to change flight conditions and airplane performance
and to introduce malfunctions, emergencies and airport approaches as desired.
Our sales price for full flight simulators range from $4,500,000 to
$12,000,000, depending on the airplane type and the level of qualification.
Our manufacturing time typically ranges from 14 to 24 months, depending on
the airplane model. Because a large percentage of the manufacturing time
relates to the modification of software and engineering for each specific
airplane, our manufacturing time for additional simulators of a specific
airplane can be reduced to approximately 12 to 18 months after we have
manufactured the first simulator for the specific airplane.
FLIGHT TRAINING DEVICES
A flight training device typically does not have motion or visual
display systems. Flight training devices feature cockpit environments with
high fidelity airplane panels, avionics, displays and flight controls to
replicate an actual airplane. Flight training devices are used to master
skills associated with individual flight tasks and particular cockpit
procedures. Although we have manufactured flight training devices, we intend
to focus in the next few years primarily on manufacturing full flight
simulators.
Our sales prices for a flight training device range between $500,000 and
$3,000,000, depending on the airplane type and the level of fidelity. Our
time for manufacturing a flight training device typically ranges from 12 months
to 18 months. Because of the time required to modify software for each
specific airplane, our manufacturing time for additional flight training
devices of a specific airplane can be reduced by approximately three to five
months after we have manufactured the first flight training device for the
specific airplane.
FAA QUALIFICATION
The FAA defines four levels of full flight simulators - A, B, C and D.
The most sophisticated are Levels C and D. The FAA defines seven levels of
flight
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training devices - Levels 1 through 7, with Level 7 having the highest
sophistication. These levels determine what type of pilot training required
by the FAA can be satisfied by the use of the full flight simulators or
flight training devices.
The FAA must qualify or approve the full flight simulator or flight
training device before it can be used to receive FAA training credits. The
FAA has requirements for the manufacturing of simulators. The FAA's
qualification process includes many tests of the simulator regarding systems
and flight performance.
MANUFACTURING PROCESS
Our manufacture and design of a simulator involves the following steps:
- Obtain data on the physical configuration and flight characteristics
of the airplane to be simulated. Data can be purchased (1) from the
manufacturer or (2) from a third-party supplier who conducts flight
testing of the airplane over a period of one to three months. The cost
of this data can range from $400,000 to $1,000,000.
- Design the specifications of the airplane into our standard
manufacturing process. This activity involves coordinating the
simulator's platform, the size of the airplane, control setups and how
the airplane's systems work.
- Order parts for the simulator from vendors. The time between ordering
and receiving parts can take up to 12 months. One part can cost up to
approximately $1,500,000.
- Develop software to simulate the operations of the airplane, including
the airplane's aerodynamics, systems and environment. This step can
take up to 12 months and can be concurrent with other steps.
- Integrate the hardware components and the software.
- Test the simulator.
- Obtain the FAA's qualification for the simulator. Because we have
previously obtained FAA qualification of a simulator, we expect that
future qualifications for a simulator will take three to five business
days.
Currently we subcontract the manufacture of various components, such as
the base frame for simulators. We expect in the future to subcontract
additional components, including the cockpit shell.
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Since our inception, we have been in the process of manufacturing from
one to three simulators at any one time. After this offering, we plan to
increase our volume to three or six simulators being manufactured at any one
time.
SOFTWARE
We have developed a software technology unique for simulators. This
software has an advanced architecture which has modules simulating the
individual airplane functions. The software has the advanced C++ programming
language. The software is used to simulate airplane functions and to link
components. The advantage of this modular software is that it adapts readily
from one simulator program for an airplane to another simulator program for a
different airplane. The modular features enable us to decrease the software
development costs across the airplane models. For example, up to 75% of the
software used in a Beech 1900 simulator can also be used for another
turbo-propelled airplane simulator.
PROPRIETARY RIGHTS
We have proprietary rights in our software, know-how and names used in
our business. We do not have any patents or registered trademarks for any of
these items. We rely on copyrights, common law rights concerning names and
trademarks and trade secret protections for our proprietary technology. We
grant a license to a buyer of a simulator to use the software in the
simulator.
SUPPLIERS
We acquire components for simulators from outside suppliers. Our
purchases are made from approximately 100 suppliers. Only a few suppliers
account for the higher price components, such as the visual display system,
the motion system, the control loading system, computers and instrumentation.
We believe that more than one supplier exists for each of the components
needed for our products.
WARRANTIES
As part of any contract with the purchaser of a simulator, we negotiate
a warranty on our product. Typically, the warranty covers defects in design,
materials or workmanship for a period of from 3 to 12 months. We have not
incurred, to date, any significant expenditures for warranty coverage.
RESEARCH AND DEVELOPMENT
We have not made expenditures for research and development activities
during 1998 and 1997. The primary reason is that major components are
purchased from
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outside suppliers. We do have costs for development of the initial simulator
of an airplane; these costs are treated as part of the cost of sales.
ENVIRONMENTAL MATTERS
Permitting and other requirements under environmental laws are not
applicable to our current manufacturing operations. The primary reason is
that we purchase components from suppliers and also subcontract some of the
work in manufacturing our products. Accordingly, we have not had any material
expenditures for compliance with environmental laws.
MARKETING
We utilize a direct sales structure with our employees and officers
marketing our products. Sales are made by contacts in the commercial aviation
business and attendance at industry trade shows. With over 100 combined years
of experience with simulators for aviation, our top four operations personnel
have established relationships with a number of potential customers.
We also intend to keep potential customers for our simulators informed
of our progress regarding each simulator by newsletters and postings on our
website.
SALES
Since commencement of our operations, we have completed five simulators
for customers. These sales are summarized below.
- B767 - 200 Level C Full Flight Simulator Modernization. This program
involved the modernization for Airborne Express of its own simulator
to meet FAA Level C qualification. This work included incorporating
the latest data package from Boeing, upgrading computers and modifying
the windshear function, instructor station and software. This project
was completed in 1998.
- Beech 1900D Level B Full Flight Simulator. This full flight simulator
was designed and manufactured for TechniFlite of America, Inc. and is
used in pilot training for regional airlines. This simulator includes
features such as a 6 degree of freedom motion system, 150 degree
day/night visual capability and Level C flight performance. This
simulator was qualified by the FAA and represented the first
qualification of a full flight simulator for a new company in
13 years. This project was completed in 1998. We shared development
costs on this project with TechniFlite, resulting in a price
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<PAGE>
below our manufacturing cost, in order to obtain the business and
prove our ability to manufacture a sophisticated, FAA qualified
simulator.
- A-320 Level 5 Flight Training Device. We completed an A-320 Level 5
Flight Training Device for Northwest Airlines in 1998. The Level 5
provides training for system dynamics, flight controls and systems
malfunction.
- Regional Jet Full Flight Simulator. In 1998, we, working with the
Korean Aerospace Research Institute of South Korea, completed
development of a full flight simulator, with the capability of having
motion added, to meet design and training requirements for Korea's
next generation of regional jet airplanes. The simulator provides
cockpit, control loading, visual system, sound and airplane system
software.
- TC-12B Level 6 Flight Training Device. In June of 1999, we completed
the manufacture of a flight training device simulating the TC-12B,
which is a Beech 200 airplane. We manufactured this device under a
contract with Thomson Training & Simulation and delivered it to the
United States Navy.
We have in process an additional TC-12B Level 6 Flight Training Device
for Thomson Training & Simulation. We expect to complete and deliver this
device by the end of September, 1999.
In addition, we have in process one contract with Aims Community College
in Greeley, Colorado, for a flight training device simulating the Cessna 172.
This contract is expected to be completed in September, 1999. This Level 3
device is for use by students at this college.
We contemplate that production will be devoted in the foreseeable future
to our proposed training centers, although some simulators may be available
for sales to unaffiliated third parties.
TRAINING CENTERS
Our proposed training centers will use simulators manufactured by us.
The initial simulators for this purpose are described under "NEXUSim
Program." We intend to have from one to four simulators at each training
center and operate each training center.
Our management intends initially to open three training centers. We will
determine the location of the simulators based upon the interest of our
customers in
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the NEXUSim Program. We will lease the physical space for the centers. The
size of each initial center is expected to be approximately 10,000 square
feet.
We plan to provide what is referred to as "dry" training, that is,
training without an instructor. The customer will provide its own instructor.
If requested, we will evaluate and possibly provide an instructor.
The proposed steps involved in establishing a "dry" training center
include but are not limited to the following:
- Determine the level of interest of regional airlines in our simulators
and a training center, the number of hours of a simulator needed by
the potential customers and the specific airplane to be simulated.
This step is underway for the initial training centers.
- Determine the location of the training center.
- Arrange for the lease for the center.
- Modify any facility to accommodate at least one simulator.
- Engage persons to administer training centers and maintain the
simulators.
- Transport the simulator to the training center.
- Obtain FAA qualification of the simulator at the training center.
- Enter into management contracts at the same time as selling fractional
ownership interests in a simulator or entering into contracts with
customers for their use of simulators.
NEXUSim PROGRAM
FRACTIONAL OWNERSHIP INTERESTS
We have commenced the implementation of a fractional ownership interest
program called "NEXUSim." This program is designed to provide simulators to
the commercial aviation markets, particularly regional airlines. We
contemplate that the NEXUSim program will permit a customer to purchase a
fractional, undivided ownership interest in a simulator. It allows us to
receive through the sale of the fractional ownership interests a return of
development and manufacturing costs for the simulator and to enter into the
training business.
We believe that we are the first in the industry to offer fractional
ownership interests in simulators. The concept is modeled after the sale of
fractional ownership
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interests in business jets. A key to the success of the NEXUSim program and
our proposed training centers is the ability to market our simulators and
provide low cost training for the pilots of the fractional interest owners.
The NEXUSim program involves the following significant features:
- Sell up to seven fractional ownership interest shares in each
simulator. Any customer may purchase one or more shares. We may retain
the ownership of one share, which we would utilize for training
unaffiliated third parties. It is estimated that the capacity of each
simulator, being used for 20 hours per day, is approximately 7,000
hours per year.
- Have each fractional ownership interest entitle the owner to 1,000
hours per year. As the administrator, we will determine the scheduling
of any specific time.
- Accompany the fractional ownership interest with an agreement to
maintain and administer the simulator as part of a training center.
- State a right of first refusal for our benefit regarding a transfer of
each fractional ownership interest in the simulator.
- Have the owner arrange the financing for the purchase price of the
fractional ownership interest. We might also endeavor to arrange a
financing package for customers who purchase fractional ownership
interests.
SALE AND LEASEBACK
In the event that we are not able to sell successfully fractional
ownership interests in a simulator, we intend to achieve substantially
similar benefits under the NEXUSim program through a sale-leaseback
transaction. After selling a simulator to a leasing company and leasing it
back, we would contract with customers for their scheduled use of a simulator
in one of our training centers. The significant features of the NEXUSim
program would remain the same as stated in the previous section except that:
- We would receive an amount of cash in the sale-leaseback transaction
determined in negotiations with the leasing company.
- We would lease interests to customers in 1,000 hour increments of time
for a specified period, initially proposed to be three years.
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- The contract arrangement would not allow a transfer or sublease of the
interests.
INITIAL PRODUCTS UNDER NEXUSIM PROGRAM
We propose that the first three simulators manufactured as part of the
NEXUSim program and placed in training centers will constitute the following:
- A Beech 1900 Level C Full Flight Simulator. This simulator may be part
of a proposed joint arrangement with Aims Community College Foundation
discussed on page 46. Work on this simulator is to commence in
August 1999, with completion scheduled for September 2000.
- A Beech 1900 Level D Full Flight Simulator. We plan to commence work
on this simulator in October 1999 and to complete the simulator in
November 2000.
- Regional Jet Full Flight Simulator, Level D, for a regional jet of a
specific type determined by the proposed customers. We contemplate
starting the manufacture of this simulator in November 1999 with
completion scheduled for June 2001.
The following table shows the proposed manufacture of the first three
products and additional products over the next five years. Proceeds received
by us from the sale of a simulator will be used to fund the manufacturing
costs of additional simulators.
[Graph of Proposed Manufacturing Schedule
<TABLE>
<CAPTION>
Simulator Type
- --------------
<S> <C> <C> <C>
B1900 Third quarter 1999 to Third quarter 2000
RJ Fourth quarter 1999 to Third quarter 2001
B1900 Fourth quarter 1999 to Fourth quarter 2000
RJ Third quarter 2000 to Fourth quarter 2001
RJ Fourth quarter 2000 to First quarter 2002
RJ Fourth quarter 2000 to Fourth quarter 2002
B1900 Third quarter 2001 to Third quarter 2002
RJ First quarter 2002 to Second quarter 2003
RJ Second quarter 2002 to Third quarter 2003
RJ Fourth quarter 2002 through 2003
</TABLE>
B=Beechcraft Airplane
RJ=Regional Jet Airplane]
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The types of simulators proposed by us and the timing of manufacturing
the simulators are subject to change. The final determination will depend
upon the training needs of proposed customers who sign letters of interest,
the timing of completed sales of each simulator and our cash flow.
LETTERS OF INTEREST
We have obtained a few letters of interest regarding fractional
ownership interests in simulators. These letters of interest are with
regional airlines and are not binding.
We will not request a definitive agreement with a proposed owner of a
fractional interest until approximately 30 days prior to FAA qualification of
a simulator. This short timeline is necessary because our potential customers
for the NEXUSim program tend to focus on their immediate pilot training needs
and specific dates for that training. It is not certain that any party
signing a letter of interest will actually enter into a definitive agreement.
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ACQUISITIONS
We have engaged in discussions with parties for the purchase of existing
simulators or pilot training businesses. Any transaction of this nature could
involve acquiring a simulator alone, acquiring a business using a simulator
or forming a joint venture regarding that equipment. It is not known whether
the purchase price for any transaction would be paid in stock, cash or both.
An acquisition, if pursued, could involve a business with significantly more
revenues than we have generated prior to this offering. The purpose of any
acquisition of this nature would be (1) to enter the business of providing
training services, with resulting revenues, at an earlier time than is
possible through our establishing our own training centers, or (2) to expand
our training services. There are presently no agreements or understandings
relating to any specific acquisition.
JOINT ARRANGEMENTS FOR TRAINING CENTERS
As of July, 1999, we have proposed a joint arrangement with the Aims
Community College Foundation for financing partially our manufacture of a
simulator to be used in a training center at or near Aims Community College
in Greeley, Colorado. Aims Foundation is a non-profit organization related to
Aims Community College, which has a pilot training program. Under this
arrangement, in summary, the parties propose to do the following:
- Aims is to loan to us $2,000,000 of the estimated $3,500,000 cost to
develop and manufacture a Beech 1900D Full Flight Simulator, Level C.
This is the same type of simulator we completed in 1998 for another
party. We plan to commence work on this simulator for Aims in August,
1999.
- We are to manufacture the Beech 1900D simulator and qualify it with
the FAA within 14 months from the start date of the manufacturing.
- In repayment of Aims' loan, we are to pay $2,000,000 in approximately
14 months, plus monthly interest accruing at 8% per annum. We
contemplate that the source of this repayment may be proceeds of
selling four fractional ownership interests in the simulator.
- We are to transfer one fractional ownership share, allowing 1,000
hours of training at no additional charge, to Aims Community College.
We will also market for Aims the simulator hours to which Aims is
entitled but does not intend to use. We will be paid a per-hour fee
to market these hours of training.
- Aims Community College will have a right of first refusal to acquire
any other fractional ownership interest sold in the simulator by other
owners.
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- Aims Community College or a related party will lease to us
approximately 4,000 square feet required for this particular simulator
in a building located on or near the Aims Community College campus,
and the building will meet our specifications. We will lease the
building for an initial term of 10 years, with subsequent options to
renew the lease. The annual lease payment during the first 10 years
will be $115,000 for each of the first four years, $125,000 for the
years five through seven, $135,000 in years eight to ten and $145,000
for up to ten years in optional renewals of the lease.
- We will place a training center in that building, and we will manage
the training center.
We have also discussed a joint arrangement with an individual in Canada
to form an entity owned 70% by us and 30% by the individual. We would serve
as the manager of the entity. The purpose of the arrangement is to establish
and operate a training center in Canada, using a simulator manufactured by
us. The individual is to arrange debt financing for part of the costs of the
proposed training center and of the simulator to be manufactured by us for
use at the center.
We cannot predict whether the parties to either of the two arrangements
described above will move forward with the proposal and execute a final
agreement.
BACKLOG
The Company has no backlog of contracts or orders for simulators other
than the contracts in process. These contracts include the Cessna 172
simulator described above and the second TC-12B Flight Training Device for
Thomson Training & Simulation, both of which will be completed by September 30,
1999.
DEPENDENCE ON CUSTOMERS
In our manufacture of simulators for unaffiliated third parties, we have
served, and will continue in the future to serve, a few customers or possibly
one customer at any particular time. The NEXUSim program will broaden the
base of our customers, with up to seven customers for each simulator. These
customers will also utilize our training center containing their simulator.
Because of the limited number of customers at this time and for the
foreseeable future, we are dependent upon maintaining and satisfactorily
serving our customers. The loss of any one customer, because of a bankruptcy
of the customer, cancellation, delay or other events, could materially and
adversely affect our present and future revenues. If the loss of a customer
relates to our performance, that loss could also have a negative impact on
our reputation in the industry.
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Our universe of potential customers is limited to a relatively small
number because it consists primarily of regional airlines in need of, or
conducting, pilot training. Any developments in that industry or how members
of that industry view us can have a significant effect on us.
COMPETITION
We face intense competition in the manufacture and sale of simulators
and in our proposed training services.
MANUFACTURING
In addition to us, three companies manufacture and sell most FAA
qualified full flight simulators used in commercial aviation in North
America. These companies are FlightSafety International, Inc., CAE Inc. and
Thomson Training & Simulation. CAE manufactures more than a majority of the
full flight simulators added each year in North America. Reflectone Inc. also
manufactures full flight simulators but primarily at this time for the United
States military. Two other companies manufacture flight training devices for
the North American marketplace, and one of them also manufactures certain
full flight simulators. Further, a number of smaller companies manufacture
flight training devices, but we do not consider them as competitors because
they provide products with a lesser level of sophistication. Our competitors
operate domestically and internationally and are significantly larger than us
in terms of revenues, assets and employees.
Two of our competitors make at this time FAA qualified full flight
simulators for airplanes used by regional airlines. FlightSafety makes
simulators for the Beech 1900 airplane and regional jets; CAE produces
simulators for regional jets.
We also compete with the alternative of in-flight training. However, we
believe that the FAA requirements, together with the complexity of current
airplanes, make the training with simulators more comprehensive and cost
effective.
In our manufacture and sale of simulators, we compete primarily on the
basis of low prices and the type of airplane being simulated. Our efforts to
keep costs low are helped by our proprietary software which allows cost
savings when manufacturing simulators. We and other manufacturers are all
favorably affected by the limited number of simulators for specific airplanes
used by regional airlines and a growing demand for these simulators. We also
hope to obtain a competitive advantage by offering our fractional ownership
interest program which allows an airline to have initially a low out-of-pocket
expense and low hourly rates for use of a simulator.
The quality of all simulators must be high, and the simulators must all
match the specifications of an airplane and FAA requirements. Like our
competitors, we
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must continually strive to improve our quality and responsiveness to the
needs of airlines and other customers in commercial aviation.
A competitive disadvantage of our manufacturing operations results from
our small size and relatively short time in the industry. Another competitive
disadvantage for us in securing unaffiliated third party manufacturing
contracts has been our requirement that the customer make progress payments
on the manufacture of simulators. Some manufacturers in the industry allow
payment of the purchase price when a product is completed.
TRAINING CENTERS
Approximately 15 training organizations located throughout the United
States provide pilot training with full flight simulators. These training
organizations include FlightSafety. FlightSafety has a number of training
contracts with major and regional airlines as well as corporate customers.
The other competitors include major airlines, commercial training
organizations and government agencies. A majority of these organizations do
not have simulators for airplanes used by regional airlines.
To the knowledge of our management, most regional airlines have not
bought simulators. Instead, they rely upon training organizations and a few
major airlines for training with simulators.
Other parties may possibly enter into the training business by buying a
simulator. The likelihood of a competitor entering the training business by
this approach is decreased somewhat because of the limited availability of
simulators for specific airplanes.
Our proposed training centers in connection with the NEXUSim program
will compete primarily on the basis of a low price overall for training
services and the limited availability of simulators for specific airplanes
used by regional airlines. Our low price will depend upon our ability to keep
costs low in our manufacturing of the simulators used in the training
centers. A competitive disadvantage to our proposed training centers results
from our small size and our being a new entrant in the training business. Our
ability to complete sales to a regional airline may also be affected by
long-term contracts between FlightSafety or another training organization and
the regional airline.
We will aggressively market our service through direct contact. We plan
to keep potential customers informed of progress on simulators so that the
potential customer can take into account our schedule in dealing with other
training organizations.
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Also, our attracting customers for the proposed training centers
depends, at least in part, on the sales of fractional ownership interests in
simulators or leasing interests in simulators following a sale-leaseback.
Thus, the fact that the NEXUSim program is a new concept for pilot training
centers, and the other competition factors noted above for manufacturing,
will affect our sales of training services.
GOVERNMENTAL REGULATION
In the United States, the Federal Aviation Administration regulates the
operation of airlines and related activities. As mentioned earlier in this
prospectus, the FAA has requirements for the training of pilots, encourages
the use of simulators and sets forth standards for simulators. Each simulator
must be qualified and approved by the FAA for a pilot training center and be
maintained in accordance with FAA requirements.
In addition, the FAA regulates training centers for pilots and other
members of a flight crew. Each "wet" training center (i.e., an instructor
made available as part of the training center) must be approved by the FAA
and must comply with training specifications of the FAA. These specifications
concern, among other things, qualified instructors and the adequacy of the
facility. As mentioned earlier in this prospectus, we intend to provide only
"dry" training. On a case by case basis, we may consider supplying the
instructor for the simulator. In such case, the instructor would have to be
approved by the FAA, but we would not be subject to all of the other FAA
specifications concerning training centers. The airlines will be responsible
for complying with the other FAA specifications.
EMPLOYEES
At June 30, 1999, we had approximately 21 employees, of which 18 were
full time employees. Seventeen were engaged directly in project related
engineering and production activities; one was engaged in accounting and
finance; and the remaining three were officers engaged in operations,
administration and sales. With the anticipated increase in concurrent
production of up to six simulators, we expect to increase our work force to
up to approximately 60 employees.
Most employees are salaried workers. No collective bargaining unit
represents our employees. We have never experienced a work stoppage and
consider our relations with employees to be satisfactory.
OUR FACILITY
We lease our current facility and own most of our equipment. Our
facility, located in Englewood, Colorado, has approximately 16,000 square
feet located in an industrial park and was constructed in 1998. The facility
includes approximately
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12,000 square feet dedicated to manufacturing, with the remaining space used
for engineering and corporate offices. The lease for this facility is for a
term ending May 31, 2003. We have the right to extend the lease for an
additional five years on the same terms and conditions except that the base
rent will be revised to an adjusted market rate rent. We pay a monthly base
rental rate of from $7,020 to $7,488 depending upon the year of the lease.
We believe that this facility is adequate for current operations.
However, if we increase manufacturing levels to four or more simulators at
the same time and increase our engineering personnel, as may occur in 2000,
we may need to relocate or lease additional space elsewhere.
As part of our entry into training services, we intend to lease space
for three or more training centers. It is contemplated that each of these
centers will, in general, have approximately 10,000 square feet.
LIABILITY INSURANCE
Among other things, we and others in our industry have exposure to
potential liabilities relating to the use of a simulator. This large
equipment could injure or kill persons training or working with the
equipment. Also, when there has been an airplane accident in the United
States allegedly involving pilot error, plaintiffs have made claims against
training organizations and the manufacturers of simulators, alleging
responsibility for the error.
Because of the risks entailed in our business, we maintain general
liability insurance. The insurance is provided on the basis of events
occurring during the policy period and has been in effect since March, 1996.
Policy limits of our product liability insurance have been and are $1 million
per occurrence with an aggregate maximum of $2 million. We have not had a
product liability claim.
YEAR 2000 ISSUES
We have determined that our computers and products are prepared to
recognize the Year 2000 and other years in 21st Century. Our modular software
does not have features relating to a date. Accordingly, any Year 2000 issues
that may affect us will be caused by the lack of preparedness on the part of
customers or suppliers with which we do business.
We have contacted our suppliers to determine that their products sold to
us comply with Year 2000; our inquiry did not cover all operations of the
suppliers. It is possible that non-compliance with Year 2000 by either our
suppliers or their suppliers may result in the late deliveries or
non-deliveries of components to us, which would
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result in late or non-deliveries to our customers. Because the supply chain
may be long, we cannot be certain that Year 2000 issues will not pose a
problem.
We have not developed contingency plans for Year 2000 issues. However,
we have not been made aware of any Year 2000 issues at our suppliers and are
generally aware of alternative suppliers for components in our products.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ronald C. Ellington........................ 55 Chairman of Board of Directors and Chief
Executive Officer
Bruce S. Betschart......................... 51 President and Chief Operating Officer
Robert E. Sawyer, Jr....................... 54 Vice President, Engineering, Secretary and
Director
Charles Douglas............................ 46 Vice President, Operations
Leonard Hawkins............................ 52 Director
</TABLE>
We currently have four directors. Our Articles of Incorporation provide
for a classified board of directors with each director serving staggered
terms of three years. The board of directors is divided into three classes:
Class I, whose term will expire at the annual meeting of stockholders to be
held in 2000; Class II, whose term will expire at the annual meeting of
stockholders to be held in 2001; and Class III, whose term will expire at the
annual meeting of stockholders to be held in 2002. Mr. Hawkins and Mr. Sawyer
are the class I directors, Mr. Ellington is the class II director and Mr.
Betschart is the class III director. At each annual meeting of stockholders
beginning with the 2000 annual meeting, the successors to directors whose
terms expire will be elected to serve from the time of their election and
qualification until the third annual meeting following election or until
their successors have been elected.
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A brief description of the background and business experience of our
executive officers, directors and key employees are set forth below.
RONALD C. ELLINGTON. Mr. Ellington became in January 1999, a consultant
to the President for financial and strategic planning. Mr. Ellington became
Chief Executive Officer of TDI in April, 1999 and the Chairman of the Board
of Directors in July, 1999. From 1994 to 1998, Mr. Ellington was a management
consultant, providing merger and acquisition, management, and corporate and
real estate investment banking services through his own company. From 1992
through 1994 he was Senior Vice President and Chief Operating Officer of
Dorsey & Company Securities, Inc. a privately owned full service securities
firm in New Orleans, Louisiana, and from 1990 to 1992 he held other positions
at that firm. He has over 20 years of chief executive officer and chief
operating officer experience with a variety of mid-sized manufacturing,
financial services and real estate companies, the largest of which had 30
employees and over $100 million in sales. Mr. Ellington has directed
strategic plans, forecasting, budgeting, mergers and acquisitions,
turnarounds, product pricing, capital formation, investor relations, employee
compensation plans, sales and marketing. He received his Master's and
Bachelor's degrees in Journalism from the University of Georgia.
BRUCE S. BETSCHART. Mr. Betschart co-founded TDI in 1995 and since that
time, has served as President and Chief Operating Officer and as a member of
the Board of Directors. From 1989 to 1995, Mr. Betschart was Vice President,
Product Development of CTA Incorporated, a simulator products company. CTA
developed 21 flight simulators during his tenure. In 1986, he founded I.C.
Sim Incorporated, a simulator software company, and served as its President
until 1989 when it was sold to CTA. Mr. Betschart has over 25 years of
experience marketing, designing, manufacturing and servicing simulators and
simulation products. Mr. Betschart was a U.S. Navy carrier pilot and a
commercial pilot with Continental Airlines. Mr. Betschart received his BS
degree in Aeronautical Engineering from San Jose State University.
ROBERT E. SAWYER, JR. Mr. Sawyer cofounded TDI in 1995 and since that
time has served as Vice President of Engineering and as a member of the Board
of Directors. Prior to starting TDI, Mr. Sawyer was the Vice President,
System Engineering at CTA Incorporated, where he was the lead software
engineer for simulator and simulation programs. Prior to joining CTA in 1989,
he founded, with Mr. Betschart, I.C. Sim Incorporated, where he served as
Vice President. At I.C. Sim, he was the principal architect on the
development of MSS, an advanced simulator software product that was sold to
every major airframe manufacturer and aerospace company in the United States.
MSS was used to develop simulators for the F-16, F-15, F-18, F-22, F-23,
AH-66 and F-14 military airplanes; and the B747 and
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B727, Piper Malibu commercial airplanes. Mr. Sawyer received his BS in
Electrical Engineering from the University of Illinois.
CHARLES DOUGLAS. Mr. Douglas has served as Vice President of Operations
since TDI was founded in 1995. Prior to joining TDI, Mr. Douglas was
Director, New Business Development for Frasca International and Senior
Program Manager for Rediffusion Simulation Incorporated, where he directed
the development of 25 full flight simulators, flight training devices and
cabin evacuation training programs for commercial airlines. He also provided
marketing support to Frasca's flight training device product lines. Mr.
Douglas participates on the FAA working groups for the development of
Simulator Advisory Circulars. Mr. Douglas received his BS degree in Computer
Sciences from the University of Tulsa.
LEONARD HAWKINS. Mr. Hawkins has served as the Secretary and a member of
the Board of Directors of TDI since its formation in 1995. Mr. Hawkins has
been employed by Lockheed Martin Corporation (and predecessors) for more than
the past twenty years, where he is currently Program Manager, Ground Systems.
He has directed the engineering, development and delivery of state-of-the-art
object oriented computer systems valued at over $400,000,000, served as
Business Manager for a $30,000,000 annual sales business unit, and provided
forecasting, budgeting and program tracking for various divisions of Lockheed
Martin.
There are no family relationships among any of our directors, executive
officers and key employees.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has established a compensation committee and an
audit committee.
Members of the compensation committee have not been selected at this
time. The compensation committee reviews and approves our compensation and
benefits for our executive officers and makes recommendations to the Board of
Directors regarding these matters.
Members of the audit committee have not been selected at this time. The
functions of the audit committee are:
- Review the scope of the audit procedures utilized by our independent
auditors;
- Review with the independent auditors our accounting practices and
policies;
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- Consult with our independent auditors during the year; and
- Report to our Board of Directors with respect to these matters and to
recommend the selection of independent auditors.
DIRECTOR COMPENSATION
Directors who are also employees of TDI receive no additional
compensation for serving as a member of our Board of Directors. We reimburse
our directors for all reasonable travel and other incidental expenses
incurred in connection with meetings or actions of our Board of Directors.
We compensate non-employee directors $750 for each Board meeting which
the director attends. Also, each non-employee director will receive after
this offering options to purchase 15,000 shares of common stock at an
exercise price of $10.00 per share. Options as to 5,000 shares will be vested
on the date of grant, and the options for 10,000 shares will vest one year
from the date of grant if the option holder continues to serve as a director
of TDI. Under our current policies, a director who is first elected to the
Board of Directors will receive an option to purchase 5,000 shares of common
stock for the first year of the director's term, and each director will
receive an option for 10,000 shares each year the director remains on the
Board. These options will have an exercise price equal to 100% of the fair
market value of the common stock on the date of grant.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by us to our
President and Chief Executive Officer for services rendered in all capacities
for the fiscal year ended December 31, 1998. No other executive officer had
an annual compensation for 1998 that exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING OPTIONS
POSITION YEAR SALARY (NUMBER)
------------------ ---- ------ ------------------
<S> <C> <C> <C>
Bruce S. Betschart,
President and Chief
Operating Officer.............. 1998 $105,000 16,667
</TABLE>
We currently pay to Ronald C. Ellington, who became Chief Executive
Officer in April, 1999, an annual salary of $105,000, which is the same
salary as our President and Chief Operating Officer.
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<PAGE>
The following table provides information concerning grants of options to
purchase our common stock made during the year ended December 31, 1998 to the
executive officer named in the Summary Compensation Table above.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE($/SH) DATE
---- ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
Bruce S. Betschart 16,667 20.2% $4.50 8/31/03
</TABLE>
As part of the grants of options to officers and employees in 1998, we
granted options to purchase our common stock to other executive officers and
persons related to executive officers as follows.
- Robert E. Sawyer, Jr., 16,667 shares.
- Charles Douglas, 16,667 shares.
- Jeffrey Betschart, an employee of TDI who is the son of Bruce S.
Betschart, 1,667 shares.
- Steve Sawyer, an employee of TDI who is the brother of Robert E.
Sawyer, Jr., 5,000 shares.
Each of the options has an exercise price of $4.50 per share and expires on
August 31, 2003.
In April, 1999, we granted two stock options to Ronald C. Ellington when
he became the Chief Executive Officer. The first stock option is for 50,000
shares, at an exercise price of $0.15 per share, and expires on April 27,
2004. The second option of Mr. Ellington is for 40,000 shares, at an exercise
price of $4.50 per share, and expires on April 27, 2004. Also in 1999, in
accordance with an original employment offer, we granted a stock option to
Charles Douglas for 13,333 shares of common stock, at an exercise price of
$0.15 per share and with an expiration date of April 27, 2004.
The following table provides information concerning any exercises of
options to purchase our common stock in the fiscal year ended December 31,
1998, and unexercised options and warrants held at fiscal year end by the
executive officer
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named in the Summary Compensation Table. The value of the unexercised options
that are in the money was calculated by determining the difference between
the initial public offering price of $10.00 per share and the exercise price
of the options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING VALUE OF UNEXERCISED
ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME EXERCISE REALIZED AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
---- --------- -------- -------------------- ---------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce S.
Betschart 0 $0 222 17,111 $1,554 $94,777
</TABLE>
1997 AND 1999 STOCK OPTION PLANS
Our 1997 Incentive and Nonstatutory Stock Option Plan was adopted by the
directors as of December 20, 1996 and later amended as to the number of
shares available under the plan. Under the 1997 plan, we may grant options to
purchase up to 335,667 shares of our common stock. The Company also has a
1999 stock option plan which was adopted by our Board of Directors on July
27, 1999. The 1999 plan has 400,000 shares of our Common Stock available for
the grant of options.
Grants under the 1997 and 1999 plans may consist of (1) options intended
to qualify as incentive stock options under the Internal Revenue Code and (2)
non-qualified stock options that are not intended to so qualify. Persons
eligible to receive incentive stock options under the plans are only our
employees; non-qualified stock options may be granted to employees,
directors, consultants and (and in the case of the 1997 plan) other persons.
The 1997 plan terminates on December 31, 2006, and the 1999 plan terminates
on August 30, 2009.
Each plan is administered by the Board of Directors or a committee
appointed by the Board consisting of two or more directors. The Board or
administrating committee determines the persons to be granted options, the
exercise price per share for each option, the expiration date of each option
and other terms which may be set forth in an option agreement. The Board of
Directors currently administers both plans.
The exercise price of an incentive stock option granted under to the
plans cannot be less than 100% of the fair market value of the common stock
on the date of the grant. The Board determines the exercise price of a
non-qualified stock option; in
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the case of the 1999 plan, the exercise price of a non-qualified stock option
cannot be less than 85% of the fair market value of the common stock on the
date of grant. The term of any stock option cannot exceed ten years. However,
the exercise price of an incentive stock option granted to any person who at
the time of grant owns stock representing more than 10% of the total combined
voting power of all classes of our capital stock or any of our affiliates
must be at least 110% of the fair market value of our common stock on the
date of grant and the term of such an incentive stock option cannot exceed
five years. Options granted under the plans vest at the rate specified in any
option agreement. The exercise price may be paid in cash or other shares of
our common stock, as determined by the Board of Directors or the
administering committee.
In the event of a proposed sale of all or substantially all our assets,
or the merger of TDI with another corporation in a transaction in which we
are not the survivor, then the surviving entity must assume or provide a
substitute for each outstanding option or, alternatively, our Board of
Directors may terminate an outstanding option by permitting the option to be
exercisable as to all shares subject to the option, whether or not previously
vested, for a period of thirty days (or not less than 10 days in the case of
the 1999 plan) after a notice to the option holder.
All outstanding options under the 1999 plan become immediately
exercisable and full, whether or not there were vesting requirements, upon
the occurrence of a change in control. For this purpose, a change in control
occurs (1) at the time a third person or group becomes the beneficial owner
of shares with 50% or more of the total number of votes cast for the election
of our directors; (2) on the date our stockholders approve a merger or
consolidation (unless our shareholders continue to own after the merger or
consolidation more than two-thirds of the voting securities of the resulting
corporation in substantially the same proportion as their ownership of our
voting securities before the merger or consolidation) or any sale or other
disposition of all or substantially all of our assets, or (3) a sale or other
disposition of more than 50% in fair market value of our assets outside the
ordinary course of business. In determining whether clause (1) of this
definition has been satisfied, a person who beneficially owns shares having
10% or more of the total votes cast for election of our directors as of
September 7, 1999 is excluded.
INDEMNIFICATION AND LIMITATION OF LIABILITY
Our Bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to
the fullest extent permitted by Colorado law. We have also entered into
indemnification agreements with each of our directors and executive officers.
All indemnification agreements are identical. These agreements provide, among
other things, for indemnification and advancement of expenses to the fullest
extent permitted by law in connection with any legal proceeding in which the
person was made a party because the person was a
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director or executive officer of TDI, place the burden of proof on us in
regard to whether an individual has met the required standard of conduct for
indemnification, cover procedural matters such as the hiring of counsel and
require us to pay the expenses of the director or executive officer in
enforcing any required indemnification or advancement of expenses.
In addition, our Articles of Incorporation provide that to the fullest
extent permitted by Colorado law, our directors will not have personal
liability to us or our stockholders for monetary damages for any breach of
fiduciary duties as a director. This does not eliminate the duties
themselves, and in appropriate circumstances, equitable remedies such as
injunction or other forms of nonmonetary relief remain available under
Colorado law. This provision does not eliminate the liability of a director
for (1) any breach of the director's duty of loyalty to us or our
stockholders; (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) unlawful dividends,
stock repurchases or redemptions; or (4) any transaction from which the
director derived an improper personal benefit. This does not affect a
director's responsibilities under other laws such as the federal or state
securities laws.
There is no pending litigation or proceeding involving a director or
officer as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in claims for
indemnification by any director or officer.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling us pursuant to the foregoing provisions or otherwise, we
have been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
SALES OF SECURITIES
In February, 1995, each of Bruce S. Betschart and Robert E. Sawyer, Jr.,
who were co-founders of TDI, purchased 133,333 shares of our common stock
from us for $10,000 in cash.
In January, 1997, Steven M. Bathgate, Eugene C. McColley and parties
related to them purchased from us an aggregate of 44,000 shares of common
stock in a private offering of TDI for $165,000, or $3.75 per share. In
October, 1997, Mr. Bathgate, Mr. McColley and parties related to them
purchased from us units consisting of two shares of common stock and one
warrant to purchase common stock
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at an exercise price of $12.00 per share. They purchased for a total of
$530,000 an aggregate of 88,333 shares of common stock and warrants to
purchase an aggregate of 44,167 shares of common stock.
In an offering of TDI in 1999, Eugene McColley purchased for $50,000 a
.5 unit, consisting of a $50,000 promissory note and a warrant to purchase
5,000 shares of our common stock. Margaret M. Bathgate, the spouse of Steven
M. Bathgate, also purchased for $50,000 a .5 unit, consisting of a $50,000
promissory note and a warrant to purchase 5,000 shares and Leonard Hawkins
purchased for $25,000 a .25 unit, consisting of a $25,000 promissory note and
a warrant to purchase 2,500 shares. Bathgate McColley Capital Group, LLC
purchased for $30,000 a $30,000 promissory note and a warrant to purchase
3,000 shares of our common stock. Each warrant is exercisable at a price of
$.75 per share.
In August 1999, Bruce Betschart bought from us for $50,000 a promissory
note in the principal amount of $50,000 and a warrant to purchase 5,000
shares of our common stock, and Robert E. Sawyer, Jr. purchased for $10,000 a
promissory note in the principal amount of $10,000 and a warrant to purchase
1,000 shares of our common stock. Each warrant is exercisable at a price of
$0.75 per share.
OTHER TRANSACTIONS
In December, 1996, Bruce S. Betschart loaned $100,000 to us in return for a
convertible promissory note. As modified, this Note matures on January 2, 2001
and bears interest at the rate of 10% per annum. This note is convertible into
one share of common stock for each $3.75 of principal of the note. During 1997,
we borrowed $114,000 from our officers and directors. Of this amount, $94,000
was repaid in the same year, without interest. The remaining $20,000 represents
a loan by Leonard Hawkins and is represented by a convertible promissory note
which contains the same terms as Mr. Betschart's note described above.
In July, 1997, Mr. Bathgate, Mr. McColley and parties associated with them
purchased from us in a private offering secured convertible promissory notes in
the original principal amount of $250,000. The purchasers paid the face amount
of these notes in cash, and these notes were converted in 1997 to 85,180 shares
of common stock.
Bathgate McColley Capital Group, LLC, of which Mr. Bathgate and Mr.
McColley are the managers and owners, acted as a placement agent in a private
offering of $600,000 of our common stock completed in February, 1997. As a
placement agent fee for this offering, Bathgate McColley Capital received 33,333
shares of our common stock and warrants to purchase 16,000 shares of our common
stock at an exercise price of $3.75 per share and with an expiration date of
February 19, 2002. Bathgate McColley Capital acted as the placement agent for a
sale of $700,000 of common stock in September, 1997 and received 8,333 shares of
TDI in lieu of a fee of $25,000. For acting as a placement agent for an offering
which was made by us from October 1997 to January 1998 and raised $1,431,000
from the sale of units consisting of common stock and warrants to purchase
common stock, Bathgate McColley Capital received warrants to purchase 11,417
shares of common stock at an exercise price of $6.00 per share and with an
expiration date of January 2,
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2003. The above-mentioned warrants have been distributed to Mr. McColley, Mr.
Bathgate and other parties related to Bathgate McColley Capital.
Bathgate McColley Capital is our placement agent for an offering in 1999 of
$830,000 in units consisting of promissory notes and warrants to purchase common
stock. For these services, we will pay to Bathgate McColley Capital (a) a fee
equal to 10% of the proceeds from the sale of the units and (b) warrants to
purchase one share of our common stock for each $30 sold in the offering. These
warrants have an exercise price of $3.00 per share and expire five years after
their issuance.
All warrants issued for the services of Bathgate McColley Capital as a
placement agent have rights to require registration under the Securities Act of
the shares received upon the exercise of the warrants. Please see for more
information "Description of Capital Stock - Registration Rights."
In September, 1997, we issued an option to Robert T. Bruce for 183,333
shares at an exercise price of $3.00 per share. At that time Mr. Bruce was
elected to serve as a director and our Chief Executive Officer. He has resigned
since that time, but the option remains exercisable for 100,000 shares.
We believe that the transactions summarized above were made on terms no
less favorable than could have been obtained from unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
The following table contains information regarding ownership of our common
stock (the only class of stock outstanding) as of June 30, 1999 and as adjusted
to reflect the sale by us of our common stock in this offering by (1) all of our
directors, (2) our President, (3) all of our directors and executive officers as
a group, and (4) each shareholder who, to our knowledge, was the beneficial
owner of five percent or more of the outstanding shares. Unless otherwise
indicated, their addresses are the same as our address.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES BENEFICIALLY PERCENT PRIOR PERCENT AFTER
BENEFICIAL OWNER OWNED(1) TO OFFERING(1) OFFERING(1)(2)
- ---------------------------- ---------------------- --------------- ------------------
<S> <C> <C> <C>
Bruce S. Betschart (3)(5) 166,000 12.7% 5%
Ronald C. Ellington (5) 50,000 3.8% 1.5%
Robert E. Sawyer, Jr. (5) 139,333 10.9% 4.3%
Leonard Hawkins (4) 72,000 5.7% 2.2%
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Steven M. Bathgate (6)
5350 S. Roslyn, #350
Englewood, CO 80111 278,574 21.2% 8.5%
Eugene C. McColley (7)
5350 S. Roslyn, #350
Englewood, CO 80111 215,074 16.6% 6.6%
Pro Futures Bridge
Capital Fund, L.P.
c/o Bridge Capital Partners, Inc.
5350 S. Roslyn, #350
Englewood, CO 80111 260,000 20.5% 8%
Charles Douglas (5) 60,444 4.7% 1.8%
Robert Bruce (8) 100,000 7.3% 3%
All directors and officers as a
group (5 persons) 487,777 35.2% 14.4%
</TABLE>
- --------------------------
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission. Unless otherwise indicated, beneficial
ownership consists of sole voting and investment power as to the shares. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares subject to options or warrants
that are beneficially owned by that person and that are currently
exercisable or will be exercisable within 60 days after June 30, 1999 are
deemed outstanding, while those shares are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
(2) Assumes the underwriters' over-allotment option is not exercised.
(3) Includes 26,667 shares issuable to Mr. Betschart upon conversion of a
convertible promissory note.
(4) Includes 5,333 shares issuable to Mr. Hawkins upon conversion of a
convertible promissory note.
(5) Includes for each person the following shares issuable upon the exercise
within 60 days of options: 50,000 shares for Mr. Ellington, 6,000 shares
for Mr. Betschart, 6,000 shares for Mr. Sawyer, and 20,445 shares for Mr.
Douglas upon the exercise of options.
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(6) Includes 11,666 shares owned by Steven M. Bathgate and Margaret M. Bathgate
as joint tenants; 83,706 shares owned by Steven M. Bathgate Delaware
Charter KEOGH; 9,583 shares owned by the Bathgate Family Partnership II, of
which Mr. Bathgate is general partner; 82,412 shares owned by Caribou
Bridge Fund, of which Mr. Bathgate is a controlling member of the
Administrator; and 40,372 shares owned by Kiawah Capital Partners, of which
Mr. Bathgate is a general partner. Also includes 12,500 shares underlying
warrants held by Caribou Bridge Fund; 4,166 shares underlying warrants held
by Kiawah Capital Partners; and 30,000 shares underlying warrants held by
Mr. Bathgate individually, all as issuable upon the exercise of such
warrants.
(7) Includes 17,039 shares owned by Eugene C. McColley, Delaware Charter IRA;
82,412 shares owned by Caribou Bridge Fund, of which Mr. McColley is a
manager of the Administrator; and 40,372 shares owned by Kiawah Capital
Partners, of which Mr. McColley is a general partner. Also includes 12,500
shares underlying warrants held by Caribou Bridge Fund; 4,166 shares
underlying warrants held by Kiawah Capital Partners; and 14,166 shares
underlying warrants held by Mr. McColley individually, all as issuable upon
the exercise of such warrants.
(8) Includes 100,000 shares issuable upon the exercise of options.
All of the common stock set forth in the table above are subject to lock-up
agreements prohibiting the sale or transfer of them for a period of one year and
limiting any sales or transfers for a period of an additional year from the date
of this prospectus without the written consent of Capital West Securities, Inc.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 20,000,000 shares of common stock,
no par value, and 10,000,000 shares of preferred stock, no par value.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any then outstanding preferred stock,
holders of common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of TDI, holders of the
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of common stock have no preemptive rights and no right to convert
their common stock into any other securities. There are no redemption or sinking
fund provisions applicable to the common stock. All outstanding shares of common
stock are, and all shares of
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common stock to be outstanding upon completion of this offering will be,
fully paid and nonassessable.
A quorum for purposes of a meeting of stockholders consists of a majority
of the shares entitled to vote at the meeting. After a quorum has been
established, a matter is approved by the shareholders if votes cast favoring the
matter exceed the votes cast against the matter. Directors are elected by a
plurality vote, with the nominees having the highest number of votes cast in
favor of their election being elected to the Board of Directors. As a result, a
majority of the outstanding shares has the ability to elect all of our
directors.
As provided in our Articles of Incorporation, our directors may only be
removed for cause. "Cause" is defined as (1) conviction of a felony or plea of
nolo contendere, (2) declaration of unsound mind by order of court, (3) gross
dereliction of duty, (4) commission of any action involving moral turpitude, or
(5) commission of an action which constitutes intentional misconduct or a
knowing violation of law if such action in either event results in a material
injury to us. Our Articles require a high vote of the shareholders is required
to approve major transactions. The affirmative vote of two-thirds of the shares
present and in person or by proxy at a meeting is required to approve:
- A sale, lease, exchange or other disposition of all or substantially
all of our property and assets, with or without our good will, other
than in the usual and regular course of our business.
- A plan of merger of TDI with or into another entity, or a share
exchange for which shareholder approval is required.
- Dissolution of TDI.
The limitation on the removal of directors and this high vote requirement could
have the effect of delaying, deferring or preventing a change in control of TDI.
At June 30, 1999, there were 1,268,530 shares of common stock outstanding
and held of record by 74 stockholders.
PREFERRED STOCK
The Board of Directors has the authority, without further vote or action by
the stockholders, to issue up to 10,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series. The issuance of
preferred stock could adversely affect
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the voting power of holders of common stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and
could have the effect of delaying, deferring or preventing a change in
control of TDI. There are no shares of preferred stock issued, and we have no
present plans to issue any shares of preferred stock.
WARRANTS AND OPTIONS
For information on our outstanding warrants and options, please see
"Capitalization" on page 20.
REGISTRATION RIGHTS
We have agreed to registration rights for (a) shares of common stock
underlying warrants or convertible notes purchased by investors in previous
private offerings of TDI and (b) warrants, and shares of common stock underlying
warrants, issued to a placement agent for their services in prior offerings. The
securities laws impose limitations on resales by a holder of shares or warrants
acquired originally in some kinds of private offerings. An effective
registration statement under the Securities Act allows the holder to freely
resell the restricted shares on the public market. The registration rights
provide for the payment of expenses of the registration by us, unless otherwise
noted. Existing shareholders who have these registration rights have entered
into lock-up agreements which nevertheless affect their ability to sell shares
of common stock for a period of time.
Holders of warrants issued as part of units in 1997 have the right to
include shares of common stock, issued upon the exercise of warrants, in our
next registration and to have us use our best efforts to cause the registration
statement to be effective. The registration statement is to remain in effect
until the earlier of (1) the date when all the shares have been sold, (2) one
year after the exercise of the last warrant in the units, or (3) one year after
the expiration date of the warrants in the units. These rights are relevant to
119,167 shares of outstanding common stock.
In July 1997, we sold four convertible promissory notes, which were
converted later in 1997 into 85,197 shares of common stock. The holders of these
shares have the right to include the shares in most registration statements
filed by us. When they are included in a registration statement, the
registration statement is to remain in effect until the shares have been sold.
The registration rights terminate (1) if a holder can make public sales of those
shares pursuant to Rule 144 of the SEC or (2) three years from the date of this
offering.
We have given registration rights to holders of the warrants issued to
Bathgate McColley Capital as the placement agent for several offerings. For a
period of seven years from the date of issuing warrants, we will offer the
holders the right to include
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the shares issued upon the exercise of the warrants, or the warrants and
underlying shares, in most registration statements filed by us. In addition,
we will cooperate in preparing and signing a registration statement for the
resale of the placement agent warrants or underlying shares, at the expense
of the holders, but this requirement is limited to one registration in any
12-month period. This registration right is relevant to 55,419 shares of
common stock issuable under the placement agent warrants.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under our Amended and Restated Articles of Incorporation and, upon
completion of this offering, there will be approximately 16,731,470 shares of
common stock and approximately 10,000,000 shares of preferred stock available
for future issuance without stockholder approval (except that as part of the
criteria for maintaining a listing on the American Stock Exchange, we are
required to obtain stockholder approval of certain issuances of stock). These
additional shares may be utilized for a variety of corporate purposes including
future public offerings to raise additional capital or to facilitate corporate
acquisitions.
One of the effects of the existence of unissued and unreserved common stock
and preferred stock may be to enable the Board of Directors to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of TDI by means of a merger, tender
offer, proxy contest or otherwise, and thereby protect the continuity of our
management. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of TDI.
The Board of Directors is authorized without any further action by the
stockholders to determine the rights, preferences, privileges and restrictions
of the unissued Preferred Stock. The purpose of authorizing the Board of
Directors to determine such rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The Board of Directors
may issue preferred stock with voting and conversion rights which could
adversely affect the voting power of the holders of common stock, and which
could, among other things, have the effect of delaying, deferring or preventing
a change in control of TDI.
We do not currently have any plans to issue additional shares of common
stock or preferred stock other than shares of common stock which may be issued
upon the exercise of options which have been granted or which may be granted in
the future to our employees.
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AMERICAN STOCK EXCHANGE LISTING
We anticipate that the common stock will be approved for quotation on the
American Stock Exchange under the symbol __________.
TRANSFER AGENT
We have appointed American Securities Transfer Incorporated, Denver,
Colorado, as the transfer agent and registrar for our common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market could adversely affect
market prices prevailing from time to time.
After this offering, we will have a total of 3,268,530 shares of
outstanding common stock. Of these shares, the 2,000,000 shares sold in this
offering will be freely tradable in the public market without restriction under
the Securities Act, except for any shares held by our "affiliates," as that term
is defined in Rule 144 under the Securities Act. The remaining 1,268,530 shares
of common stock held by existing stockholders are "restricted securities," as
that term is defined in Rule 144 under the Securities Act. All restricted shares
were issued and sold by us in private or limited offering transactions, which
relied on exemptions from securities registration under the Securities Act.
Restricted shares may be sold in the public market only if they are registered
or if they qualify for an exemption from registration, such as Rule 144 or Rule
701 under the Securities Act.
In addition to the shares described above, at the date of this
prospectus, we had outstanding options and warrants to purchase an aggregate
of 572,750 shares of common stock. Warrants for an additional 27,667 shares
of common stock were issued in units for a bridge loan completed in August,
1999 to the placement agent. We intend to issue options for an additional
400,000 shares of common stock to executive officers and directors after the
completion of this offering. Taking into account this proposed issuance of
options for 400,000 shares and the warrants issued in this offering to the
underwriters for 200,000 shares, options and warrants to purchase a total of
1,200,417 shares of common stock will be outstanding after this offering, and
no shares of common stock will be reserved for issuance under our stock
option plans.
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The directors, executive officers, 5% or more beneficial owners of our
shares and other shareholders of TDI are signing lock-up agreements which
prohibit or limit their transfer of our common stock for a period of nine months
to two years.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year is entitled to sell within any three-month period a
number of shares that does not exceed the greater of (1) 1% of the number of
shares of common stock then outstanding (which will equal approximately 32,685
shares immediately after this offering); or (2) the average weekly trading
volume of the common stock during the four calendar weeks preceding the filing
of a Form 144. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us. Under Rule 144(k), a person who is not deemed to have been
an affiliate of TDI at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except generally an affiliate),
is entitled to sell such shares without complying with the manner of sale,
volume limitation, public information or notice provisions of Rule 144.
Taking into account the shares subject to lock-up agreements, the number of
restricted shares that will be available for sale in the public market under the
provisions of Rules 144 and 144(k) will be as follows:
- no shares will be eligible for sale from 0 to 270 days after the date
of this prospectus;
- approximately 342,000 shares will be eligible for sale 270 to 365
days after the date of this prospectus upon expiration of some lock-up
agreements and holding periods;
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- approximately 436,000 shares will be eligible for sale 365 days after
the date of this prospectus as additional lock-up agreements expire;
and
- approximately 811,000 shares will be eligible for sale two years
after the date of this prospectus upon expiration of lock-up
agreements.
The calculation listed above does not take into account any early release
from the lock-up agreements.
We have outstanding registration rights as described under "Description of
Capital Stock." Registration of any shares under the Securities Act pursuant to
the outstanding registration rights would result in such shares becoming freely
tradable without restriction after the lock-up agreements expire.
Within 90 days following the effectiveness of this offering, we plan to
file a registration statement on Form S-8 registering shares of common stock
subject to outstanding options or reserved for future issuance under our stock
plans. As of the date of this prospectus, options to purchase a total of 335,666
shares were outstanding and we intend to issue options for an additional 400,000
shares after this offering as mentioned above. Subject to expiration of the
lock-up agreements, common stock issued upon exercise of outstanding vested
options, other than common stock issued to our affiliates, would be available
for immediate resale in the open market.
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, the underwriters named below, for which Capital West Securities, Inc.
is serving as a representative, have severally agreed to purchase from us, an
aggregate of 2,000,000 shares of common stock at the initial public offering
price, less the underwriting discounts and commissions, set forth on the cover
page of this prospectus. The number of shares of common stock that each
underwriter has agreed to purchase is set forth opposite its name below:
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ----------
<S> <C>
Capital West Securities, Inc.....................................................
---------
Total............................................................................ 2,000,000
---------
---------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock are subject to certain
conditions, including the absence of any material adverse change to us and the
receipt of certificates, opinions and letters from us, our counsel and
independent auditors. The underwriters are obligated to purchase all of the
shares of common stock offered by this prospectus (other than those covered by
the over-allotment option described below), if any are purchased.
The representative of the underwriters has advised us that the underwriters
propose initially to offer the common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession not in excess of $____________ per
share, and that the underwriters and such dealers may reallow a concession of
not in excess of $_____ per share to other dealers. The initial public offering
price and the concessions and discount to dealers may be changed by the
representative after the initial public offering.
We have granted an option to the representative, expiring at the close of
business on the 45-day period after the date of this prospectus, to purchase up
to an additional 300,000 shares on the same terms as set forth in this
prospectus, including the initial public offering price. The representative may
only exercise the option (in whole or in part) to cover over-allotments incurred
in connection with the sale of common stock in this offering.
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The representative has advised us that the underwriters do not expect any
sales to accounts for which any of the underwriters will exercise discretion as
to such sale.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with regulations
of the Securities and Exchange Commission. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representative to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the American Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
Neither TDI nor the underwriters can predict the effect that the
transactions described above may have on the price of the common stock. In
addition, neither TDI nor the underwriters represent that the underwriters will
engage in such transactions. If commenced, such transactions may be discontinued
at any time without notice. The underwriters are not obligated to make a market
in the common stock and if they do so may discontinue making a market at any
time. There is no assurance an active trading market will ever develop for the
common stock.
Upon completion of this offering, we will sell to the representative for
$200 warrants to purchase 200,000 shares of common stock. The representative's
warrants will become exercisable immediately after the completion of this
offering at a per share exercise price equal to 120% of the initial public
offering price and will expire four years from the date of this prospectus. The
representative's warrants and underlying shares of common stock will be
restricted from sale, transfer, assignment or hypothecation for a period of one
year from the date of this prospectus, except to the representative,
underwriters, selling group members and their officers or partners. During the
exercise period, holders of the representative's warrants are entitled to
certain demand and incidental rights with respect to the shares of common stock
issuable upon exercise of the representative's warrants. The common stock
issuable on exercise of the representative's warrants is subject to adjustment
in certain events to prevent dilution.
We will pay the representative a nonaccountable expense allowance of 2.5%
of the gross proceeds of the offering, which will include proceeds from the
over-allotment option, if exercised. The representative's expenses in excess of
the
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nonaccountable expense allowance, including their legal expenses, will be
borne by the representatives. We have paid $50,000 to the representative as an
advance for these expenses.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, and to contribute to
payments which the underwriters may be required to make regarding these
liabilities.
The officers, executive directors and 5% or more beneficial shareholders of
TDI have agreed with the underwriters that, without the prior written consent of
Capital West on behalf of the underwriters, they will not sell or otherwise
dispose of any common stock or any securities convertible into common stock for
a period of one year following the date of this prospectus. Each of these
persons has also agreed that they will not sell or otherwise dispose of more
than 10% of the person's shares of TDI per quarter for a period of an additional
one year, ending on the second anniversary of this prospectus. All other
existing shareholders have agreed not to sell or otherwise dispose of any common
stock or securities convertible into our common stock for a period of nine
months from the date of this prospectus.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price has been determined by
negotiations among us and the representative. Among the principal factors
considered in determining the initial public offering price of the common stock
were our history and prospects, the industry in which we operate, the abilities
of our management, the status of our products and proposed services, our past
and present operating results, and the general condition of the securities
markets at the time of this offering.
The estimated initial public offering price per share set forth on the
cover of this preliminary prospectus is subject to change as a result of the
above and other factors.
Capital West Securities, Inc., one of the underwriters, was first
registered as a broker-dealer in May 1995. Capital West has participated in only
ten public equity offerings as an underwriter, although certain of its employees
have had experience in underwriting public offerings while employed by other
broker-dealers. Prospective purchasers of the securities offered hereby should
consider Capital West's limited underwriting experience in evaluating this
offering.
LEGAL MATTERS
The validity of the issuance of the shares of common stock being offered
hereby will be passed upon for us by Holland & Hart LLP, Denver, Colorado.
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Certain legal matters for the underwriters will be passed upon by McAfee & Taft
A Professional Corporation, Oklahoma City, Oklahoma.
EXPERTS
Our audited financial statements included in this prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form SB-2 under the Securities Act of 1933 with respect to the
common stock offered by this prospectus. This prospectus does not contain all of
the information in the registration statement and the exhibits and schedules.
For further information about us and our common stock, please refer to the
registration statement and the exhibits and schedules filed. Statements
contained in this prospectus as to the contents of any contract or document
filed as an exhibit to the registration statement are qualified by reference to
such exhibit as filed.
A copy of the registration statement, and the exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part of the registration statement may be
obtained from such offices upon the payment of the fees prescribed by the SEC.
Information regarding the operation of the public reference room may be obtained
by calling the SEC at 1-800-SEC-0330. The SEC maintains a Website that contains
registration statements, reports, proxy and other information regarding
registrants that file electronically with the SEC. The address of this Website
is sec.gov.
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TRAINING DEVICES INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
BALANCE SHEETS, as of December 31, 1998 and June 30, 1999 (unaudited) F-3
STATEMENTS OF OPERATIONS, for the years ended December 31, 1997 and 1998
and the six months ended June 30, 1998 and 1999 (unaudited) F-5
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT), for the years ended
December 31, 1997 and 1998 and the six months ended June 30, 1999
(unaudited) F-6
STATEMENTS OF CASH FLOWS, for the years ended December 31, 1997 and 1998
and the six months ended June 30, 1998 and 1999 (unaudited) F-7
NOTES TO FINANCIAL STATEMENTS F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Training Devices Incorporated:
We have audited the accompanying balance sheet of TRAINING DEVICES INCORPORATED
(a Colorado corporation) as of December 31, 1998, and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows for each of
the two years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Training Devices Incorporated
as of December 31, 1998, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Training
Devices Incorporated will continue as a going concern. As discussed in Note 1 to
the financial statements, Training Devices Incorporated has suffered recurring
losses and has a net capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Denver, Colorado
August 2, 1999.
F-2
<PAGE>
Page 1 of 2
TRAINING DEVICES INCORPORATED
BALANCE SHEETS
<TABLE>
December 31, June 30,
ASSETS 1998 1999
------ --------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 173,948 $ -
Restricted cash 19,050 -
Accounts receivable -
Trade 74,396 9,700
Other 14,776 10,000
Prepaid expenses and other current assets 10,990 13,903
Deferred offering costs - 72,380
Deferred debt issuance costs - 49,462
--------- ---------
Total current assets 293,160 155,445
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements 110,488 110,488
Software and licenses 85,440 92,581
Furniture and equipment 146,027 187,827
--------- ---------
341,955 390,896
Less - Accumulated depreciation and amortization (73,251) (107,504)
--------- ---------
Property, plant and equipment, net 268,704 283,392
--------- ---------
DEPOSITS 9,567 9,567
--------- ---------
Total assets $ 571,431 $ 448,404
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
Page 2 of 2
TRAINING DEVICES INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1998 1999
----------------------------------------------- ---------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 237,334 $ 181,378
Accrued expenses 399,120 404,717
Capital lease payable 3,656 2,387
Billings in excess of revenue earned 367,282 55,582
Bridge loan payable - 230,010
Accrued losses on projects 214,752 147,793
----------- -----------
Total current liabilities 1,222,144 1,021,867
----------- -----------
CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES 120,000 120,000
BRIDGE LOAN INCENTIVE OBLIGATION - 17,965
CAPITAL LEASE PAYABLE, net of current portion 9,569 9,844
----------- -----------
Total liabilities 1,351,713 1,169,676
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 20,000,000 shares
authorized, 3,805,590 issued and outstanding 3,197,332 3,913,072
Deferred compensation (107,111) (250,554)
Accumulated deficit (3,870,503) (4,383,790)
----------- -----------
Total stockholders' equity (deficit) (780,282) (721,272)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 571,431 $ 448,404
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE>
TRAINING DEVICES INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
----------------------------------- -----------------------------------
1997 1998 1998 1999
------------- --------------- ------------ ----------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 2,201,403 $ 1,498,192 $ 484,284 $ 855,988
COST OF SALES 2,128,764 2,227,740 875,567 776,729
----------- ----------- ----------- -----------
Gross margin (loss) 72,639 (729,548) (391,283) 79,259
SELLING, GENERAL AND
ADMINISTRATIVE 523,149 895,329 366,438 564,353
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (450,510) (1,624,877) (757,721) (485,094)
OTHER EXPENSES
Interest expense (income), net 2,641 9,813 (1,595) 28,193
Other expense 652 3,249 - -
----------- ----------- ----------- -----------
Total other expenses (income) 3,293 13,062 (1,595) 28,193
----------- ----------- ----------- -----------
NET LOSS $ (453,803) $(1,637,939) $ (756,126) $ (513,287)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC AND DILUTED LOSS
PER SHARE $ (.22) $ (.43) $ (.20) $ (.13)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 2,053,352 3,802,361 3,799,563 3,805,590
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Page 1 of 2
TRAINING DEVICES INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------- ---------------------- Subscriptions Deferred Accumulated
Shares Dollars Shares Dollars Receivable Compensation Deficit Total
--------- ----------- ---------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 1,400,000 $ 80,500 200,000 $ 150,000 $ (5,000) $ - $(1,778,761) $(1,553,261)
February 1997 private
placement 480,000 600,000 - - - - - 600,000
Stock offering costs - (34,650) - - - - - (34,650)
September 1997 private
placement 700,000 700,000 - - - - - 700,000
Stock issued for offering
services 25,000 - - - - - - -
Conversion of Promissory
Notes into Common Stock 255,590 255,590 - - - - - 255,590
Stock offering costs - (16,848) - - - - - (16,848)
Conversion of Preferred
Stock into Common Stock 200,000 150,000 (200,000) (150,000) - - - -
December 1997 private
placement 637,500 1,275,000 - - - - - 1,275,000
Stock offering costs - (132,360) - - - - - (132,360)
Common stock issued in
settlement of payables 30,000 60,000 - - - - - 60,000
Receipt of cash for
subscription
receivable - - - - 5,000 - - 5,000
Net loss - - - - - - (453,803) (453,803)
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1997 3,728,090 2,937,232 - - - - (2,232,564) 704,668
Additional shares issued in
January 1998 from
December
1997 private placement 77,500 155,000 - - - - - 155,000
Stock offering costs - (15,400) - - - - - (15,400)
Issuance of Common Stock
options at less than
fair value - 120,500 - - - (120,500) - -
Amortization of deferred
compensation - - - - - 13,389 - 13,389
Net loss - - - - - - (1,637,939) (1,637,939)
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Page 2 of 2
TRAINING DEVICES INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
-------------------- --------------- Subscriptions Deferred Accumulated
Shares Dollars Shares Dollars Receivable Compensation Deficit Total
--------- ----------- ------ ------- ------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1998 3,805,590 $ 3,197,332 - $ - $ - $ (107,111) $(3,870,503) $(780,282)
Common stock warrants issued in
settlement of payables - 5,250 - - - - - 5,250
Common stock warrants issued in
connection with Bridge Debt
Financing - 279,990 - - - - - 279,990
Issuance of Common Stock options
at less than fair market value - 430,500 - - - (430,500) - -
Amortization of deferred
compensation - - - - - 287,057 - 287,057
Net loss - - - - - - (513,287) (513,287)
---------- ----------- ------ ------- ----------- ----------- ------------ ---------
BALANCES, June 30, 1999 (unaudited) 3,805,590 $ 3,913,072 - $ - $ - $ (250,554) $(4,383,790) $(721,272)
---------- ----------- ------ ------- ----------- ----------- ------------ ---------
---------- ----------- ------ ------- ----------- ----------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Page 1 of 3
TRAINING DEVICES INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
----------------------------- -------------------------------
1997 1998 1998 1999
------------ -------------- ------------ --------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (453,803) $(1,637,939) $ (756,126) $ (513,287)
Adjustments to reconcile net loss
to cash provided by (used in)
operating activities-
Depreciation and amortization 17,993 50,583 17,736 34,253
Loss on disposal of assets - 3,249 - -
Accrued losses on projects (441,765) 308,416 93,664 (66,959)
Settlement of payable through
issuance of Common Stock 60,000 - - -
Settlement of interest payable
related to Promissory Note
converted to Common Stock 5,590 - - -
Amortization of debt issuance
costs - - - 2,033
Amortization of deferred
compensation - 13,389 - 287,057
Accretion in connection with
Bridge Financing - - - 11,053
Accretion of Bridge Loan
incentive payments - - - 6,912
Settlement of payable through
issuance of Common Stock
warrants - - - 5,250
Changes in operating assets
and liabilities-
Earnings in excess of billings (270,286) 270,286 (53,889) -
Accounts receivable (10,000) (79,172) (1,481) 69,472
Prepaid expenses and other
current assets (9,943) 5,121 (1,446) (2,913)
Accounts payable (58,487) (88,225) (74,302) (55,956)
Accrued expenses 19,299 308,573 49,382 5,597
Billings in excess of earnings (631,517) 328,717 10,895 (311,700)
----------- ----------- ----------- -----------
Cash used in operating
activities (1,772,919) (517,002) (715,567) (529,188)
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
Page 2 of 3
TRAINING DEVICES INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
---------------------------------- -------------------------------------
1997 1998 1998 1999
------------- -------------- -------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES:
Acquisition of property, plant
and equipment $ (69,515) $ (210,326) $ (185,355) $ (48,941)
Proceeds from sale of fixed assets - 650 - -
----------- ----------- ----------- -----------
Cash (used in) provided
by investing activities (69,515) (209,676) (185,355) (48,941)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Restricted cash (66,481) 47,431 47,422 19,050
Advances from related parties 20,000 - - -
Payments to related parties (39,175) - - -
Payments on capital leases - (305) - (994)
Net proceeds from private
placements of Common Stock 2,409,490 139,600 139,600 -
Net proceeds from issuance of
Promissory Notes 232,500 - - -
Net proceeds from Bridge Financing - - - 458,505
Deferred offering costs - - - (72,380)
----------- ----------- ----------- -----------
Cash provided by
financing activities 2,556,334 186,726 187,022 404,181
----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH 713,900 (539,952) (713,900) (173,948)
CASH, beginning of the year,
net of restricted portion - 713,900 713,900 173,948
----------- ----------- ----------- -----------
CASH, end of the year, net of
restricted portion $ 713,900 $ 173,948 $ - $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for
interest $ 11,180 $ 9,737 $ 4,390 $ 13,109
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
Page 3 of 3
TRAINING DEVICES INCORPORATED
STATEMENTS OF CASH FLOWS
NON-CASH TRANSACTIONS
During 1997, the Company paid a placement agent fee by issuing 25,000 shares
valued at $25,000.
During 1997, Promissory Notes of $250,000 were converted into shares of
Common Stock valued at $255,590 (consisting of principal of $250,000 and
$5,590 of accrued interest).
During 1997, 200,000 shares of Preferred Stock were converted into 200,000
shares of Common Stock valued at $150,000.
During 1998, the Company acquired fixed assets of $13,530 through a capital
lease payable.
During 1998, the Company granted stock-based compensation of $120,500. During
the six months ended June 30, 1999, the Company granted stock-based
compensation of $430,500.
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
TRAINING DEVICES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(Information as of and for the Six Months
Ended June 30, 1998 and 1999 is Unaudited)
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
A summary of the business and significant accounting policies of Training
Devices Incorporated (the "Company" or "TDI") follows:
NATURE OF BUSINESS
TDI was formed on January 19, 1995 as a Colorado corporation. The Company
develops and manufactures technology based flight training products for the
commercial aviation market. The products are full flight simulators (which
include motion) and flight training devices for the training of pilots.
GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, during the years ended December 31, 1997 and 1998, the Company
incurred losses of $453,803 and $1,637,939 respectively, and at December 31,
1998, its current liabilities exceed its current assets by $928,984. These
factors, among others, indicate that the Company may be unable to continue as a
going concern.
Management is currently working on a variety of plans to infuse capital into
the Company. It is currently completing an $830,000 bridge debt financing
with $510,000 and $740,000 having come into the Company as of June 30, 1999,
and August 2, 1999, respectively.
The Company is also in negotiations with two funding sources that, if completed,
could provide approximately $3,500,000 in additional debt financing to allow the
Company to start manufacturing two full flight simulators for its NEXUSim
program. Management expects the first of these may be approved by the other
party and commence in August, with the other commencing in September 1999.
Further, the Company is proceeding with plans for an Initial Public Offering
("IPO") with estimated net proceeds of approximately $17.4 million that is
projected to be completed in October 1999. It has executed a Letter of Intent
with an Underwriter and expects to file its registration statement with the
Securities and Exchange Commission in early August.
F-11
<PAGE>
RISK FACTORS
In addition to the going concern matter noted above, the Company also faces a
number of other risks and uncertainties. The Company's proposed change in
business plan to expand into higher volumes of simulators and into training
centers, is a business that current management has no experience with. The
Company will need cash to finance the manufacturing costs of simulators for the
NEXUSim training centers prior to the sale of fractional ownership interests and
any delays in the manufacturing schedule could have a material adverse effect on
the Company's business, cash flow, financial condition and operating results.
The Company is dependent upon a limited number of suppliers, and although the
Company is aware of alternative suppliers, a switch in suppliers can delay the
completion of a simulator. A change in government regulations could increase the
Company's cost of doing business or cause it to change the way it conducts its
business. The timing of sales under the NEXUSim program are largely dependent
upon the timing of receipt of the required FAA approval. Additional risk factors
exist which may also impair the Company's business.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The interim financial statements as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999, are unaudited and have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all cash balances and highly liquid
investments with an original maturity of three months or less.
Restricted cash represents amounts underlying a letter of credit.
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
The majority of the Company's contracts are long-term and fixed price in nature.
The Company utilizes the percentage-of-completion method of accounting.
Revenues recognized under the percentage-of-completion method are measured
primarily by the cost-to-cost method. The amount of revenue recognized is not
related to the progress billings to customers. Contract costs include all direct
labor costs and associated indirect overhead costs related to contract
performance. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined.
F-12
<PAGE>
Contracts in progress are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Costs incurred on contracts in progress $2,459,683 $1,964,312
Estimated earnings, net of losses (356,060) (109,130)
------------- ------------
Revenues recognized from contracts in progress 2,103,623 1,855,182
Less: billings to date (2,470,905) (1,910,764)
------------- ------------
Billings in excess of revenues $ (367,282) $ (55,582)
------------- ------------
------------- ------------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and amortization
is provided using the straight-line method over the estimated useful lives.
Useful lives are as follows:
<TABLE>
<S> <C>
Leasehold improvements 5 years
Software and licenses 3 to 5 years
Furniture and equipment 5 to 7 years
</TABLE>
Leasehold improvements are depreciated over the shorter of the remaining term of
the associated lease or the life of the asset.
When assets are retired or otherwise disposed of, the cost of the assets and the
related accumulated depreciation are removed from the accounts. Any gain or loss
upon retirement is reflected in operations in the year of disposition.
DEFERRED OFFERING COSTS (JUNE 30, 1999)
Deferred offering costs are comprised of costs incurred by the Company related
to the current proposed IPO activities. Such costs represent legal and other
professional fees. Upon successful completion of the IPO, these costs will be
offset against the IPO proceeds. Should the offering not be successful, these
deferred offering costs will be expensed.
DEFERRED DEBT ISSUANCE COSTS (JUNE 30, 1999)
Debt issuance costs related to obtaining the Bridge Debt Financing described in
Note 10 have been deferred and are being amortized over the term of the debt.
F-13
<PAGE>
SOFTWARE DEVELOPMENT
Costs incurred in the development of new software and enhancements to existing
software and services are expensed as incurred.
PURCHASED SOFTWARE
Software licenses purchased by the Company are capitalized and amortized over
the estimated useful life of five years.
WARRANTIES
As a part of all contracts, the Company provides a warranty on its product. The
warranties cover defects in design, materials and workmanship for a period
ranging from 3 to 12 months. Estimated warranty costs are recognized as a part
of the total cost of each contract, and are a component of accrued expenses in
the accompanying financial statements.
ASSET IMPAIRMENT
TDI reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Assets which are held and used in operations would be impaired if
the undiscounted future cash flows were less than the net book value. Impairment
losses would be recorded for the difference between the carrying value and the
fair market value of the long-lived asset.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
EARNINGS PER SHARE
Basic earnings per share is computed based on the monthly weighted-average
number of common shares outstanding during each period. Diluted earnings per
share is computed based on the monthly weighted-average number of common shares
outstanding during the periods and the assumed exercise or conversion of
securities convertible into common stock for which the effect of conversion or
exercise would be dilutive (stock options and warrants) using the treasury stock
method.
The Company has excluded the weighted-average effect of common stock issuable
upon exercise of all warrants and options from the computation of diluted
earnings per share as the effect of all such securities is anti-dilutive for all
periods presented. The shares excluded are as follows:
F-14
<PAGE>
<TABLE>
<S> <C>
For the years ended December 31,
1997 133,250
1998 674,250
For the six months ended June 30,
1998 (unaudited) 133,250
1999 (unaudited) 1,140,250
</TABLE>
The above table does not include any assumed dilution related to the convertible
notes payable to related parties discussed in Note 9.
At December 31, 1998 and June 30, 1999, the Company had issued rights to
1,031,750 and 1,497,750 shares, respectively, of Common Stock under such
agreements which were still outstanding.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income in the financial statements. Under this statement, all
components of comprehensive income are reported in the financial statements for
the period in which they are recognized. The accumulated balance of other
comprehensive income is reported in the equity section of the balance sheet
separately from retained earnings and additional paid-in capital. There was no
difference between comprehensive income and net income for 1998 and there are no
items of accumulated other comprehensive income at December 31, 1998.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for reporting information about operating
segments. It also establishes standards for enterprise-wide disclosures related
to geographic areas and major customers. The Company adopted SFAS No. 131 during
1998, and currently operates under one segment related to the development and
manufacturing of technology based flight training products for the commercial
aviation market.
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use". SOP 98-1 requires that specified costs incurred
in developing or obtaining internal-use software, as defined by SOP 98-1, be
capitalized once certain criteria have been met and amortized in a systematic
and rational manner over the software's estimated useful life. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998, and stipulates
that costs incurred prior to initial application of the statement need not be
adjusted. The adoption of SOP 98-1 did not have a material impact on the
Company's financial statements.
F-15
<PAGE>
In April 1998, the Accounting Standards Executive Committee issued SOP 98-5,
"Reporting on the Costs of Start-Up Activities". SOP 98-5 requires that costs of
start-up activities, as defined by SOP 98-5, be expensed as incurred. SOP 98-5
is effective for fiscal years beginning after December 15, 1998, and stipulated
that adoption would be reported as a cumulative change in accounting principle.
The adoption of SOP 98-5 did not have a material impact on the Company's
financial statements.
(2) SIGNIFICANT CUSTOMERS
Through the end of 1998, the Company had completed four flight simulators with
another two in progress as of yearend. The following table details the customers
accounting for greater than 10% of total revenues in each period presented:
<TABLE>
<CAPTION>
1997 1998
------------------------------ ------------------------------
Revenues % of Revenues Revenues % of Revenues
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Customer A $1,024,129 47% 14,292 1%
Customer B 561,255 25% 179,128 12%
Customer C 373,412 17% 252,274 17%
Customer D 242,607 11% 28,571 2%
Customer E - -% 1,013,876 68%
</TABLE>
(3) LEASE COMMITMENTS
The Company has entered into certain non-cancelable leases which are being
accounted for as operating leases.
Future minimum rental payments for the leases described above are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1999 $ 97,599
2000 86,463
2001 87,867
2002 89,271
2003 37,440
----------
$ 398,640
----------
----------
</TABLE>
Rent expense for operating leases amounted to $46,644 and $99,878 for the years
ended December 31, 1997 and 1998, respectively.
F-16
<PAGE>
(4) INCOME TAXES
The Company utilizes the SFAS 109, "Accounting for Income Taxes." Deferred taxes
are recognized based on tax effects attributable to temporary differences in
assets and liabilities resulting from the use of the cash basis for tax
reporting and the accrual basis for financial reporting, which are deductible or
taxable in future years.
The Company paid no federal or state income taxes in 1997 or 1998.
The Company's deferred income tax assets (liabilities) are summarized as
follows:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Net operating loss carryforwards $ 1,391,520
Other, net 166,059
-----------
Net deferred tax assets 1,557,579
Less- Valuation allowance (1,557,579)
-----------
$ -
-----------
-----------
</TABLE>
Other, net is comprised of deferred tax assets and liabilities related to
various cash to accrual changes, including accruals for items such as vacation
and accrued losses on contracts, as well as excess depreciation for tax.
A valuation allowance is required to be established for those deferred tax
assets that, more likely than not, will not be realized. The above valuation
allowance is reflected because of the recurring losses suffered by the Company
and the fact that the Company may be unable to continue as a going concern and
may not be ultimately able to realize these deferred tax assets.
As of December 31, 1998, the Company had cumulative net operating losses for
income tax purposes totaling $3.6 million which expire, in varying amounts,
beginning in 2012.
The effective rate differs from the statutory rate applied to the net loss for
the following reasons:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Expected federal benefit $ 154,293 $ 556,900
Expected state benefit, net of federal benefit 14,975 54,052
Increase in valuation allowance (169,268) (610,952)
---------- ---------
Provision/benefit for income taxes $ - $ -
---------- ---------
---------- ---------
</TABLE>
F-17
<PAGE>
(5) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially expose the Company to concentrations of
credit risk, consist primarily of trade accounts receivable and cash. Trade
accounts receivable are typically secured by the underlying flight simulator and
the Company assesses the credit of its customers as a part of the contracting
process. The Company's cash consists of demand deposits and interest bearing
accounts, all maintained at high quality financial institutions. Total account
balances may periodically exceed insured limits for short periods of time;
however, management believes that the Company's cash is subject to minimal
credit risk.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate fair value due to the short-term
maturities of these assets and liabilities. The carrying amount of convertible
notes payable to related parties approximates fair market value as of December
31, 1998.
(7) COMPANY STOCK OPTION PLANS
During 1997 and amended in July 1999, the Company adopted the 1997 Incentive and
Nonstatutory Stock Option Plan (the "Plan") under which the Company is
authorized to grant stock options to acquire up to 1,007,000 shares of the
Company's Common Stock. The Company accounts for its Plan under Accounting
Principles Board Opinion No. 25 ("APB No. 25"), Accounting for Stock Issued to
Employees. Under APB No. 25 compensation expense is recognized for the
difference between the fair market value of the stock and the exercise price of
the option at the date of grant. Deferred compensation expense totaling $120,500
was recorded in 1998 in the accompanying statement of changes in stockholders'
equity (deficit) which is being amortized over the vesting periods. For the year
ended December 31, 1998, the Company recognized $13,389 of such compensation.
Had compensation cost for the Plan been determined consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation ("SFAS 123"), the Company's net loss
and basic and diluted loss per share would have been increased to the following
proforma amounts:
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C>
Net loss
As reported $ (453,803) $ (1,637,939)
-------------- --------------
-------------- --------------
Proforma $ (465,915) $ (1,669,596)
-------------- --------------
-------------- --------------
Basic and diluted loss per share
As reported $ (.22) $ (.43)
-------------- --------------
-------------- --------------
Proforma $ (.23) $ (.44)
-------------- --------------
-------------- --------------
</TABLE>
F-18
<PAGE>
The following table summarizes activity with respect to outstanding Common Stock
options for 1997 and 1998:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price/Share
---------- -----------
<S> <C> <C>
Outstanding at December 31, 1996 - $ -
Granted 142,000 1.00
Exercised - -
Forfeited (91,000) 1.00
--------- ------
Outstanding at December 31, 1997 51,000 1.00
(No shares exercisable)
Granted 248,000 1.50
Exercised - -
Forfeited (7,000) 1.50
--------- ------
Outstanding at December 31, 1998
(17,000 shares exercisable) 292,000 $1.41
--------- ------
--------- ------
</TABLE>
The weighted average fair value of the options granted during 1997 and 1998 in
total (and per share) was $109,005 ($0.16 per share) and $184,369 ($0.74 per
share), respectively.
The weighted average fair value of each option grant is estimated on the date of
grant using the Black Scholes option pricing model with the following
assumptions: risk-free interest rates of 5.88% and 6.10% during 1997 and 1998
respectively, expected weighted average lives of 3 years and no expected
volatility for grants and no expected dividend.
The following table sets forth the Company's December 31, 1998 Common Stock
options outstanding, exercise price, weighted average remaining contractual
lives and the number of common stock options exercisable.
F-19
<PAGE>
OPTIONS OUTSTANDING
-------------------
<TABLE>
<CAPTION>
Weighted
Exercise Number Average Remaining Number
Price Outstanding Contractual Life Exercisable
---------- -------------- ------------------ --------------
<S> <C> <C> <C>
$1.00 51,000 3.66 years 17,000
$1.50 241,000 4.66 years -
------- ------
292,000 17,000
------- ------
------- ------
</TABLE>
NON-QUALIFIED PLANS
In September 1997, the Company issued options to an individual for the purchase
of 550,000 shares of Common Stock at an exercise price of $1.00 per share. At
that time, this individual was elected to serve as a Director and Chief
Executive Officer of the Company. This individual has since resigned and as of
December 31, 1998, options for the purchase of 300,000 shares Common Stock
remain outstanding and exercisable.
(8) COMMON STOCK WARRANTS
The following table summarizes activity with respect to outstanding Common Stock
warrants for 1997 and 1998:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price/Share
------------------ -------------------
<S> <C> <C>
Warrants issued to placement agent in
connection with February 1997
private placement 34,250 $ 2.00
Warrants issued to purchasers of Common
Stock as part of the October 1997
private placement 357,500 4.00
Warrants issued to placement agent in
connection with October 1997
private placement 48,000 1.25
------- -------
Outstanding and exercisable at
December 31, 1997 and 1998 439,750 $ 3.54
------- -------
------- -------
</TABLE>
F-20
<PAGE>
The fair weighted average value of the warrants issued in 1997 totaled $257,550
and was estimated on the date of grant using the Black Scholes option pricing
model with the following assumptions: risk-free interest rate of 5.88%, expected
weighted average lives of 3 years and expected volatility of 75% for grants and
no expected dividend yields.
(9) RELATED PARTY TRANSACTIONS
In December 1996, the Company borrowed $100,000 from a member of management to
help meet operating obligations. The Company issued a convertible note ("1996
Note") evidencing the loan. The terms of the 1996 Note provide that it is due
and payable on January 2, 2001, and it shall bear interest at the rate of 10%
until paid. The 1996 Note is convertible into shares of Common Stock at the rate
of one share for each $1.25 of principal and interest converted. The balance of
$100,000 was outstanding as of December 31, 1998 and is included in notes
payable to related parties in the accompanying balance sheet.
During 1997, the Company borrowed funds from its officers and directors, and all
but $20,000 was repaid during 1997. The remaining $20,000, payable to one
individual, was converted into a convertible promissory note ("1997 Note") with
terms identical to those of the 1996 Note. The entire balance is outstanding as
of December 31, 1998 and is included in notes payable to related parties in the
accompanying balance sheet.
(10) COMMITMENTS AND CONTINGENCIES
LITIGATION
In the normal course of business, the Company is also a party to various
disputes, claims and legal actions. Provisions for costs and losses relating to
these matters are made as management deems them appropriate. Management is of
the opinion that the outcome of such actions will not have a material adverse
effect on the Company's financial position or results of operations.
SELF INSURANCE
The company maintains general liability insurance. Policy limits of TDI's
product liability insurance are $1 million per occurrence with an aggregate
maximum of $2 million. Should the Company experience claims in excess of the
policy limits, the Company would be self insured for these amounts.
F-21
<PAGE>
(11) SUBSEQUENT EVENTS
BRIDGE DEBT FINANCING
Subsequent to yearend, through June 30, 1999, the Company has raised $510,000 in
Bridge Debt Financing to fund operations via issuance of promissory notes. The
notes bear interest at a rate of 14% and are due May 31, 2000 or earlier if the
Company receives gross proceeds from any future financing of $5,000,000 or more.
In addition to the stated interest, an amount equal to 10% of the original
principal will be paid in each of the five years beginning June 1, 2000.
Additionally, for each $100,000 promissory note, 30,000 warrants were issued
with an exercise price of $0.25 per share. Through August 2, 1999, the Company
raised an additional $230,000 under this Bridge Debt Financing.
OPTION/WARRANT ACTIVITY
Through the six months ended June 30, 1999, the Company has issued additional
options and warrants. The following summarizes the activity during this period:
- In April, 190,000 options (valued at $370,500) were issued to employees
of the Company with an exercise price of $0.05 per share and a vesting
period of 90 days.
- In April, 120,000 options (valued at $60,000) were issued to employees
of the Company with an exercise price of $1.50 per share and a vesting
period of 3 years.
- In May, 3,000 warrants (valued at $5,250) were issued to a financial
consultant of the Company with an exercise price of $0.25 per share
which vested immediately.
- In connection with the Bridge Debt Financing discussed above, 153,000
warrants (valued at $279,990) were issued with an exercise price of
$0.25 per share, which vest on May 31, 2000.
In connection with the above Common Stock option issuances, deferred
compensation totaling $430,500 was recorded which is being amortized over the
vesting periods. For the six months ended June 30, 1999, the Company recognized
$287,057 of such compensation.
In July 1999, the Company issued 1,500 warrants to a consultant of the Company
as settlement of a payable with an exercise price of $0.25 per share, which vest
on May 31, 2000.
In July 1999, the Company's Board of Directors adopted the 1999 stock option
plan, which provides 1.2 million shares of common stock available for grants.
Through August 2, in connection with the Bridge Debt financing, the Company
has issued 296,000 warrants in total with an exercise price of $0.25 per
share, all of which vest on May 31, 2000.
F-22
<PAGE>
[PICTURE OF INSIDE OF
A SIMULATOR]
74
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PROSPECTUS DELIVERY OBLIGATIONS
Until ______________, 1999 (25 days after the date of this prospectus), all
dealers effecting transactions in the common stock, whether or not participating
in this distribution, may be required to deliver a prospectus. This is in
addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
2,000,000 SHARES
TRAINING DEVICES
INTERNATIONAL, INC.
COMMON STOCK
------------
PROSPECTUS
------------
CAPITAL WEST SECURITIES, INC.
------------------------------
------------------------------
------------------------------
_____________, 1999
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
75
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Colorado Business Corporation Act, we have broad powers to
indemnify our directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act. Colorado law
provides that a director, officer or any other employee, fiduciary or agent, may
be entitled to indemnification if: (1) the person conducted himself or herself
in good faith; (2) the person reasonably believed, (a) in the case of conduct in
an official capacity with the corporation, that his or her conduct was in the
corporation's best interests, and (b) in all other cases, that his or her
conduct was at least not opposed to the corporation's best interests; and (3) in
the case of any criminal proceeding, the person had no reasonable cause to
believe his or her conduct was unlawful. A corporation may not indemnify a
director in connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation or in connection
with any other proceeding charging that the director derived an improper
personal benefit, whether or not involving action in an official capacity, in
which the director was adjudged liable on the basis that he or she derived an
improper personal benefit.
Our Bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to the
full extent permitted under Colorado law. We have also entered into
indemnification agreements with each of our executive officers and directors.
The terms of these indemnification agreements are described in "Management -
Indemnification and Limitation of Liability."
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling TDI
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses related to the
issuance and distribution of the securities being registered hereby which will
be borne by us:
II-1
<PAGE>
<TABLE>
<CAPTION>
ITEM OF EXPENSE $ AMOUNT
--------------- --------
<S> <C>
SEC registration fee................................................... $ 7,000
NASD filing fee........................................................ 2,500
American Stock Exchange listing application fee........................ 22,500
Cost of printing and engraving......................................... 125,000
Transfer Agent fees.................................................... 10,000
Legal fees and expenses................................................ 150,000
Accounting fees and expenses........................................... 135,000
Blue sky fees and expenses............................................. 10,000
Miscellaneous expenses................................................. 50,000
Total expenses of issuance and distribution............................ $512,000
</TABLE>
All fees and expenses listed above are estimated for purposes of this
filing.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since June 30, 1996, we have issued and sold unregistered securities as
follows:
1 We granted stock options to our employees, officers and directors as
shown on the following table:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE PER
GRANTS SHARE
------ -----
<S> <C> <C>
DATE
- -----
September, 1997............................................ 144,000 $3.00
March, 1998................................................ 3,333 $4.50
August, 1998............................................... 78,333 $4.50
April, 1999 ............................................... 63,333 $0.15
40,000 $4.50
August, 1999 .............................................. 35,000 $6.75
-------
Total...................................................... 363,999
-------
-------
</TABLE>
Options for 28,333 shares have been forfeited.
2. On December 5, 1996, we issued to Bruce S. Betschart a Convertible
Promissory Note in the principal amount of $100,000 which, as amended in August,
1999, bears interest at a rate of 10% per annum and matures on January 2, 2001.
The conversion rate is one share of common stock for each $3.75 of principal.
II-2
<PAGE>
3. On December 10, 1996, we sold an aggregate of 66,667 shares of common
stock to four key employees for a total purchase price of $1,000, or $.015 per
share.
4. In January, 1997, we sold an aggregate of 160,000 shares of common
stock at a cash price of $3.75 per share for a total sum of $600,000 in a
private offering to buyers whom we believed were accredited investors. As a
placement agent fee for this offering, Bathgate McColley Capital Group, LLC
received 33,333 shares of common stock valued at $500 and warrants to purchase
6,000 shares of common stock at an exercise price of $3.75 per share.
5. In May, 1997, we borrowed $114,000 from officers and directors of TDI.
Of this amount, $94,000 was repaid in the same year, without interest. The
remaining $20,000 represents a loan by Leonard Hawkins who was given a
convertible promissory note which contains the same terms as Mr. Betschart's
note described in Item 2 above.
6. On July 30, 1997, we issued four Secured Convertible Promissory Notes
in the total principal amount of $250,000 which were convertible into shares of
common stock at the price of $3.00 per share. We believed that the four buyers
were accredited investors. These Notes had a maturity date of July 31, 2002.
7. On September 3, 1997, we sold 233,333 shares of common stock at a cash
price of $3.00 per share for a total sum of $700,000 to ProFutures Bridge
Capital Fund, L.P., whom we believed to have been an accredited investor. In
lieu of a cash commission for its services in this transaction, Bathgate
McColley Capital received from us 8,333 shares of common stock with an agreed
value of $25,000.
8. On September 4, 1997, we issued an option to purchase 183,333 shares
of common stock to Robert T. Bruce with an exercise price of $3.00 per share as
set forth in an Option Agreement for Purchase of Common Stock executed in
connection with Mr. Bruce's agreement to serve as Chairman of the Board of
Directors. This option has been forfeited as to 83,333 shares, and currently
this option remains outstanding for the purchase of 100,000 shares.
9. In October 1997, the holders of the four Secured Convertible
Promissory Notes in the total principal amount of $250,000 converted these notes
into 85,197 shares of common stock at a price of $3.00 per share.
10. In October, 1997, all of our outstanding shares of "Series A Preferred
Stock," consisting of 3,333 shares, were converted into 66,667 shares of common
stock.
II-3
<PAGE>
11. In October 1997, we sold 238,333 shares of common stock and issued
warrants to purchase up to 119,167 shares of common stock at a price of $12.00
per unit (each unit consisted of two shares of common stock and one warrant to
purchase one share of stock) for a total sum of $1,430,000. The buyers were
persons or entities whom we believed were accredited investors. For acting as a
placement agent in this offering, Bathgate McColley received warrants to
purchase 11,417 shares of common stock at an exercise price of $6.00 per share.
12. In January, 1998, we issued 10,000 shares of common stock to an
accountant in lieu of paying $18,375 for services performed by him.
13. In May 1999, we issued warrants to purchase 1,000 shares of common
stock to a consultant in partial payment of his fees for financial services at
an exercise price of $.75 per share.
14. From May to August, 1999, we sold warrants to purchase up to 83,000
shares of our common stock at an exercise price per share of $0.75 and issued
notes in the total principal amount of $830,000 bearing interest at a rate of
14% per annum, with a maturity date of (a) May 31, 2000 which can be extended
by us or, if earlier, (b) completion of a $5,000,000 financing by us. We
believed that the purchasers in this offering were accredited investors.
15. In July, 1999, we agreed to issue warrants to purchase 500 shares of
common stock to an attorney in partial payment of his fees for legal services at
an exercise price of $0.75 per share.
16. In August 1999, we issued for $60,000 promissory notes in the
aggregate principal amount of $60,000 bearing interest at the rate of 14% per
annum and warrants to purchase 6,000 shares of common stock to two executive
officers and directors of the Company at an exercise price of $0.75 per share.
We relied on an exemption from securities registration pursuant to Rule 701
under the Securities Act for the offer and sale of securities described in Items
1 and 8 above. The securities were offered and sold either pursuant to written
compensatory benefit plans or pursuant to a written contract relating to
compensation, as provided by Rule 701. In addition, the grant of options as
described in Item 1 may not have constituted a sale under the Securities Act,
and we relied upon exemptions from securities registration pursuant to Section
4(2) of, and Rule 506 under, the Securities Act for the offer and sale to Mr.
Bruce as described in Item 8. Mr. Bruce became a high level officer and director
of TDI at the time of the transaction and had access to information about TDI.
For the offer and sale of securities described in Items 2 and 3, we relied
upon an exemption from securities registration pursuant to Section 4(2) of the
Securities Act. The sales were made to high level officers and directors of TDI
who had access to information about TDI.
For the offer and sale of securities described in Items 4 through 7, 9 and
11 through 16, we relied upon exemptions from securities registration pursuant
to
II-4
<PAGE>
Section 4(2) of, and Rule 506 under, the Securities Act of 1933. In addition,
we relied upon the exemption under Section 3(a)(9) of the Securities Act for
the conversion of securities described in Items 9 and 10 above. Because of
their specific purposes and limited dollar amount, we also relied upon an
exemption from securities registration pursuant to Rule 504 of the Securities
Act for the offer and sale of securities described in Items 12, 13 and 15.
Further, the transactions described in Items 2 through 7 and 11 through
16 may also be considered exempt from securities registration pursuant to
Rule 505 of the Securities Act. The total amount offered and sold is less
than $5,000,000 and have been sold primarily to accredited investors.
II-5
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
1 Underwriting Agreement.
2 Form of Amended and Restated Articles of Incorporation of
Training Devices International, Inc.
3 Form of Amended and Restated Bylaws of Training Devices
International, Inc.
4.1 Specimen stock certificate representing shares of common stock
of Training Devices International, Inc.*
4.2 Warrant for the purchase of common stock to be issued to the
representative upon the closing of this offering.
5 Opinion of Holland & Hart LLP regarding the legality of the
securities being registered.*
10.1 1997 Incentive and Nonstatutory Stock Option Plan, as amended.
10.2 1999 Stock Option Plan.
10.3 Form of Promissory Note issued to investors from May to
August, 1999.
10.4 Form of Warrant for the purchase of common stock issued from
May to August, 1999.
10.5 Placement Agent Agreement dated May 25, 1999.
10.6 Form of Warrant Agreement between Training Devices
International, Inc. and Bathgate McColley Capital Group, LLC
issued in August, 1999.
10.7 Form of Warrant for purchase of common stock issued to
investors from October 1997 to January 1998.
10.8 Form of Warrant Certificate between Training Devices
International, Inc. and principals of Bathgate McColley
Capital Group, LLC issued December 31, 1997.
10.9 Form of Registration Rights Agreement executed from
October, 1997 to January 1998.
10.10 Placement Agent Agreement dated October 8, 1997.
II-6
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
10.11 Form of Registration Rights Agreement dated July 30, 1997.
10.12 Placement Agent Agreement dated January 7, 1997.
10.13 Form of Warrant Certificate between Training Devices International, Inc.
and prinicpals of Bathgate McColley Capital Group, LLC issued February 20,
1997.
10.14 Convertible Promissory Note in the principal amount of
$100,000 payable to Bruce Betschart, as amended.
10.15 Convertible Promissory Note in the principal amount of $20,000
payable to Leonard Hawkins.
10.16 Lease Agreement, as amended, dated December 1, 1997, between
Spiral, Inc., as landlord, and Training Devices International,
Inc., as tenant, for premises located at 7367 South Revere
Parkway, Building 2-C, Englewood, Colorado.
10.17 Promissory Note between Training Devices International, Inc.
and Key Bank National Association dated June 4, 1999.
10.18 Commercial Pledge Agreement between Training Devices
International, Inc. and Key Bank National Association dated
June 4, 1999.
10.19 Form of Indemnification Agreement between Training Devices
International, Inc. and its officers and directors
23.1 Consent of Holland & Hart LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24 Power of Attorney.
27 Financial Data Schedule.
</TABLE>
*to be filed by amendment
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such
II-7
<PAGE>
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the small business issuer will, unless
in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
The small business issuer will provide to the underwriters at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
The undersigned small business issuer hereby undertakes to:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer pursuant to Rule 424(b)(1)
or (4), or 497(h) under the Securities Act as part of this Registration
Statement as of the time the Commission declared effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration
Statement, and that offering of such securities at that time as the initial
bona fide offering of those securities.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of the filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of Denver,
State of Colorado, on August 18, 1999.
TRAINING DEVICES
INTERNATIONAL, INC.
By: /s/ Ronald C. Ellington
---------------------------------------
Ronald C. Ellington
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed below by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ronald C. Ellington Chairman of the Board and Chief Executive August 18, 1999
----------------------- Officer (Principal Executive Officer,
Ronald C. Ellington Principal Financial Officer and Principal
Accounting Officer)
/s/ Bruce S. Betschart* Director, President and Chief August 18, 1999
---------------------- Operating Officer
Bruce S. Betschart
/s/ Robert E. Sawyer, Jr.* Director, Vice President, August 18, 1999
-------------------------- Engineering and Secretary
Robert E. Sawyer, Jr.
/s/ Leonard Hawkins* Director August 18, 1999
---------------------
Leonard Hawkins
*By: /s/ Ronald C. Ellington
------------------------
Ronald C. Ellington
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
1 Underwriting Agreement.
2 Form of Amended and Restated Articles of Incorporation of
Training Devices International, Inc.
3 Form of Amended and Restated Bylaws of Training Devices
International, Inc.
4.1 Specimen stock certificate representing shares of common stock
of Training Devices International, Inc.*
4.2 Warrant for the purchase of common stock to be issued to the
representative upon the closing of this offering.
5 Opinion of Holland & Hart LLP regarding the legality of the
securities being registered.*
10.1 1997 Incentive and Nonstatutory Stock Option Plan, as amended.
10.2 1999 Stock Option Plan.
10.3 Form of Promissory Note issued to investors from May to
August, 1999.
10.4 Form of Warrant for the purchase of common stock issued from
May to August, 1999.
10.5 Placement Agent Agreement dated May 25, 1999.
10.6 Form of Warrant Agreement between Training Devices
International, Inc. and Bathgate McColley Capital Group, LLC
issued in August, 1999.
10.7 Form of Warrant for purchase of common stock issued to
investors from October 1997 to January 1998.
10.8 Form of Warrant Certificate between Training Devices International, Inc.
and principals of Bathgate McColley Capital Group, LLC issued December 31,
1997.
10.9 Form of Registration Rights Agreement executed from October, 1997 to January 1998.
10.10 Placement Agent Agreement dated October 8, 1997.
10.11 Form of Registration Rights Agreement dated July 30, 1997.
10.12 Placement Agent Agreement dated January 7, 1997.
10.13 Form of Warrant Certificate between Training Devices International, Inc.
and principals of Bathgate McColley Capital Group, LLC issued February 20,
1997.
10.14 Convertible Promissory Note in the principal amount of
$100,000 payable
II-10
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
to Bruce Betschart, as amended.
10.15 Convertible Promissory Note in the principal amount of $20,000
payable to Leonard Hawkins.
10.16 Lease Agreement, as amended, dated December 1, 1997, between
Spiral, Inc., as landlord, and Training Devices International,
Inc., as tenant, for premises located at 7367 South Revere
Parkway, Building 2-C, Englewood, Colorado.
10.17 Promissory Note between Training Devices International, Inc.
and Key Bank National Association dated June 4, 1999.
10.18 Commercial Pledge Agreement between Training Devices
International, Inc. and Key Bank National Association dated
June 4, 1999.
10.19 Form of Indemnification Agreement between Training Devices
International, Inc. and its officers and directors
23.1 Consent of Holland & Hart LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24 Power of Attorney.
27 Financial Data Schedule.
</TABLE>
*to be filed by amendment
II-11
<PAGE>
Exhibit 1
2,000,000 SHARES
TRAINING DEVICES, INC.
(a Colorado corporation)
(No Par Value)
UNDERWRITING AGREEMENT
August __, 1999
CAPITAL WEST SECURITIES, INC.
211 N. Robinson, Suite 200
One Leadership Square
Oklahoma City, Oklahoma 73102
Ladies/Gentlemen:
Training Devices, Inc., a Colorado corporation (the "Company"),
hereby confirms its agreement with Capital West Securities, Inc. ("Capital
West") as representative of the several underwriters named in Schedule A
hereto (collectively, the "Underwriters") as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
approximately 2,000,000 shares (the "Firm Shares") of its authorized and
unissued common stock, no par value (the "Common Stock"), to the Underwriters
upon the terms and subject to the conditions set forth herein. The Company
also proposes to grant to the Underwriters an option to purchase, for the
sole purpose of covering over-allotments in connection with the sale of Firm
Shares, an aggregate of up to 300,000 additional shares ("Option Shares") of
Common Stock upon the terms and subject to the conditions set forth herein
and as provided in Section 7 hereof. As used in this Agreement, the term
"Shares" shall include the Firm Shares and the Option Shares. All shares of
Common Stock of the Company, including the Shares, are hereinafter referred
to as "Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to and agrees with the Underwriters, as
follows:
(a) A registration statement on Form SB-2 (File No.
333-______) (the "Registration Statement") with respect to the Shares,
including a prospectus subject to completion, has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the applicable rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Securities Act, and has been filed with the
Commission. Any amendments to such registration statement and any amended
prospectuses subject to completion, as may have been required prior to the
date hereof, have been similarly prepared and filed with the Commission. The
Company will file any additional amendments to the Registration Statement and
any amended prospectuses subject to completion, as may hereafter be required.
The Company meets the requirements for use of a registration statement on
Form SB-2. Copies of the Registration Statement and any amendments and copies
of each related prospectus subject to completion have been delivered to you.
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If the Registration Statement has been declared effective
under the Securities Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the
Registration Statement pursuant to Rule 430A(a) of the Rules and Regulations
or as part of a post-effective amendment to the Registration Statement
(including a final form of prospectus). If the Registration Statement has not
been declared effective under the Securities Act by the Commission, the
Company will prepare and promptly file a further amendment to the
Registration Statement, including a final form of prospectus. The term
"Registration Statement" as used in this Agreement shall mean such
Registration Statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the
Registration Statement pursuant to Rule 430A(a) of the Rules and Regulations,
the information deemed to be a part of the Registration Statement at the time
it became effective pursuant to Rule 430A(b) of the Rules and Regulations)
and, in the event of any amendment thereto after the effective date of such
Registration Statement, shall also mean (from and after the effectiveness of
such amendment) such Registration Statement as so amended. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to
the Shares as included in the Registration Statement at the time it becomes
effective (including, if the Company omitted information from the
Registration Statement pursuant to Rule 430A(a) of the Rules and Regulations,
the information deemed to be a part of the Registration Statement at the time
it became effective pursuant to Rule 430A(b) of the Rules and Regulations),
except that if any revised prospectus shall be provided to the Underwriters
by the Company for use in connection with the offering of the Shares that
differs from the Prospectus on file with the Commission at the time the
Registration Statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time
it is first provided to the Underwriters for such use.
(b) The Commission has not issued any order preventing or
suspending the use of any preliminary prospectus or instituted proceedings
for that purpose, and each such preliminary prospectus has conformed in all
material respects to the requirements of the Securities Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and at the time the Registration Statement became or becomes,
as the case may be, effective and at all times subsequent thereto up to and
on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the
Securities Act and the Rules and Regulations, and will in all material
respects conform to the requirements of the Securities Act and the Rules and
Regulations, and (ii) neither the Registration Statement nor the Prospectus,
nor any amendments or supplements thereto, will include 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; provided, however,
that none of the representations and warranties contained in this
subparagraph shall apply to information contained in or omitted from the
Registration Statement or the Prospectus or any such amendment or supplement
in
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reliance upon, and in conformity with, written information furnished to the
Company by any Underwriter specifically for inclusion or exclusion therein or
therefrom.
(c) Each contract, agreement, instrument, lease, license or
other item required to be described in the Registration Statement or the
Prospectuses or filed as an exhibit to the Registration Statement has been so
described or filed, as the case may be.
(d) The Company and each of its Subsidiaries (as such term
is defined in Rule 405 under the Securities Act) has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
the jurisdiction of its organization, with full corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Registration Statement; each of the Company and its
Subsidiaries is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which the ownership or leasing of
its properties or the conduct of its business requires such qualification
except where the failure to be so qualified or to be in good standing would
not have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
Subsidiaries considered as a whole; each of the Company and its Subsidiaries
is in possession of and operating in compliance with all authorizations,
licenses, certificates, consents, orders and permits from state, Federal and
other regulatory authorities which are material to the conduct of its
business, all of which are valid and in full force and effect; neither the
Company nor its Subsidiaries is in violation of its charter or bylaws or in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, or any material lease, contract, joint
venture, or other agreement or instrument to which it is a party or by which
its property is bound or in violation of any law, order, rule, regulation,
writ, injunction, judgment or decree of any government, governmental agency
or body or court, domestic or foreign, of which it has knowledge except such
failures to comply as would not, individually or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries considered as a
whole.
(e) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated
hereby. This Agreement and the Warrant Agreement (the "Warrant Agreement") by
and between the Company and the Managing Underwriter have been duly
authorized, executed and delivered by the Company and are valid and binding
agreements on the part of the Company, enforceable in accordance with their
respective terms, except as rights to indemnification and contribution
hereunder may be limited by applicable law and except as the enforcement
hereof may be limited by applicable bankruptcy, insolvency, reorganization
moratorium or other similar laws relating to or affecting creditors' rights
generally, or by general equitable principles; the performance of this
Agreement and the Warrant Agreement and the consummation of the transactions
herein and therein contemplated will not result in a breach or violation of
any of the terms and provisions of, or constitute a default under, (i) any
material indenture, mortgage, deed of trust, loan agreement, bond, debenture,
note agreement or other evidence of indebtedness, or any material lease,
contract, joint venture or other agreement or instrument to which the Company
is a party or by which the property of the Company is bound including any
licenses from third parties, or (ii) the Articles of
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Incorporation and Bylaws of the Company, or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any government or
governmental agency or body or court, domestic or foreign, having
jurisdiction over the Company or over the properties of the Company, except
for breaches, violations or defaults that individually or in the aggregate,
would not have a material adverse effect on the Company; and no consent,
approval, authorization or order of any court or governmental agency or body
is required for the consummation of the transactions herein contemplated,
except such as may be required under the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or under state or
other securities or Blue Sky laws, all of which requirements have been
satisfied in all material respects.
(f) Except as disclosed in the Registration Statement or
the Prospectus, there is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or its
Subsidiaries which (i) is required to be disclosed in the Registration
Statement or the Prospectus or which might result in any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its Subsidiaries considered
as one enterprise, or which might materially and adversely affect the
properties or assets thereof; or (ii) which might be expected to materially
and adversely affect the consummation of the transactions contemplated by
this Agreement; all pending legal or governmental proceedings to which the
Company or its Subsidiaries is a party or of which any of their respective
properties or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to
the Company's business, could not reasonably be expected to result in a
material adverse change in the condition, financial or otherwise, or the
earnings, business affairs or business properties of the Company and its
Subsidiaries considered as one enterprise; and there are no contracts or
documents of the Company or its Subsidiaries which are required to be
described in the Registration Statement or the Prospectus, or to be filed as
exhibits thereto, by the Securities Act or by the Rules and Regulations which
have not been accurately described in all material respects and filed as
exhibits to the Registration Statement. To the best of the Company's
knowledge, the contracts so described in the Prospectus are in full force and
effect on the date hereof, and neither the Company nor its Subsidiaries is in
breach of or default under, and to the Company's knowledge, no other party is
in material breach of or material default under, any of such contracts,
except for any liabilities specifically described in the Registration
Statement.
(g) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all Federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities (other than
such preemptive rights or other rights to subscribe for or purchase
securities as were fully complied with or expressly waived or with respect to
the violation of which the right to make claim is barred by the applicable
statute of limitations), and the authorized and outstanding capital stock of
the Company conforms in all material respects to the statements relating
thereto contained in the Registration Statement and the Prospectus (and such
statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares to be
purchased from the Company hereunder have been duly
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authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable; the [200,000] shares of
Common Stock issuable under the warrant (the "Managing Underwriter's
Warrants") to be granted to the Managing Underwriter under the Warrant
Agreement have been duly authorized for issuance and sale to the Managing
Underwriter pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of the Warrant
Agreement, will be duly and validly issued and fully paid and nonassessable;
and no preemptive right, co-sale right, registration right, right of first
refusal or other similar right of stockholders exists with respect to any of
the Firm Shares, Option Shares or shares of Common Stock issuable under the
Managing Underwriter's Warrant or the issuance and sale thereof other than
those that have been expressly waived prior to the date hereof and those that
will automatically expire upon the consummation of the transactions
contemplated on the Closing Date. No further approval or authorization of any
stockholder, the Board of Directors or others is required for the issuance
and sale or transfer of the Shares except as may be required under the
Securities Act, the Exchange Act or under state or other securities or Blue
Sky laws. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company (including the notes thereto) included in
the Prospectus, the Company has no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights. The shares of Common
Stock reserved for issuance upon exercise of the Company's outstanding
options and warrants have been duly and validly authorized and are sufficient
in number to meet the exercise requirements of such options.
(h) Arthur Andersen LLP, which has examined the financial
statements (together with related schedules and notes) of the Company filed
with the Commission as a part of the Registration Statement and which are
included in the Prospectus, are independent accountants within the meaning of
the Securities Act and the Rules and Regulations; the audited and pro forma
financial statements of the Company, together with the related schedules and
notes, and the unaudited financial information, forming part of the
Registration Statement and Prospectus, fairly present the financial position
and the results of operations of the Company at the respective dates and for
the respective periods to which they apply; and all audited and pro forma
financial statements, together with the related schedules and notes, and the
unaudited and pro forma financial information, filed with the Commission as
part of the Registration Statement, have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as may be otherwise stated therein. The selected and
summary financial and statistical data included in the Registration Statement
present fairly the information shown therein and have been compiled on a
basis consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included in the
Registration Statement.
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(i) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (i) there has been no material adverse change in the
business, properties, operations, condition (financial or otherwise) or in
the earnings, business affairs or business prospects of the Company and its
Subsidiaries, whether or not arising in the ordinary course of business, (ii)
there have been no transactions entered into by the Company other than those
in the ordinary course of business, which are material with respect to the
Company, (iii) there has been no obligation that is material to the Company,
direct or contingent, incurred by the Company or any Subsidiary, except
obligations incurred in the ordinary course of business, (iv) there has been
no change in the capital stock of the Company, (v) there has been no change
in the outstanding indebtedness of the Company which is material to the
Company, (vi) there has been no dividend or distribution of any kind
declared, paid or made by the Company on behalf of any class of its
respective capital stock, (vii) there has been no redemption, purchase or
acquisition or agreement to redeem, purchase or acquire shares of Common
Stock of the Company, (viii) to the knowledge of the Company, there has been
no change in any Federal, state, or other laws, rules, or regulations (or
interpretations thereof) applicable to the business of the Company that would
have a material adverse effect on the Company, and, to the knowledge of the
Company, no such change is proposed other than as described in the Prospectus.
(j) Except as described in the Prospectus, (i) the Company
and its Subsidiaries have good and marketable title to all properties and
assets described in the Prospectus as owned by them, free and clear of all
liens, charges, encumbrances or restrictions of any kind, except those
described in the Prospectus, or those not material, singly or in the
aggregate, to the business of the Company and its Subsidiaries considered as
a whole, (ii) the agreements to which the Company is a party described in the
Prospectus are valid agreements, enforceable by the Company, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or by general equitable principles, and (iii) the Company has valid
and enforceable leases for the properties described in the Prospectus as
leased by it except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
(k) All Federal, state, local and foreign tax returns
required to be filed by the Company or its Subsidiaries in any jurisdiction
have been filed, and all material taxes, including withholding taxes,
penalties and interest, assessments, fees and other charges due or claimed to
be due from such entities have been paid other than those being contested in
good faith and for which adequate reserves have been provided or those
currently payable without penalty or interest; and adequate charges, accruals
and reserves have been provided for in the financial statements referred to
in Section 2(g) above in respect of all Federal, state, local and foreign
taxes for all periods as to which the tax liability of the Company or its
Subsidiaries has not been finally determined or remains open to examination
by applicable taxing authorities.
(l) No labor dispute with the employees of the Company or
its Subsidiaries exists or, to the knowledge of the Company, is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers,
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contractors or customers which might be expected to result in any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise. No collective bargaining agreement exists with
any of the Company's employees and, to the Company's knowledge, no such
agreement is imminent.
(m) The Company and its Subsidiaries own or possess, or can
acquire on reasonable terms, the patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names presently
employed by them in connection with the business now operated by them and
neither the Company nor its Subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights of
others with respect to any patent or proprietary rights or of any facts or
circumstances which would render any patent and proprietary rights invalid or
inadequate to protect the interest of the Company or its Subsidiaries
therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or inadequacy singly
or in the aggregate, would result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise.
(n) Except as set forth in the Prospectus, the Company and
its Subsidiaries are in compliance in all material respects with all
applicable laws, statutes, ordinances, rules or regulations, the enforcement
of which, individually or in the aggregate, would be reasonably expected to
have a material adverse effect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise.
(o) The Common Stock has been approved for quotation on the
Nasdaq National Market or the American Stock Exchange, subject to official
notice of issuance.
(p) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" within the meaning of the 1940 Act and such
rules and regulations.
(q) The Company has not distributed and will not distribute
prior to the Closing Date or on any date on which Option Shares are to be
purchased, as the case may be, any offering material in connection with the
offering and sale of the Shares other than the Prospectus, the Registration
Statement and other materials permitted by the Securities Act.
(r) The Company has not at any time during the last five
years (i) made any unlawful contribution to any candidate for foreign office,
or failed to disclose fully any contribution in violation of law, or (ii)
made any payment to any Federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
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(s) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares. The Company has not
effected any sales of securities required to be disclosed in Item 26 of Form
SB-2 under the Securities Act, other than as disclosed in the Registration
Statement.
(t) Each officer and director of the Company and each
beneficial owner of at least 5% of the outstanding shares of Common Stock and
options and warrants to purchase Common Stock outstanding prior to the
effective date of the Registration Statement have agreed in writing that such
persons will not offer to sell, contract to sell, sell short, or otherwise
sell or dispose of any shares of Common Stock of the Company, any options or
warrants to purchase any shares of Common Stock of the Company, or any
securities convertible into or exchangeable for shares of the Common Stock
owned directly by such person or with respect to which such person has the
power of disposition otherwise than (i) as a gift or gifts, provided the
donee or donees thereof agree to be bound by this restriction or (ii) with
the prior written consent of Capital West, for a period expiring one year
after the effective date of the Registration Statement and for an additional
period of one year thereafter, not more than 10% of each such officer's,
director's or beneficial owner's interest may be sold in any one calendar
quarter. All shares held for investment by persons other than officers,
directors and 5% beneficial owners will be subject to restriction on resale
by the Managing Underwriter for a period of nine (9) months from the
effective date.
(u) Except as described in the Registration Statement, (i)
neither the Company nor its Subsidiaries is in violation of any Federal,
state, local or foreign laws or regulations relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata)
or wildlife, including, without limitation, laws and regulations relating to
the release or threatened release of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum
products (collectively, "Environmental Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Environmental Materials (collectively, the "Environmental Laws"),
except such violations as would not, singly or in the aggregate, have a
material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, and (ii) to the Company's
knowledge, there are no events or circumstances that could form the basis of
an order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or its Subsidiaries relating to any Environmental Materials or the
violation of any Environmental Laws, which, singly or in the aggregate, could
reasonably be expected to have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its Subsidiaries considered as one enterprise.
(v) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances 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 as in
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effect in the United States and to maintain asset accountability; (iii)
access to bank accounts is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(w) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus. Neither the Company nor any employee or agent of the Company has
made any payment or transfer of any funds or assets of the Company or
conferred any personal benefit by use of the Company's assets, or received
any funds, assets or personal benefit in violation of any law, rule or
regulation.
(x) On the Closing Date and upon delivery of the Option
Shares, as applicable, all transfer and other taxes (other than income taxes)
that are required to be paid in connection with the sale and transfer of the
Shares to the Underwriters will have been paid.
(y) The Company does not currently have and has never had
any pension plan subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability, the Company has not incurred
and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(z) The Company confirms as of the date hereof that it is
in compliance with all provisions of Section 517.075, Florida Statutes
(Chapter 92-198, Laws of Florida) AN ACT RELATING TO DISCLOSURE OF DOING
BUSINESS WITH CUBA (the "Cuba Act"), and the Company further agrees that if
it commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba after the date the Registration Statement
becomes or has become effective with the Commission or the Florida Department
of Banking and Finance (the "Department"), whichever date is later, or if the
information reported or incorporated by reference in the Prospectus, if any,
concerning the Company's business in Cuba or with any person or affiliate
located in Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.
(aa) Any certificate signed by any officer of the Company
and delivered to the Underwriters or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.
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(bb) Except as may be set forth in the Prospectus, the
Company has not incurred any liability for a fee, commission, or other
compensation on account of the employment of a broker or finder in connection
with the transactions contemplated by the Underwriting Agreement.
(cc) The Company and each subsidiary is insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which the
Company and the subsidiaries are engaged.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter,
severally and not jointly, and each Underwriter, severally and not jointly,
agrees to purchase from the Company, respectively, at a purchase price of
$10.00 per Share less an underwriting discount of 8.0%, the number of
Shares set forth in SCHEDULE A hereto (subject to adjustment as provided in
Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made
against payment of the purchase price therefor by the Underwriters by
certified or official bank check in next day funds, payable to the order of
the Company at the offices of Capital West Securities, Inc., 211 N. Robinson,
Suite 200, One Leadership Square, Oklahoma City, Oklahoma 73102, or at such
other place as shall be agreed upon by the Underwriters and the Company, at
9:30 a.m. on the fourth business day following the first day that Shares are
traded (or at such time and date to which payments and delivery shall have
been postponed pursuant to Section 10 hereof), such time and date of payment
and delivery being herein called the "Closing Date." The certificates for the
Firm Shares to be so delivered will be made available to you at such office
or at such other location as you may reasonably request for checking at least
one business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two
business days prior to the Closing Date. If the Underwriters so elect,
delivery of the Shares may be made by credit through full fast transfer to
the accounts at Depository Trust Company designated by the Underwriters.
It is understood that Capital West, individually and not as
representative of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by Capital
West prior to the Closing Date for the Firm Shares to be purchased by such
Underwriter or Underwriters. Any such payment by Capital West shall not
relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to offer the Firm Shares to the public as set forth in
the Prospectus.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters) and under
"Underwriting" in any Preliminary Prospectus and in the final form of
Prospectus filed pursuant to Rule 424(b) constitutes the only information
furnished
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by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf
of the Underwriters, represent and warrant to the Company that the statements
made therein do not include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
such statements, in the light of the circumstances in which they were made,
not misleading.
4. FURTHER COVENANTS OF THE COMPANY. The Company covenants with the
several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; it will notify Capital
West, promptly after it shall receive notice thereof, of the time when the
Registration Statement or any subsequent amendment to the Registration
Statement has become effective or any supplement to the Prospectus has been
filed; if the Company omitted information from the Registration Statement at
the time it was originally declared effective in reliance upon Rule 430A(a)
of the Rules and Regulations, the Company will provide evidence satisfactory
to Capital West that the Prospectus contains such information and has been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as
part of a post-effective amendment to such Registration Statement as
originally declared effective which is declared effective by the Commission;
if for any reason the filing of the final form of Prospectus is required
under Rule 424(b)(3) of the Rules and Regulations, it will provide evidence
satisfactory to Capital West that the Prospectus contains such information
and has been filed with the Commission within the time period prescribed; it
will notify Capital West promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or Prospectus or for
additional information; promptly upon request of Capital West, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters, may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify Capital West of the filing of,
any amendments or supplements to the Registration Statement or Prospectus
which may be necessary to correct any statements or omissions, if, at any
time when a prospectus relating to the Shares is required to be delivered
under the Securities Act, any event shall have occurred as a result of which
the Prospectus or any other prospectus relating to the Shares as then in
effect would include any untrue statement of a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; in case any Underwriter is required to
deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Securities Act; and it will file no amendment or
supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to Capital West a reasonable time prior to the
proposed filing thereof or to which Capital West shall reasonably object in
writing, subject,
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however, to compliance with the Securities Act, the Rules and Regulations
thereunder and the provisions of this Agreement.
(b) The Company will advise Capital West, promptly after it
shall receive notice or obtain knowledge thereof of the issuance of any stop
order by the Commission suspending the effectiveness of the Registration
Statement or of the initiation or threat of any proceeding for that purpose;
and it will promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal at the earliest possible moment if such
stop order should be issued.
(c) The Company will cooperate with the Underwriters and
Underwriters' counsel in connection with their efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as
Capital West may designate as to continue such qualifications in effect for
so long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction or to make any undertaking
with respect to the conduct of its business. In each jurisdiction in which
the Shares shall have been qualified as above provided, the Company will make
and file such statements and reports in each year as are or may be reasonably
required by the laws of such jurisdiction.
(d) The Company will furnish Capital West, as soon as
available, copies of the Registration Statement (three of which will be
signed and include all exhibits), each Preliminary Prospectus, the Prospectus
and any amendments or supplements to such documents, including any prospectus
prepared to permit compliance with Section 10(a)(3) of the Securities Act,
all in such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Securities Act and
covering a twelve-month period beginning after the effective date of the
Registration Statement.
(f) As long as the Company is a reporting company under the
Exchange Act, the Company will furnish to its stockholders, as soon as
practicable after the end of each respective period, annual reports
(including financial statements audited by independent certified public
accountants) and unaudited quarterly reports of operations for each of the
first three (3) quarters of the fiscal year, and for a period of five (5)
years after the effective date of the Registration Statement, the Company
will furnish to the several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the
form furnished to the Company's stockholders; (ii) concurrently with
furnishing to its stockholders, a balance sheet of the Company as of the end
of such fiscal year, together with statements of operations, of stockholders'
equity, and of cash flows of the Company for such fiscal year, accompanied by
a copy of the certificate or report thereon of independent accountants; (iii)
as
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soon as they are available, copies of all reports and financial statements
furnished to or filed with the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. ("NASD"); (v) every material
press release and every material news item or article in respect of the
Company or its affairs which was released or prepared by the Company
(excluding, in each case customary product-related press releases and
articles); and (vi) any additional information of a public nature concerning
the Company, or its business which you may reasonably request. During such
five-year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and its Subsidiaries are consolidated, and
shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated. For a period of five (5) years from
the date of the Registration Statement, the Company will furnish to Capital
West and, upon request, to each of the other Underwriters, as soon as
available, a copy of each report of the Company mailed to holders of the
Common Stock or publicly filed with the Commission or any automated quotation
system or national securities exchange on which any class of securities of
the Company is listed.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) The Company shall comply with all provisions of all
undertakings contained in the Registration Statement.
(j) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement under Section 11(a), the Company will,
in order to reimburse the several Underwriters for all expenses (including
fees and disbursements of counsel for the several Underwriters) incurred by
the Underwriters in investigating, preparing to market or marketing the
Shares, pay to Managing Underwriter the sum of $50,000, which amount has
already been paid.
(k) If at any time during the 90-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from Capital West advising the Company to the
effect set forth above, forthwith prepare, consult with Capital West
concerning the substance of, and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.
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(l) On the Closing Date the Company will sell to Capital
West, for $.001 per share of Common Stock covered by each warrant, the
Managing Underwriter's Warrants to purchase one share of Common Stock of the
Company for each ten (10) shares of the Company's Common Stock which have
been sold (or purchased by the Underwriters), excluding any over-allotment
shares, as set forth in the Prospectus. The Managing Underwriter's Warrants
shall have the terms and be in the form filed as an exhibit to the
Registration Statement. At any time during the period commencing twelve (12)
months and ending five (5) years after the effective date of the Offering,
the Warrants shall be exercisable at an exercise price per share equal to
120% of the initial public offering price.
(m) As long as the Company is a reporting company under the
Exchange Act, the Company will comply with the Securities Act, the Exchange
Act, the rules and regulations of the NASD and applicable state securities or
Blue Sky laws so as to permit the continuance of sales and dealings in the
Common Stock under the Securities Act, the Exchange Act, the rules and
regulations of the NASD, and applicable state securities or Blue Sky laws,
including the filing with the NASD and the Commission of all reports required
to be filed pursuant to the applicable provisions of the rules and
regulations of the NASD, the Securities Act, and the Exchange Act, and will
deliver to the holders of the Common Stock all reports required to be
provided to such holders pursuant to the applicable provisions of the rules
and regulations of the NASD, the Securities Act, the Exchange Act, and
applicable state securities or Blue Sky
5. EXPENSES.
(a) The Company agrees with each Underwriter that the
Company will pay and bear all costs and expenses in connection with the
preparation, printing and filing of the Registration Statement (including
financial statements, schedules and exhibits), Preliminary Prospectuses and
the Prospectus and any amendments or supplements thereto; the printing of
this Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the Underwriters, including transfer taxes, if any, and
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent public accountants; the
cost of furnishing to the Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus,
and any amendments or supplements to any of the foregoing; and all postage
costs incurred in connection with the qualification of the Shares under the
laws of such jurisdictions as you may designate; and all other expenses
directly incurred by the Company in connection with the performance of its
obligations hereunder.
(b) Capital West shall be entitled to receive from the
Company, for itself and not as representative of the Underwriters, a
nonaccountable expense allowance equal to 2.5% of the gross proceeds of the
Offering less the $50,000 previously paid pursuant to the terms of the
Engagement Letter.
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6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased (the "Option Closing
Date"), as the case may be, of the representations and warranties of the
Company herein, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective
not later than 5:30 p.m. on the date hereof, or with the consent of the
Underwriters, at a later time and date, not later, however, than 5:30 p.m. on
the first business day following the date hereof, or at such later time and
date as may be approved by a majority in interest of the Underwriters; and no
stop order suspending the effectiveness of the Registration Statement shall
have been issued under the Securities Act or proceedings therefor initiated
or threatened by the Commission and any request on the part of the Commission
for additional information (to be included in the Registration Statement or
the Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of counsel to the Underwriters. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Shares and
any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been transmitted
to the Commission for filing pursuant to Rule 424(b) of the Rules and
Regulations within the prescribed time period, and prior to the Closing Date
the Company shall have provided evidence satisfactory to the Underwriters of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations. Qualification under
the securities laws of such states as you may deem necessary to the success
of the underwriting of the issue and sale of the Shares upon the terms and
conditions set forth in this Agreement or contemplated by this Agreement and
containing no provisions unacceptable to you will have been secured, and no
stop order (or the equivalent thereof) will be in effect denying or
suspending effectiveness of such qualification, nor will any stop order
proceedings (or the equivalent thereof) with respect thereto be instituted or
pending or threatened under such laws.
(b) At the Closing Date and the Option Closing Date, if
any, counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them
to pass upon the issuance and sale of the Shares as contemplated herein and
related proceedings or in order to evidence the accuracy of any of the
representations and warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Shares as herein contemplated shall be
satisfactory in form and substance to the Underwriters and counsel for the
Underwriters.
(c) There shall not have been, since the date hereof or
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any change in the condition
(financial or otherwise), earnings, operations, business affairs or business
prospects of the Company and its Subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus, and the Underwriters shall have
received a certificate of the President
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or Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of the Closing Date, to the
effect that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 2 hereof are true and correct with
the same force and effect as though expressly made at and as of the Closing
Date, (iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the
Closing Date, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been initiated or threatened by the Commission or any Blue Sky
jurisdiction.
(d) At the Closing Date the Underwriters shall have
received:
(1) The opinion, dated as of the Closing Date, of
Holland & Hart LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) The Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of Colorado.
(ii) The Company has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus and to
enter into and perform its obligations under this Agreement and to issue,
sell and deliver to the Underwriters the Firm Shares or the Option Shares, as
the case may be, to be issued and sold by it hereunder.
(iii) The Company is not qualified to do
business as a foreign corporation in any foreign jurisdictions, and to
counsel's knowledge is not required to be qualified to do business as a
foreign corporation in any other jurisdiction where a failure to be so
qualified would have a material adverse effect on the Company.
(iv) At the Closing Date, after giving
effect to the sale of the Firm Shares, the authorized capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization"
as of the dates stated therein; the issued and outstanding shares of Common
Stock have been duly authorized and validly issued under Colorado corporate
law and are fully paid and nonassessable and have not been issued in
violation of any preemptive right contained in the Articles of Incorporation
or Bylaws of the Company or, to such counsel's knowledge, any co-sale right,
registration right, right of first refusal or other similar right (other than
such preemptive rights or other rights to subscribe for or purchase
securities as were fully complied with or expressly waived or with respect to
the violation of which the right to make a claim is barred by the applicable
statute of limitation).
(v) The Firm Shares and the Option
Shares, as the case may be, to be purchased from the Company hereunder have
been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company pursuant to this
Agreement against payment therefor in accordance with the terms hereof, will
be validly issued and fully paid and nonassessable, and will not be issued in
violation of any preemptive right under the
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Articles of Incorporation or Bylaws of the Company or, to such counsel's
knowledge, any co-sale right, right of first refusal or other similar right
and the stockholders of the Company have no preemptive right under the
Articles of Incorporation or Bylaws of the Company or, to such counsel's
knowledge, other rights to purchase any of the Shares; the shares of Common
Stock reserved for issuance upon the exercise of the Underwriters' Warrants
have been duly and validly authorized and are presently sufficient in number
to meet the exercise requirements thereof, and such shares of Common Stock,
when issued upon exercise, will be duly and validly issued, fully paid
(assuming exercise in accordance with the Warrant Agreement and receipt by
the Company of the exercise price thereof) and nonassessable; the
stockholders of the Company have no preemptive right under the Articles of
Incorporation or Bylaws of the Company or, to such counsel's knowledge, other
rights to purchase any of the Shares; and the shares of Common Stock reserved
for issuance upon the exercise of the Company's outstanding options have been
duly and validly authorized and are presently sufficient in number to meet
the exercise requirements of such options, and such shares of Common Stock,
when issued upon exercise, will be duly and validly issued, fully paid
(assuming exercise in accordance with the governing instruments therefor and
receipt by the Company of the exercise price thereof) and nonassessable.
(vi) The issuance of the Shares to be
purchased hereunder is not subject to preemptive or other similar rights
arising by operation of law or, to the best of their knowledge and
information, otherwise.
(vii) Each Subsidiary has been duly
incorporated and is validly existing as a corporation and is in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own, lease and operate its properties and to conduct
it business as described in the Registration Statement, and is duly qualified
as a foreign corporation to transact business and is in good standing in the
State of Colorado, and, to the best of its knowledge, any Subsidiary is not
required to be qualified to do business as a foreign corporation in any other
jurisdiction; all of the issued and outstanding capital stock of each such
Subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and, to the best of their knowledge and information, is owned
by the Company directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity.
(viii) This Agreement and the Warrant
Agreement have been duly authorized by all necessary corporate action on the
part of the Company and have been duly executed and delivered by the Company
and assuming due authorization, execution and delivery by the Underwriters,
if construed under the laws of Colorado, are valid and binding agreements of
the Company, except insofar as indemnification and contribution provisions
may be limited by applicable law or equitable principles, and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or any
general equitable principles.
(ix) The Registration Statement has been
declared effective under the Securities Act; any required filing of the
Prospectus pursuant to Rule 424(b) has been made in the
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manner and within the time period required by Rule 424(b) and, to their
knowledge and information, no stop order suspending the effectiveness of the
Registration Statement has been issued under the Securities Act or
proceedings therefor have been initiated or are pending or threatened by the
Commission.
(x) The Registration Statement,
Prospectus and each amendment or supplement to the Registration Statement and
Prospectus, as of their respective effective or issue dates (other than the
financial statements and supporting schedules included therein, as to which
no opinion need be rendered) complied as to form in all material respects
with the requirements of the Securities Act and the applicable Rules and
Regulations.
(xi) The terms and provisions of the
capital stock of the Company conform in all material respects to the
description thereof contained in the Prospectus under the caption
"Description of Securities."
(xii) The information in the Prospectus
under the caption "Description of Securities" to the extent that they
constitute matters of law or legal conclusions, has been reviewed by such
counsel and accurately and fairly summarizes in such counsel's opinion the
matters described therein and to the knowledge of such counsel, there are no
outstanding options, warrants, convertible securities, or other rights to
acquire from the Company any capital stock, except as described in the
Registration Statement; in addition, the forms of certificates evidencing the
Company stock comply with Colorado law.
(xiii) To such counsel's knowledge,
except as set forth in the Prospectus, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the Company or
its Subsidiaries is a party, or to which the property of the Company or its
Subsidiaries is subject, before or brought by any court or government agency
or body, which might reasonably be expected to result in any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its Subsidiaries considered
as one enterprise, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of this
Agreement or the performance by the Company of its obligations hereunder; and
all pending legal or governmental proceedings to which the Company or its
Subsidiaries is a party or that affect any of their respective properties
that are not described in the Prospectus, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company and
its Subsidiaries considered as one enterprise.
(xiv) The information in the Prospectus
under the captions "Business - Legal Proceedings", " - Governmental
Regulation", "Certain Transactions" and "Description of Capital Stock" in the
Prospectus and Items 24 and 26 of Part II of the Registration Statement, to
the extent that such items constitute matter of law, summaries of legal
matters, documents or proceedings, or legal conclusions, has been reviewed by
them and is correct in all
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material respects, and there are no legal or governmental actions, suits or
proceedings pending or threatened against the Company or its Subsidiaries
that are required to be described in the Prospectus but are not described as
required by the Securities Act or the applicable Rules and Regulations.
(xv) All descriptions in the Prospectus
of contracts and other documents are accurate in all material respects; to
their knowledge, there are no agreements, no contracts, indentures,
mortgages, loan agreements, notes, leases or other instrument required to be
described or referred to in the Registration Statement or to be filed as
exhibits thereto other than those described or referred to therein or filed
as exhibits thereto.
(xvi) No authorization, approval, consent
or order of any court or governmental authority or agency (other than under
the Securities Act or the Rules and Regulations, which have been obtained, or
as may be required under the securities or Blue Sky laws of the various
states or foreign jurisdiction) is required in connection with the due
authorization, execution and delivery of this Agreement or for the offering,
issuance or sale of the Shares to the Underwriters; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and compliance by the Company with its
obligations hereunder (other than performance of the Company's
indemnification and contribution obligations hereunder, concerning which no
opinion need be expressed) will not, whether with or without the giving of
notice or lapse of time or both, conflict with or constitute a breach or
violation of, or default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company or
its Subsidiaries pursuant to any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument (A) which is an exhibit to the
Registration Statement and (B) to which the Company or its Subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or its Subsidiaries is subject, nor will
such action result in any violation of the provisions of the Articles of
Incorporation or Bylaws of the Company, or any applicable law, administrative
regulation or court decree, provided, however, no opinion need be rendered
concerning state securities or Blue Sky laws.
(xvii) To counsel's knowledge, with the
exception of the Managing Underwriter's Warrants and any registration rights
mentioned in the Registration Statement, no holder of any security of the
Company has any right to require registration of any shares of Common Stock
or any other security of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of the
Company having rights to registration of such shares of Common Stock, or
other securities, because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement, or
have included securities in the Registration Statement pursuant to the
exercise of such rights.
(xviii) The Company is not an "investment
company" or an entity "controlled" by an "investment company" as such terms
are defined in the 1940 Act.
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(xix) To counsel's knowledge, neither the
Company nor its Subsidiaries are in violation of their charter or by-laws.
In rendering such opinion, such counsel may rely as to matters of
fact (but not as to legal conclusions) on certificates of responsible
officers of the Company and public officials. All references in the above
opinions to "such counsel's knowledge" or "known to us" or similar phrases
mean the conscious awareness of facts or other information by the lawyer who
signs this opinion and other lawyers at our firm who have active involvement
in representing the Company after reasonable inquiry. The opinions of counsel
may be based on the current laws of the United States of America and the
State of Colorado and need not include an interpretation or statement
concerning the laws of any other state or jurisdiction. Such opinion shall
not state that it is to be governed or qualified by, or that it is otherwise
subject to, any treatise, written policy or other document relating to legal
opinions, including with limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
In giving their opinion required by subsection (d)(1) of this
Section, Hollard & Hart LLP shall additionally state that nothing has come to
their attention that would lead them to believe that the Registration
Statement, at the time it became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that
the Prospectus, at the effective date of the Registration Statement (unless
the term "Prospectus" refers to a prospectus which has been provided to the
Underwriters by the Company for use in connection with the offering of the
Shares which differs from the Prospectus declared effective by the
Commission, in which case at the time it is first provided to the
Underwriters for such use) or at the Closing Date, included an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Such opinion may state that such
counsel does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus except as otherwise expressly provided in such opinion, and such
counsel need express no opinion or belief as to the financial statements,
schedules, and other financial or statistical data included in the
Registration Statement or Prospectus.
(2) The opinion, dated as of Closing Date, of
McAfee & Taft A Professional Corporation, counsel for the Underwriters, in
form and substance satisfactory to you, with respect to the sufficiency of
all such corporate proceedings and other legal matters relating to this
Agreement and the transactions contemplated hereby as you may reasonably
require, and the Company shall have furnished to such counsel such papers,
opinions and information as they request to enable them to pass upon such
matters.
(e) At the time of the execution of this Agreement, the
Underwriters shall have received from Arthur Andersen LLP a letter dated such
date, in form and substance satisfactory to the Underwriters, to the effect
that:
(1) they are independent public accountants with
respect to the Company and its Subsidiaries within the meaning of the
Securities Act and the Rules and Regulations;
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(2) it is their opinion that the consolidated
balance sheet included in the Registration Statement and covered by their
opinion therein complies as to form in all material respects with the
applicable accounting requirements of the Securities Act and the Rules and
Regulations;
(3) based upon limited procedures set forth in
detail in such letter, nothing has come to their attention which causes them
to believe that, at a specified date not more than three days prior to the
date of this Agreement, (A) the unaudited consolidated balance sheet of the
Company and its Subsidiaries included in the Registration Statement does not
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and the Rules and Regulations or is not
presented in conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited financial
statements included in the Registration Statement, or (B) at a specified date
not more than three days prior to the date of this Agreement, there has been
any change in the capital stock of the Company or any increase in the
combined long term debt of the Company and its Subsidiaries or any decrease
in combined net current assets or net assets as compared with the amounts
shown in the June 30, 1999 balance sheet included in the Registration
Statement or, during the period from June 30, 1999, to a specified date not
more than three days prior to the date of this Agreement, there were any
decreases, as compared with the corresponding period in the preceding year,
in combined revenues, net income or net income per share of the Company and
its Subsidiaries, except in all instances for changes, increases or decreases
which the Registration Statement and the Prospectus disclose have occurred or
may occur;
(4) in addition to the examination referred to in
their opinion and the limited procedures referred to in clause (3) above,
they have carried out certain specified procedures, not constituting an
audit, with respect to certain amounts, percentages and financial information
which are included in the Registration Statement and Prospectus and which are
specified by the Underwriters, and have found such amounts, percentages and
financial information to be in agreement with the relevant accounting,
financial and other records of the Company and its Subsidiaries identified in
such letter; and
(5) they have compared the information in the
Prospectus under selected captions with the disclosure requirements of
Regulation S-B and on the basis of limited procedures specified in such
letter nothing came to their attention as a result of the foregoing
procedures that caused them to believe that this information does not conform
in all material respects with the disclosure requirements of Item 402 of
Regulation S-B.
(f) At the Closing Date, the Underwriters shall have
received from Arthur Andersen LLP a letter, dated as of the Closing Date, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (e) of this Section 6, except that the specified date
referred to shall be a date not more than three days prior to the Closing
Date and, if the Company has elected to rely on Rule 430A of the 1933 Act
Regulations, to the further effect that they have carried out procedures as
specified in clause (4) of subsection (e) of this Section 6 with respect to
certain amounts, percentages and financial information specified by the
Underwriters and deemed to be a part of the
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<PAGE>
Registration Statement pursuant to Rule 430(A)(b) and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (4).
(g) At the Closing Date, the Common Stock shall have been
approved for listing on the Nasdaq National Market or the American Stock
Exchange.
(h) In the event that the Underwriters exercise their
option provided in Section 7 hereof to purchase all or any portion of the
Option Shares, the representations and warranties of the Company contained
herein and the statements in any certificates furnished by the Company
hereunder shall be true and correct as of the Option Closing Date and, at the
Option Closing Date, the Underwriters shall have received:
(1) A certificate, dated the Option Closing Date,
of the President or a Vice President of the Company and of the Chief
Financial or Chief Accounting Officer of the Company confirming that the
certificate delivered at the Closing Date pursuant to Section 5(c) hereof
remains true and correct as of the Option Closing Date (except that all
references in such Section to "Closing Date" shall be deemed to refer to the
"Option Closing Date").
(2) The opinions of Holland & Hart LLP, counsel
for the Company, in form and substance satisfactory to counsel for the
Underwriters, dated the Option Closing Date, relating to the Option Shares
and otherwise to the same effect as the opinion required by Section 5(b)(1)
hereof (except that all references in such Section to "Closing Date" shall be
deemed to refer to the "Option Closing Date").
(3) The opinion of McAfee & Taft A Professional
Corporation, counsel for the Underwriters, dated the Option Closing Date,
relating to the Option Shares to be purchased on the Option Closing Date and
otherwise to the same effect as the opinion required by Section 5(b)(2)
hereof (except that all references in such Section to "Closing Date" shall be
deemed to refer to the "Option Closing Date").
(4) A letter from Arthur Andersen in form and
substance satisfactory to the Underwriters and dated the Option Closing Date,
substantially the same in form and substance as the letter furnished to the
Underwriters pursuant to Section 5(e) hereof, except that the "specified
date" in the letter furnished pursuant to this Section 6(h)(4) shall be a
date not more than three days prior to the Option Closing Date.
(i) The Company and the Underwriters shall have entered
into the Warrant Agreement and the Company shall have sold to the
Underwriters the Underwriters' Warrants, which shall be in the form attached
as an exhibit to the Warrant Agreement.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Representative by notice to the Company at any time at or
prior to Closing Date, and such termination shall be without liability of any
party to any other
22
<PAGE>
party except as provided in Section 4 and except that Sections 4(i) and 8
shall survive any such termination and remain in full force and effect.
7. OPTION SHARES.
(a) On the basis of the representations and warranties
herein contained, but subject to the terms and conditions herein set forth,
the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a non-transferable option to purchase up to an aggregate
300,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by Capital West on
behalf of the several Underwriters on one occasion in whole or in part during
the period of 45 business days from and after the date on which the Firm
Shares are initially offered to the public, by giving notice to the Company.
The number of Option Shares to be purchased by each Underwriter upon the
exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in SCHEDULE A hereto) bears to the total number of
Firm Shares purchased by the several Underwriters (set forth in SCHEDULE A
hereto), adjusted by the Underwriters in such manner as to avoid fractional
shares.
Delivery of definitive certificates for the Option Shares
to be purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in same day funds, payable to the order of the
Company. Such delivery and payment shall take place at the offices of Capital
West Securities, Inc., 211 N. Robinson, Suite 200, Oklahoma City, Oklahoma
73102 or at such other place as may be agreed upon between the Underwriters
and the Company on the Closing Date, if written notice of the exercise of
such option is received by the Company not later than three full business
days prior to the Closing Date.
The certificates for the Options Shares so to be delivered
will be made available to you at such office or other location including,
without limitation, in Oklahoma City, as you may reasonably request for
checking at least two full business days prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least three full days prior to such date of payment and
delivery. If the Underwriters so elect, delivery of the Shares may be made by
credit through full fast transfer to the accounts at Depository Trust Company
by the Underwriters.
It is understood that Capital West, individually, and not
as the representative of the Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the date of payment and delivery for the Option Shares to be purchased by
such Underwriter or Underwriters. Any such payment by Capital West shall not
relieve any Underwriter of any of its or their obligations hereunder.
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<PAGE>
(b) Upon exercise of any option provided for in Section
7(a) hereof the obligations of the Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment
for such Option Shares) to the accuracy of and compliance with the
representations and warranties of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of their respective
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to you and to
Underwriters' counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants of the
Company or the compliance with any of the conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, as incurred, to which such Underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
(i) any breach of any representation, warranty, agreement or covenant of the
Company herein contained, or (ii) any untrue statement or alleged untrue
statement made by the Company in Section 2 hereof, or (iii) any untrue
statement or alleged untrue statement of a material fact contained (A) in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (B) in any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Shares under the
securities laws thereof (any such application, documents or information being
hereinafter called a "Blue Sky Application"), or (iii) the omission or
alleged omission to state in the Registration Statement or any amendment
thereto a material fact required to be stated therein or necessary to make
the statements therein not misleading, or the omission or alleged omission to
state in any Preliminary Prospectus, the Prospectus or any supplement thereto
or in any Blue Sky Application a 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 shall reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action, notwithstanding the possibility that payments
for such expenses might later be held to be improper, in which case the
person receiving them shall promptly refund them; except that the Company
shall not be liable in any such case to the extent, but only to the extent,
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus or
the Prospectus, or any amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or on behalf
of any Underwriter specifically for use in the preparation thereof and,
provided further, that the indemnity agreement provided in this Section 8(a)
with respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter from whom the person asserting any losses, claims, charges,
liabilities or litigation
24
<PAGE>
based upon any untrue statement or alleged untrue statement of material fact
or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected has not been
sent or given to such person within the time required by the Securities Act
and the Rules and Regulations thereunder, unless such failure is the result
of noncompliance by the Company with Section 4(d) hereof.
(b) Each Underwriter severally, but not jointly, shall
indemnify and hold harmless the Company against any losses, claims, damages
or liabilities, joint or several, as incurred, to which the Company may
become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in the Registration Statement, Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (B) in
any Blue Sky Application, or (ii) the omission or alleged omission to state
in the Registration Statement or any amendment thereto a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or the omission or alleged omission to state in any Preliminary
Prospectus, the Prospectus or any supplement thereto or in any Blue Sky
Application a 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; except that such indemnification shall be
available in each such case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information
furnished to the Company through the Underwriters by or on behalf of such
Underwriter specifically for use in the preparation thereof; and shall
reimburse any legal or other expenses reasonably incurred by the Company in
connection with investigation or defending against any such loss, claim,
damage, liability or action.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the claim or the commencement of that
action; the failure to notify the indemnifying party shall not relieve it
from any liability which it may have to an indemnified party otherwise than
under such subsection. If any such claim or action shall be brought against
an indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified indemnifying
party, to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party; provided, however, if the defendants in any such
action include both the indemnified parties and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel
to assume such legal defenses and to otherwise participate in the defense of
such action on behalf of such indemnified party or parties. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under such subsection for any legal or other
expenses subsequently incurred by the
25
<PAGE>
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party, representing all the indemnified parties under Section
8(a) and 8(b) hereof who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the claim or action, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense
of the indemnifying party. In no event shall any indemnifying party be liable
in respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement;
provided, however, that such consent shall not be unreasonably withheld.
(d) In order to provide for just and equitable contribution
in any action in which a claim for indemnification is made pursuant to this
Section 8 for which it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the
parties hereto shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Underwriters are responsible pro rata for the
portion represented by the percentage that the underwriting discount bears to
the initial public offering price, and the Company is responsible for the
remaining portion; provided, however, that (i) no Underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Shares purchased by such Underwriter, and (ii) no person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to a contribution from any person
who is not guilty of such fraudulent misrepresentation. This subsection (d)
shall not be operative as to any Underwriter to the extent that the Company
has received indemnity under this Section 8.
(e) The obligations of the Company under this Section 8
shall be in addition to any liability which the Company may otherwise have,
and shall extend, upon the same terms and conditions, to each officer and
director of each Underwriter and to each person, if any, who controls any
Underwriter within the meaning of the Securities Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
that the respective Underwriters may otherwise have, and shall extend, upon
the same terms and conditions, to each director of the Company (including any
person who, with his consent, is named in the Registration Statement as about
to become a director of the Company), to each officer of the Company who has
signed the Registration Statement and to each person, if any, who controls
the Company within the meaning of the Securities Act, in either case, whether
or not such person is a party to any action or proceeding.
(f) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel
during the negotiations regarding the provisions hereof including without
limitation the provisions of this Section 8, and are fully informed regarding
26
<PAGE>
said provisions. They further acknowledge that the provisions of this Section
8 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required
by the Securities Act and the Exchange Act. The parties are advised that
Federal or state public policy, as interpreted by the courts in certain
jurisdictions, may be contrary to certain of the provisions of this Section
8, and the parties hereto hereby expressly waive and relinquish any right or
ability to assert such public policy as a defense to a claim under this
Section 8 and further agree not to attempt to assert any such defense.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties, covenants and agreements of the Company
contained in this Agreement (including, without limitation, the agreements of
the Company set forth in Sections 4(i)-(k)), or contained in certificates of
officers of the Company submitted pursuant hereto, and the indemnity and
contribution agreements contained in Section 8 hereof, shall remain operative
and in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or controlling person, or by or on behalf of the
Company, or any of its officers, controlling persons or directors and shall
survive delivery of the Shares to the several Underwriters hereunder or
termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITER. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such
Firm Shares in accordance with the terms hereof, and if the aggregate number
of Firm Shares which such defaulting Underwriter or Underwriters so agreed
but failed to purchase does not exceed 10% of the Firm Shares, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed to take up and pay for exceeds 10% of the Firm Shares, the
remaining Underwriters shall have the right, but shall not be obligated, to
take up and pay for (in such proportions as may be agreed upon among them)
the Firm Shares which the defaulting Underwriter or Underwriters so agreed
but failed to purchase. If such remaining Underwriters do not, at the Closing
Date, take up and pay for the Firm Shares which the defaulting Underwriter or
Underwriters so agreed but failed to purchase, the Closing Date shall be
postponed for twenty-four hours to allow the several Underwriters the
privilege of substituting within twenty-four hours (including non-business
hours) another underwriter or underwriters (which may include any
non-defaulting Underwriter) satisfactory to the Company. If no such
underwriter or underwriters shall have been substituted as aforesaid by such
postponed Closing Date, the Closing Date may, at the option of the Company,
be postponed for a further twenty-four hours, if necessary to allow the
Company the privilege of finding another underwriter or underwriters,
satisfactory to you, to purchase the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted underwriters to take
up the Firm Shares of the defaulting Underwriter or Underwriters as provided
in this Section, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven full business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the
27
<PAGE>
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements
to the Prospectus which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining
Underwriters and substitute underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and
pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters
as aforesaid and the Company shall not find or shall not elect to seek
another underwriter or underwriters for such Firm Shares as aforesaid, then
this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section, neither the Company shall be liable to
any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the number of
Firm Shares agreed by such Underwriter to be purchased hereunder, which
Underwriter shall remain liable to the Company and the other Underwriters for
damages, if any, resulting from such default) be liable to the Company
(except to the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the later of
(i) execution of this Agreement, or (ii) when notification of the
effectiveness of the Registration Statement has been released by the
Commission.
(b) Capital West shall have the right to terminate this
Agreement by giving notice as hereinafter specified at any time at or prior
to the Closing Date (i) if the Company shall have failed, refused or been
unable, to perform any agreement on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled including, without limitation, any
change in the financial condition, earnings, operations, business,
management, technical staff, or business prospects of the Company from that
set forth in the Registration Statement or Prospectus which, in the sole
judgment of Capital West, is material and adverse, or (ii) if trading on the
American Stock Exchange or the Nasdaq National Market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
American Stock Exchange or the Nasdaq National Market, by the American Stock
Exchange, the Nasdaq National Market or by order of the Commission or any
other governmental authority having jurisdiction, or if a banking moratorium
shall have been declared by Federal, New York or Oklahoma authorities, or
(iii) if on or prior to the Closing Date, or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, the Company
shall have sustained a loss by strike, fire, flood, earthquake, accident or
other calamity of such character as to interfere materially and adversely
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured, or (iv) if there shall
28
<PAGE>
have been a material adverse change in the general political or economic
conditions or financial markets in the United States as in your reasonable
judgment makes it inadvisable or impracticable to proceed with the offering,
sale and delivery of the Shares, or (v) if on or prior to the Closing Date,
or on or prior to any later date on which Option Shares are to be purchased,
as the case may be, there shall have been an outbreak or escalation of
hostilities or other international or domestic calamity, crises or material
adverse change in political, financial or economic conditions, the effect of
which on the financial markets of the United States is such as to make it in
your reasonable judgment, inadvisable to proceed with the marketing of the
Shares. In the event of termination pursuant to this Section 11(b), the
Company shall remain obligated to pay costs and expenses pursuant to Section
4(j), 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone or telecopy, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone or telecopy, in
each case, confirmed by letter.
12. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if mailed or transmitted by
any standard form of telecommunication. Notices to the Underwriters shall be
directed to the Underwriters in care of Capital West Securities, Inc., 211 N.
Robinson, Suite 200, One Leadership Square, Oklahoma City, Oklahoma 73102,
attention of Robert O. MacDonald; notices to the Company shall be directed to
it at TRAINING DEVICES INTERNATIONAL, INC., 7367 S. REVERE PARKWAY, BUILDING
#2-C, ENGLEWOOD, COLORADO 80112-3931, ATTENTION: RONALD C. ELLINGTON.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors, and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person or corporation, other than the parties hereto and their respective
executors, administrators, successors, and assigns and the controlling
persons and officers and directors referred to in Section 8 hereof any legal
or equitable right, remedy or claim under or in respect of this Agreement or
any provisions herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of
the parties hereto and their respective executors, administrators,
successors, and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or corporation. No
purchaser of the Shares from any Underwriter shall be construed to be a
successor by reason merely of such purchase.
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oklahoma applicable to agreements
made and to be performed in said State. Specified times of day refer to
Central time.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
29
<PAGE>
If the foregoing correctly sets forth your understanding of our
agreement, please sign in the space provided below for that purpose,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
*******
30
<PAGE>
TRAINING DEVICES, INC.
By:________________________
CONFIRMED AND ACCEPTED, as of the date first above written:
CAPITAL WEST SECURITIES, INC.
By:________________________
31
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITER SHARES PURCHASED
- ----------- ----------------
<S> <C>
Capital West Securities, Inc.
Total number of shares
</TABLE>
32
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TRAINING DEVICES INCORPORATED,
A COLORADO CORPORATION
The undersigned, Bruce S. Betschart, hereby certifies that:
ONE: He is the duly elected and acting President and Chief Operating
Officer of Training Devices Incorporated (the "Corporation").
TWO: The Corporation's original Articles of Incorporation were filed
with the Secretary of State of the State of Colorado on January 19, 1995, and
amended on January 19, 1996 and further amended on January 24, 1996 and January
3, 1997.
THREE: These Amended and Restated Articles of Incorporation constitute
an amendment and a restatement of the original Articles of Incorporation filed
on January 19, 1995, as amended, pursuant to Section 7-110-107 of the Colorado
Business Corporation Act (the "Act"), and supersedes the Corporation's original
Articles of Incorporation and all amendments or supplements thereto or
restatements thereof.
FOUR: The Amended and Restated Articles of Incorporation were
adopted by unanimous written consent of the Board of Directors on July 27,
1999, and by the shareholders at a special meeting held on September 7,
1999. The number of votes cast for the Amended and Restated Articles of
Incorporation by each voting group was sufficient for approval by such voting
group.
FIVE: The text of the Corporation's Amended and Restated Articles of
Incorporation is hereby amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is Training Devices International, Inc.
ARTICLE II
PURPOSE - POWERS
2.1 PURPOSE. The purpose for which the Corporation is organized is to
engage in any lawful business or businesses.
2.2 POWERS. The Corporation shall have and may exercise all powers and
rights granted or otherwise provided by the Colorado Business Corporation Act as
in effect from time to time and any successor law (the "Act").
<PAGE>
ARTICLE III.
CAPITAL
3.1 AUTHORIZED CAPITAL. The aggregate number of shares which the
Corporation shall have the authority to issue is 20,000,000 shares of Common
Stock, without par value, and 10,000,000 shares of Preferred Stock, without par
value. Such Preferred Stock may be issued in series. Except as otherwise
expressly provided by law, and subject to the voting rights, if any, provided to
the holders of Preferred Stock, the Common Stock has exclusive voting rights on
all matters requiring a vote of shareholders. Except for and subject to those
rights expressly granted to the holders of the Preferred Stock, or except as may
be provided by law, the holders of Common Stock shall have exclusively all other
rights of shareholders.
3.2 PREFERRED STOCK. The Corporation's Board of Directors shall have the
authority, without shareholder action, to determine the preferences, limitations
and relative rights of any Preferred Stock (whether in a series or as a class),
including without limitation the following: (i) the designation of any series of
Preferred Stock; (ii) unlimited, special, conditional, or limited voting rights,
or no right to vote; except that no condition, limitation, or prohibition on
voting shall eliminate any right to vote provided by the Act; (iii) redemption
rights; (iv) conversion rights, (v) distribution or dividend rights, including
the determination of whether such rights are cumulative, non-cumulative or
partially cumulative, and (vi) preference rights over any other class or series
of shares with respect to distributions, including dividends and distributions
upon the dissolution of the Corporation.
ARTICLE IV.
NO CUMULATIVE VOTING
Cumulative voting shall not be permitted in the election of directors or
otherwise.
ARTICLE V.
NO PREEMPTIVE RIGHTS
No shareholder of the Corporation shall be entitled as of right to acquire
unissued shares of the Corporation or securities convertible into such shares or
carrying a right to subscribe for or to acquire such shares.
ARTICLE VI.
QUORUM AND VOTING REQUIREMENTS FOR SHAREHOLDERS' MEETINGS
6.1 QUORUM. A majority of the votes entitled to be cast on a matter by a
voting group shall constitute a quorum of that voting group for action on that
matter at
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<PAGE>
any meeting of shareholders. (The term "voting group" or "voting groups"
shall have the meaning assigned by the Act.)
6.2 VOTING. Except as is otherwise required by the Act, action by a
voting group on a matter other than the election of directors is approved if a
quorum exists and if the votes cast within the voting group favoring the action
exceed the votes cast within the voting group opposing the action; provided,
however, that with respect to any of the following actions to be taken by the
shareholders of the Corporation, the approval by two-thirds of the votes of each
voting group entitled to vote on such matter shall be required:
(i) To sell, lease, exchange or otherwise dispose of all or
substantially all of the property and assets of the Corporation, with or without
its goodwill, other than in the usual and regular course of its business.
(ii) To approve a plan of merger or share exchange.
(iii) To dissolve the Corporation.
6.3 CHANGE IN QUORUM OR VOTING REQUIREMENTS. Any amendment to these
Articles of Incorporation adding, changing or deleting a greater quorum or
voting requirement for shareholders shall meet the same quorum requirement and
be adopted by the same vote and voting groups required to take action under the
quorum and voting requirements then in effect or proposed to be adopted,
whichever are greater.
ARTICLE VII.
BOARD OF DIRECTORS
7.1 BOARD OF DIRECTORS. The corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, a Board of Directors. Each director shall
continue to serve until such director's successor is elected and qualifies.
NUMBER AND TERMS. The number of Directors of the Corporation shall be
specified or fixed in accordance with the bylaws. The terms of the directors
shall be staggered in accordance with the following provisions.
The directors, other than those who may be elected by the holders of any
series of Preferred Stock of the Corporation, shall be classified, with respect
to the term for which they severally hold office, into three classes, as nearly
equal in number as possible. The initial Class I directors shall serve for a
term expiring at the annual meeting of stockholders to be held in 2000, the
initial Class II director shall serve for a term expiring at the annual meeting
of stockholders to be held in 2001, and the initial Class III directors shall
serve for a term expiring at the annual meeting of stockholders to be held in
2002. At each annual meeting of stockholders, the successor or successors of
the class of directors whose term expires at that meeting shall be elected and
shall hold
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<PAGE>
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election. In every case, a director
shall continue to serve until the end of the director's term or until the
director's successor is duly elected and qualified or until the director's
earlier resignation or removal.
7.2 REMOVAL. Subject to the rights, if any, of any series of Preferred
Stock to elect directors and to remove any director whom the holders of any such
stock have the right to elect, any director (including persons elected by
directors to fill vacancies in the Board of Directors) may be removed from
office only for cause. At least 30 days prior to any meeting of shareholders at
which it is proposed that any director be removed from office, written notice of
such proposed removal shall be sent to the director whose removal will be
considered at the meeting. The term "cause" with respect to the removal of any
director shall mean only (i) conviction of a felony or plea of nolo contendere,
(ii) declaration of unsound mind by order of court, (iii) gross dereliction of
duty, (iv) commission of any action involving moral turpitude, or (v) commission
of an action which constitutes intentional misconduct or a knowing violation of
law if such action in either event results in a material injury to the
Corporation.
ARTICLE VIII.
LIMITATION ON LIABILITY
There shall be no personal liability, either direct or indirect, of any
director of the Corporation to the Corporation or to its shareholders for
monetary damages for any breach or breaches of fiduciary duty as a director;
except that this provision shall not eliminate the liability of a director to
the Corporation or to its shareholders for monetary damages for any breach, act,
omission or transaction as to which the Act prohibits expressly the elimination
of liability. This provision shall not limit the rights of directors of the
Corporation for indemnification or other assistance from the Corporation. Any
repeal or modification of this Article VIII shall not adversely affect any right
or protection of a director of the Corporation under this Article VIII, as in
effect immediately prior to such repeal or modification, with respect to any act
or omission of such director occurring prior to such repeal or modification.
IN WITNESS WHEREOF, the undersigned has executed and verified these Amended
and Restated Articles of Incorporation on September ___, 1999.
TRAINING DEVICES INCORPORATED,
a Colorado corporation
By:____________________________________________
Name: Bruce S. Betschart
Title: President and Chief Operating Officer
4
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
TRAINING DEVICES INTERNATIONAL, INC.
(A COLORADO CORPORATION)
EFFECTIVE AS OF _________, 1999
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
TRAINING DEVICES INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
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Page
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ARTICLE I. OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Business Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Principal Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Registered Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . 1
1. Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Place of Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Shareholders' List. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Agenda and Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9. Adjournment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
10. Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11. Inspectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
12. Meeting by Telecommunication. . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III. BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . 8
1. Authority, Election and Tenure. . . . . . . . . . . . . . . . . . . . . . 8
2. Number and Qualification. . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. Quorum and Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8. Organization, Agenda and Procedure. . . . . . . . . . . . . . . . . . . . 10
9. Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12. Executive and Other Committees. . . . . . . . . . . . . . . . . . . . . . 12
13. Compensation of Directors. . . . . . . . . . . . . . . . . . . . . . . . 13
14. Meeting by Telecommunication. . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
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ARTICLE IV. WAIVER OF NOTICE BY SHAREHOLDERS AND DIRECTORS AND ACTION OF
SHAREHOLDERS AND DIRECTORS BY CONSENT . . . . . . . . . . . . . . . . . . . . 13
1. Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. Action Without a Meeting. . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V. OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1. Election and Tenure. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2. Resignation, Removal and Vacancies. . . . . . . . . . . . . . . . . . . . 16
3. Chairman of the Board. . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. President. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5. Chief Executive Officer. . . . . . . . . . . . . . . . . . . . . . . . . 17
6. Vice Presidents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8. Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9. Assistant Secretaries and Assistant Treasurers. . . . . . . . . . . . . . 18
10. Bond of Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11. Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2. Provisions Not Exclusive. . . . . . . . . . . . . . . . . . . . . . . . . 20
3. Effect of Modification of Act. . . . . . . . . . . . . . . . . . . . . . 20
4. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6. Expenses as a Witness. . . . . . . . . . . . . . . . . . . . . . . . . . 22
7. Notice to Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII. EXECUTION OF INSTRUMENTS; LOANS; CHECKS AND ENDORSEMENTS;
DEPOSITS; PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
1. Execution of Instruments. . . . . . . . . . . . . . . . . . . . . . . . . 23
2. Borrowing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3. Loans to Directors, Officers and Employees. . . . . . . . . . . . . . . . 24
4. Checks and Endorsements. . . . . . . . . . . . . . . . . . . . . . . . . 24
5. Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6. Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VIII. SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 25
1. Certificates of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 25
2. Shares Without Certificates. . . . . . . . . . . . . . . . . . . . . . . 26
3. Record. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4. Transfer of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5. Transfer Agents and Registrars; Regulations. . . . . . . . . . . . . . . 26
6. Lost, Destroyed or Mutilated Certificates. . . . . . . . . . . . . . . . 27
ARTICLE IX. CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE X. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XI. CORPORATE RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . 27
1. Corporate Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2. Addresses of Shareholders. . . . . . . . . . . . . . . . . . . . . . . . 28
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3. Fixing Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4. Inspection of Corporate Records. . . . . . . . . . . . . . . . . . . . . 28
5. Distribution of Financial Statements. . . . . . . . . . . . . . . . . . . 29
6. Audits of Books and Accounts. . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XII. EMERGENCY BYLAWS AND ACTIONS . . . . . . . . . . . . . . . . . . . 29
ARTICLE XIII. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<PAGE>
AMENDED AND RESTATED BYLAWS
OF
TRAINING DEVICES INTERNATIONAL, INC
(a Colorado Corporation)
ARTICLE I.
OFFICES
1. BUSINESS OFFICES. The Corporation may have one or more offices at
such place or places within or without the State of Colorado as the Board of
Directors may from time to time determine or as the business of the
Corporation may require.
2. PRINCIPAL OFFICE. The initial principal office of the Corporation
shall be as set forth in the Articles of Incorporation. The Board of
Directors, from time to time, may change the principal office of the
Corporation.
3. REGISTERED OFFICE. The registered office of the Corporation shall
be as set forth in the Articles of Incorporation, unless changed as provided
by the provisions of the Colorado Business Corporation Act, as it may be
amended from time to time, or any successor law (the "Act").
ARTICLE II.
SHAREHOLDERS' MEETINGS
1. ANNUAL MEETINGS. The annual meetings of shareholders for the
election of directors to succeed those directors whose terms expire and for
the transaction of such other business as may come before the meeting shall
be held each year at such date, time and place, either within or without the
State of Colorado, as may be designated by resolution of the Board of
Directors from time to time; provided, however, that an
<PAGE>
annual meeting shareholders shall be held each year on a date that is within
the earlier of six months after the close of the last fiscal year or fifteen
months after the last annual meeting. If the day so fixed for such annual
meeting shall be a legal holiday at the place of the meeting, then such
meeting shall be held on the next succeeding business day at the same hour.
2. SPECIAL MEETINGS. Special meetings of shareholders for any purpose
or purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called at any time by the President or by the Board of
Directors and shall be called by the President or the Secretary upon one or
more written demands (which shall state the purpose or purposes therefor)
signed and dated by the holders of shares representing not less than ten
percent of all votes entitled to be cast on any issue proposed to be
considered at the meeting. The record date for determining the shareholders
entitled to demand a special meeting is the date of the earliest of any of
the demands pursuant to which the meeting is called, or the date that is 60
days before the date on which the first of such demands is received,
whichever is later. Business transacted at any special meeting of
shareholders shall be limited to the purpose or purposes stated in the notice
of such meeting.
3. PLACE OF SPECIAL MEETINGS. Special meetings of shareholders shall
be held at such place or places, within or without the State of Colorado, as
may be determined by the Board of Directors and designated in the notice of
the meeting, or, if no place is so determined and designated in the notice,
special meetings of shareholders shall be held at the principal office of the
Corporation.
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4. NOTICE OF MEETINGS. Not less than 10 nor more than 60 days prior
to each annual or special meeting of shareholders, written notice of the
date, time and place of each annual and special shareholders' meeting shall
be given to each shareholder entitled to vote at such meeting; provided,
however, that if the authorized shares of the Corporation are proposed to be
increased, at least 30 days' notice in like manner shall be given; and
provided, further, that if the Act prescribes notice requirements for
particular circumstances (as in the case of the sale, lease or exchange of
the Corporation's assets other than in the usual and regular course of
business, or the merger or dissolution of the Corporation), the provisions of
the Act shall govern. Notice may be given in person; by telephone,
telegraph, teletype, electronically transmitted facsimile, or other form of
wire or wireless communication; and, if so given, shall be effective when
received by the shareholder. Notice may also be given by deposit in the
United States mail, postage prepaid, if addressed to the shareholder at the
address of such shareholder shown in the Corporation's current record of
shareholders, and, of so given, shall be effective when mailed. If three
successive notices mailed to any shareholder in accordance with the
provisions of this Section 4 are returned as undeliverable, no further
notices to such shareholder shall be necessary until another address for such
shareholder is made known to the Corporation. The notice of a special
meeting shall, in addition, state the meeting's purposes.
5. SHAREHOLDERS' LIST. A complete record of the shareholders entitled
to notice of any shareholders' meeting (or an adjourned meeting described in
Section 9 of this Article II) shall be prepared by the Secretary of the
Corporation. Such shareholders' list shall be arranged by voting groups and,
within each voting group by class or series of
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<PAGE>
shares, shall be alphabetical within each class or series and shall show the
address of, and the number of shares of each such class and series that are
held by, each shareholder. (When used in these Bylaws, the term "voting
group" or "voting groups" shall have the meaning assigned by the Act.) The
shareholders' list shall be available for inspection by any shareholder
beginning on the earlier of ten days before the meeting for which the list
was prepared or two business days after notice is given and continuing
through the meeting and any adjournment thereof at the Corporation's
principal office or at a place identified in the notice of the meeting in the
city where the meeting will be held. A shareholder or his agent or attorney
is entitled on written demand to inspect and, subject to the requirements of
the Act, to copy the list during regular business hours and during the period
it is available for inspection.
6. ORGANIZATION. The Chairman of the Board or, in the absence of the
Chairman of the Board, the President shall call meetings of shareholders to
order and act as chairperson of such meetings. In the absence of said
officers, any shareholder entitled to vote at the meeting, or any proxy of
any such shareholder, may call the meeting to order and a chairperson shall
be elected by a majority of the votes present and entitled to be cast at the
meeting. The Secretary or any Assistant Secretary of the Corporation or any
person appointed by the chairperson may act as secretary of such meetings.
7. AGENDA AND PROCEDURE. The Board of Directors shall have the
responsibility of establishing an agenda for each meeting of shareholders,
subject to the rights of shareholders to raise matters, if any, which may
properly be brought before the meeting although not included within the
agenda. The chairperson shall be charged with the orderly conduct of all
meetings of shareholders.
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<PAGE>
8. QUORUM. Shares entitled to vote as a separate voting group may
take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Unless otherwise provided in the Act or in the
Corporation's Articles of Incorporation a majority of the votes entitled to
be cast on a matter by a voting group constitutes a quorum of that voting
group for action on that matter. In the absence of a quorum at any
shareholders' meeting, a majority of the votes present in person or
represented by proxy and entitled to vote on any matter at the meeting may
adjourn the meeting from time to time for a period not to exceed 120 days
from the original date of the meeting without further notice (except as
provided in Section 9 of this Article II) until a quorum shall be present or
represented.
9. ADJOURNMENT. When a meeting is for any reason adjourned to another
date, time or place, notice need not be given of the adjourned meeting if the
date, time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, any business may be
transacted which might have been transacted at the original meeting. If the
adjournment is for more than 120 days from the date of the original meeting,
or if, after the adjournment, a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each shareholder
as of the new record date.
10. VOTING.
(a) Except as provided by law or in the Articles of Incorporation, at
every meeting of shareholders, or with respect to corporate action which may be
taken without a meeting, each outstanding share having voting power is entitled
to one vote,
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<PAGE>
and each fractional share, if any is outstanding, is entitled to a
corresponding fractional vote, on each matter voted on at a shareholders'
meeting.
(b) A shareholder may vote the shareholder's shares in person or by
proxy. A shareholder may appoint a proxy by signing an appointment form, either
personally or by the shareholder's attorney-in-fact. A shareholder may appoint
a proxy by transmitting or authorizing the transmission of a telegram, teletype
or other electronic transmission providing a written statement of the
appointment to the proxy, to a proxy solicitor, proxy support service
organization, or other person duly authorized by the proxy to receive
appointments as agent for the proxy, or to the Corporation; except that the
transmitted appointment shall set forth or be transmitted with written evidence
from which it can be determined that the shareholder transmitted or authorized
the transmission of the appointment. An appointment of a proxy is not effective
against the Corporation until the appointment is received by the Corporation.
The appointment is effective for eleven months unless a different period is
expressly provided in the appointment form. An appointment of a proxy shall be
revocable by the shareholder except as may be permitted or provided by law.
(c) When a quorum is present at any meeting of shareholders, action
on a matter, other than the election of directors, by a voting group is approved
if the votes cast within the voting group favoring the action exceed the votes
cast within the voting group opposing the action unless the matter is one upon
which a different vote is required by express provision of a statute, or the
Articles of Incorporation, or these Bylaws, in which case such express provision
shall govern and control the decision on such matter.
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<PAGE>
11. INSPECTORS. The chairperson of the meeting may at any time appoint
two or more inspectors to serve at a meeting of the shareholders. Such
inspectors shall decide upon the qualifications of voters, including the
validity of proxies, accept and count the votes for and against the matters
presented, report the results of such votes, and subscribe and deliver to the
secretary of the meeting a certificate stating the number of shares of stock
within each voting group that is issued and outstanding and entitled to vote
thereon and the number of shares within each voting group that voted for and
against the matters presented. The voting inspectors need not be
shareholders of the Corporation, and any director or officer of the
Corporation may be an inspector on any matter other than a vote for or
against such director's or officer's election to any position with the
Corporation or on any other matter in which such officer or director may be
directly interested.
12. MEETING BY TELECOMMUNICATION. If and only if permitted by the
Board of Directors, any or all of the shareholders may participate in an
annual or special shareholders' meeting by, or the meeting may be conducted
through the use of, any means of communication by which all persons
participating in the meeting may hear each other during the meeting. If the
Board of Directors determines to allow shareholders to participate in a
shareholders' meeting by telecommunication, the Board shall establish the
terms and conditions under which shareholders may participate by such means
and shall cause the notice of the meeting to contain such terms and
conditions. Only shareholders who comply with the terms and conditions
indicated in such notice shall be entitled to so participate by
telecommunication in the shareholders' meeting. A shareholder participating
in a meeting by telecommunication in compliance with the terms and
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<PAGE>
conditions established by the Board of Directors is deemed to be present in
person at the meeting.
ARTICLE III.
BOARD OF DIRECTORS
1. AUTHORITY, ELECTION AND TENURE. All corporate power shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed by, a Board of Directors. Certain directors
shall be elected at each annual meeting of shareholders as provided in the
Corporation's Articles of Incorporation. In an election of directors, that
number of candidates equaling the number of directors to be elected having
the highest number of votes cast in favor of their election shall be elected
to the Board of Directors. The directors shall serve for staggered terms as
provided in the Corporation's Articles of Incorporation; provided, however,
that a director shall continue to serve, despite the expiration of his or her
term, until such director's successor shall be elected and shall qualify, or
until such director's earlier death, resignation or removal.
2. NUMBER AND QUALIFICATION. The number of directors shall be at
least one (1) and not more than nine (9). Within that range, the number of
directors shall be as stated by resolution of the Board of Directors from
time to time, but no decrease in the number of directors shall have the
effect of shortening the term of any incumbent director. Directors must be
natural persons at least eighteen years of age but need not be shareholders
or residents of the State of Colorado.
3. REGULAR MEETINGS. Regular meetings of the Board of Directors shall
be held at such dates, times and places as may be determined by the Board of
Directors.
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Regular meetings of the Board of Directors may be held without notice of the
date, time, place or purpose of the meeting.
4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the President at any time and shall be called by the President
or the Secretary on the written request of any two directors.
5. PLACE OF MEETINGS. Any meeting of the Board of Directors may be
held at such place or places either within or without the State of Colorado
as shall from time to time be determined by the Board of Directors and as
shall be designated in the resolution of the Board of Directors fixing the
date, time and place of the regular meetings of the Board of Directors or in
the notice of special meeting.
6. NOTICE OF MEETINGS. Notice of the date, time and place of each
special meeting of directors shall be given to each director at least two
days prior to such meeting. The notice of a special meeting of the Board of
Directors need not state the purposes of the meeting. Notice to each
director of any special meeting may be given in person; by telephone,
telegraph, teletype, electronically transmitted facsimile, or other form of
wire or wireless communication; or by mail or private carrier. Oral notice
to a director of any special meeting is effective when communicated. Written
notice to a director of any special meeting, including without limitation
notice sent by electronic mail, is effective at the earliest of: (a) the date
received; (b) five days after it is deposited in the United States mail,
properly addressed to the last address for the director shown on the records
of the Corporation, first class postage prepaid; (c) the date shown on the
return receipt if mailed by registered or certified mail, return receipt
requested, postage
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prepaid, in the United States mail and if the return receipt is signed by or
on behalf of the director to whom the notice is addressed.
7. QUORUM AND VOTING. A majority of the number of directors fixed by
or in accordance with Section 2 of this Article III shall constitute a quorum
at all meetings of the Board of Directors. The vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors, except as otherwise required by the Act.
8. ORGANIZATION, AGENDA AND PROCEDURE. The Chairman of the Board or,
in the absence of the Chairman of the Board, the President shall act as
chairperson of the meetings of the Board of Directors. The Secretary, any
Assistant Secretary, or any other person appointed by the chairperson shall
act as secretary of each meeting of the Board of Directors. The agenda of
and procedure for such meetings shall be as determined by the Board of
Directors.
9. RESIGNATION. Any director of the Corporation may resign at any
time by giving written resignation notice to the Corporation or the Secretary
of the Corporation at the Corporation's principal office. Such resignation
shall take effect at the date of receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective, unless it so
provides. A director who resigns may deliver to the Secretary of State for
filing a statement to that effect.
10. REMOVAL. Any director may be removed only for cause at a special
meeting of the shareholders called and held for such purpose if the votes
cast within the voting group favoring the action exceed the votes cast within
the voting group opposing the
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action; provided, however, that if a director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in
the vote to remove that director. "Cause" with respect to the removal of any
director shall mean only (i) conviction of a felony or a plea of nolo
contendere, (ii) declaration of unsound mind by order of court, (iii) gross
dereliction of duty, (iv) commission of any action involving moral turpitude,
or (v) commission of an action which constitutes intentional misconduct or a
knowing violation of law if such action in either event results a material
injury to the Corporation.
11. VACANCIES. If a vacancy occurs on the Board of Directors,
including a vacancy resulting from an increase in the number of directors:
(a) the shareholders may fill the vacancy at the next annual meeting or at a
special meeting called for that purpose; or (b) the Board of Directors may
fill the vacancy; or (c) if the directors remaining in office constitute
fewer than a quorum of the Board of Directors, they may fill the vacancy by
the affirmative vote of a majority of all the directors remaining in office.
Any director elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of directors in which
the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified or until his
or her earlier resignation or removal. When the number of directors is
increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of directors shall be
apportioned; provided, however, that no decrease in the number of directors
shall shorten the term of any incumbent director. In the event of a vacancy
in the Board of Directors, the remaining directors, except as otherwise
provided by law, may exercise the powers of the
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full Board of Directors until the vacancy is filled. If the vacant
directorship was held by a director elected by a voting group of shareholders
and one or more of the remaining directors were elected by the same voting
group, only such directors are entitled to vote to fill the vacancy if it is
filled by directors, and they may do so by the affirmative vote of a majority
of such directors remaining in office; and only the holders of shares of that
voting group are entitled to vote to fill such vacancy if it is filled by the
shareholders.
12. EXECUTIVE AND OTHER COMMITTEES. Except as otherwise required by
the Act, the Board of Directors, by resolution adopted by the greater of a
majority of the number of directors fixed by or in accordance with Section 2
of this Article III or the number of directors required to take action
pursuant to Section 7 of this Article III, may designate from among its
members an executive committee and one or more other committees each of
which, to the extent provided in the resolution and except as otherwise
prescribed by the Act, shall have and may exercise all of the authority of
the Board of Directors in the management of the Corporation, except that no
committee shall: (a) authorize distributions; (b) approve or propose to
shareholders action that the Act requires to be approved by shareholders; (c)
fill vacancies on the Board of Directors or on any of its committees; (d)
amend the Articles of Incorporation; (e) adopt, amend, or repeal these
Bylaws; (f) approve a plan of merger not requiring shareholder approval; (g)
authorize or approve reacquisition of shares, except according to a formula
or method prescribed by the Board of Directors; or (h) authorize or approve
the issuance or sale of shares, or a contract for the sale of shares, or
determine the designation and relative rights, preferences, and limitations
of a class or series of shares, except that with respect to this clause (h)
the Board of Directors may authorize a committee to do so
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within limits specifically prescribed by the Board of Directors. The
provision of these Bylaws governing meetings, action without meeting, notice,
waiver of notice, and quorum and voting requirements of the Board of
Directors shall apply to committees and the members thereof.
13. COMPENSATION OF DIRECTORS. Each director may be paid such
compensation as fixed from time to time by resolution of the Board of
Directors, together with reimbursement for the reasonable and necessary
expenses incurred by such director in connection with the performance of such
director's duties. Nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity or any of its
subsidiaries in any other capacity and receiving proper compensation therefor.
14. MEETING BY TELECOMMUNICATION. One or more members of the Board of
Directors or any committee designated by the Board of Directors may hold or
participate in a meeting of the Board of Directors or such committee through
the use of any means of communication by which all persons participating can
hear each other at the same time.
ARTICLE IV.
WAIVER OF NOTICE BY SHAREHOLDERS AND DIRECTORS AND ACTION
OF SHAREHOLDERS AND DIRECTORS BY CONSENT
1. WAIVER OF NOTICE. A shareholder may waive any notice required by
the Act or by the Articles of Incorporation or these Bylaws, and a director
may waive any notice of a directors' meeting, whether before or after the
date or time stated in the notice as the date or time when any action will
occur or has occurred. The waiver shall be in
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writing, be signed by the shareholder or director entitled to the notice, and
be delivered to the Corporation for inclusion in the minutes or filing with
the corporate records, but such delivery and filing shall not be conditions
of the effectiveness of the waiver. Attendance of a shareholder at a meeting
waives objection to lack of notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting objects to holding the
meeting or transacting business at the meeting because of lack of notice or
defective notice, and waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice unless the shareholder objects to considering the matter
when it is presented. A director's attendance at or participation in a
meeting waives any required notice to him or her of the meeting unless the
director, at the beginning of the meeting or promptly upon his or her later
arrival, objects to holding the meeting or transacting business at the
meeting because of lack of notice or defective notice and does not thereafter
vote for or assent to action taken at the meeting, or if special notice was
required of a particular purpose pursuant to the Act, the director objects to
transacting business with respect to the purpose for which such special
notice was required and does not thereafter vote for or assent to action
taken at the meeting with respect to such purpose.
2. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken at a meeting of the shareholders, directors or members of an executive
or other committee, as applicable, may be taken without a meeting if all
shareholders entitled to vote with respect to such action, or all directors
or all members of an executive or other committee, as the case may be, give
written consent to such action in writing. The record date for determining
shareholders entitled to take action without a meeting is the
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date a writing upon which the action is taken, pursuant to this Section 2 of
Article IV, is first received by the Corporation. Any shareholder who has
signed a writing describing and consenting to action taken pursuant to this
Section 2 of this Article IV may revoke such consent by a writing signed by
such shareholder describing the action and stating that the shareholder's
prior consent thereto is revoked, if such writing is received by the
Corporation before the effectiveness of the action. Action taken without a
meeting shall be effective: in the case of an action of shareholders, as of
the date the last writing necessary to effect the action is received by the
Corporation unless all of the writings necessary to effect the action specify
another date, which may be before or after the date the writings are received
by the Corporation; and in the case of directors' action, action is taken
when the last director signs a writing describing the action taken unless
before such time the Secretary has received a written revocation of the
consent of any other director, and any action so taken shall be effective at
the time taken unless the directors specify a different effective date.
ARTICLE V.
OFFICERS
1. ELECTION AND TENURE. The officers of the Corporation shall consist of
a Chairman of the Board, a President, a Chief Executive Officer, a Secretary and
Treasurer, each of whom shall be appointed annually by the Board of Directors.
The Board of Directors may also designate and appoint such other officers and
assistant officers as may be deemed necessary. The Board of Directors may
delegate to any such officer the power to appoint or remove subordinate
officers, agents or employees. Any two or more offices may be held by the same
person. Each officer so appointed shall
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continue in office until a successor shall be appointed and shall qualify, or
until the officer's earlier death, resignation or removal. Each officer
shall be a natural person who is eighteen years of age or older.
2. RESIGNATION, REMOVAL AND VACANCIES. Any officer may resign at any
time by giving written notice of resignation to the Board of Directors or the
President. Such resignation shall take effect when the notice is received by
the Corporation unless the notice specifies a later effective date, and
acceptance of the resignation shall not be necessary to render such
resignation effective. Any officer may at any time be removed by the Board
of Directors. If any office becomes vacant for any reason, the vacancy may be
filled by the Board of Directors. An officer appointed to fill a vacancy
shall be appointed for the unexpired term of such officer's predecessor in
office and shall continue in office until a successor shall be elected or
appointed and shall qualify, or until such officer's earlier death,
resignation or removal. The appointment of an officer shall not itself
create contract rights in favor of the officer, and the removal of an officer
does not affect the officer's contract rights, if any, with the Corporation
and the resignation of an officer does not affect the Corporation's contract
rights, if any, with the officer.
3. CHAIRMAN OF THE BOARD. If there shall be a Chairman of the Board,
the Chairman of the Board shall preside at meetings of the Board of Directors
and of the shareholders at which he or she is present, and shall give counsel
and advice to the Board of Directors and the officers of the Corporation on
all subjects concerning the welfare of the Corporation and the conduct of its
business. The Chairman of the Board of Directors shall perform such other
duties as the Board may from time to time determine.
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4. PRESIDENT. The President shall be the chief operating officer of
the Corporation. In the absence of the Chairman of the Board, or if
authorized by the Chairman of the Board, the President shall preside at
meetings of the shareholders. The President shall manage the operations
conducted by the Corporation and shall perform all duties as may from time to
time be assigned by the Board of Directors.
5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have
general and active management of the business of the Corporation; shall see
that all orders and resolutions of the Board of Directors are carried into
effect; and shall perform all duties as may from time to time be assigned by
the Board of Directors.
6. VICE PRESIDENTS. The Vice Presidents, if any, shall perform such
duties and possess such powers as from time to time may be assigned to them
by the Board of Directors, the Chief Executive Officer or the President. In
the absence of the President or in the event of the inability or refusal of
the President to act, the Vice President (or in the event there be more than
one Vice President, the Vice Presidents in the order designated by the Board
of Directors, or in the absence of any designation, then in the order of the
election or appointment of the Vice Presidents) shall perform the duties of
the President and when so performing shall have all the powers of and be
subject to all the restrictions upon the President.
7. SECRETARY. The Secretary shall perform such duties and shall have
such powers as may from time to time be assigned by the Board of Directors,
the Chief Executive Officer or the President. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office
of Secretary including, without limitation, the duty and power to give notice
of all meetings of shareholders and the
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Board of Directors, the preparation and maintenance of minutes of the
directors' and shareholders' meetings and other records and information
required to be kept by the Corporation under Article XI and for
authenticating records of the Corporation, and to be custodian of the
corporate seal and to affix and attest to the same on documents, the
execution of which on behalf of the Corporation is authorized by these Bylaws
or by the action of the Board of Directors.
8. TREASURER. The Treasurer shall perform such duties and shall have
such powers as may from time to time be assigned by the Board of Directors,
the Chief Executive Officer or the President. In addition, the Treasurer
shall perform such duties and have such powers as are incident to the office
of Treasurer including, without limitation, the duty and power to keep and be
responsible for all funds and securities of the Corporation, to deposit funds
of the Corporation in depositories selected in accordance with these Bylaws,
to disburse such funds as ordered by the Board of Directors, making proper
accounts thereof, and to render as required by the Board of Directors
statements of all these transactions taken as Treasurer and of the financial
condition of the Corporation.
9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries and Assistant Treasurers, if any, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or
by the Chief Executive Officer, the President or the Board of Directors. In
the absence, inability or refusal to act of the Secretary or the Treasurer,
the Assistant Secretaries or Assistant Treasurers, respectively, in the order
designated by the Board of Directors, or in the absence of any designation,
then in the order of their election or appointment, shall
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perform the duties and exercise the powers of the Secretary or Treasurer, as
the case may be.
10. BOND OF OFFICERS. The Board of Directors may require any officer
to give the Corporation a bond in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for such terms and
conditions as the Board of Directors may specify, including without
limitation for the faithful performance of such officer's duties and for the
restoration to the Corporation of any property belonging to the Corporation
in such officer's possession or under the control of such officer.
11. COMPENSATION. Officers of the Corporation shall be entitled to
such salaries, emoluments, compensation or reimbursement as shall be fixed or
authorized from time to time by the Board of Directors.
ARTICLE VI.
INDEMNIFICATION
1. INDEMNIFICATION. To the extent permitted or required by the Act
and any other applicable law, if any director or officer of the Corporation
is made a party to or is involved in any proceeding because such person is or
was a director or officer of the Corporation, the Corporation shall (a)
indemnify such person from and against any liability, including but not
limited to expenses of investigation and preparation, expenses in connection
with appearance as a witness, and fees and disbursements of counsel,
accountants or other experts, incurred by such person in such proceeding, and
(b) advance to such person expenses incurred in such proceeding. The
Corporation may in its discretion, but is not obligated in any way to,
indemnify and advance expenses to an employee or agent of the Corporation to
the same extent as to a director or officer,
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and the Corporation may indemnify an employee, fiduciary, or agent of the
Corporation to a greater extent than expressly permitted herein for officers
and directors if not inconsistent with public policy.
2. PROVISIONS NOT EXCLUSIVE. The foregoing provisions for
indemnification and advancement of expenses are not exclusive, and the
Corporation may at its discretion provide for indemnification or advancement
of expenses in a resolution of its shareholders or directors, in a contract
or in its Articles of Incorporation.
3. EFFECT OF MODIFICATION OF ACT. Any repeal or modification of the
foregoing provisions of this Article for indemnification or advancement of
expenses shall not affect adversely any right or protection stated in such
provisions with respect to any act or omission occurring prior to the time of
such repeal or modification. If any provision of this Article or any part
thereof shall be held to be prohibited by or invalid under applicable law,
such provision or part thereof shall be deemed amended to accomplish the
objectives of the provision or part thereof as originally written to the
fullest extent permitted by law, and all other provisions or parts shall
remain in full force and effect.
4. DEFINITIONS. As used in this Article, the following terms have the
following meanings:
(a) ACT. When used with reference to an act or omission occurring
prior to the effectiveness of any amendment to the Act which occurs after the
effectiveness of the adoption of this Article, the term "Act" shall include such
amendment only to the extent that the amendment permits a corporation to provide
broader indemnification rights than the Act permitted prior to the amendment.
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(b) CORPORATION. The term "Corporation" includes any domestic or
foreign entity that is a predecessor of the Corporation by reason of a merger
or other transaction in which the predecessor's existence ceased upon
consummation of the transaction.
(c) DIRECTOR OR OFFICER. A "director" or "officer" is an
individual who is or was a director or officer of the Corporation or an
individual who, while a director or officer of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner,
trustee, employee, fiduciary, or agent of another domestic or foreign
corporation or other person or entity or of an employee benefit plan. A
director or officer is considered to be serving an employee benefit plan at
the Corporation's request if his or her duties to the Corporation also impose
duties on, or otherwise involve services by, the director or officer to the
plan or to participants in or beneficiaries of the plan. The terms
"director" and "officer" include, unless the context requires otherwise, the
estate or personal representative of a director, or officer.
(d) LIABILITY. The term "liability" means the obligation incurred
with respect to a proceeding to pay a judgment, settlement, penalty, fine
(including any excise tax assessed with respect to an employee benefit plan),
or reasonable expenses.
(e) PROCEEDING. The term "proceeding" means any threatened,
pending or completed action, suit, or proceeding whether civil, criminal,
administrative or investigative, and whether formal or informal.
5. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the Corporation, or who, while a director, officer, employee,
fiduciary, or agent of the
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Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, fiduciary, or agent of another
domestic or foreign corporation or other person or entity or of an employee
benefit plan, against liability asserted against or incurred by the person in
that capacity or arising from his or her status as a director, officer,
employee, fiduciary, or agent, whether or not the Corporation would have
power to indemnify the person against the same liability under the Act. Any
such insurance may be procured from any insurance company designated by the
Board of Directors, whether such insurance company is formed under the laws
of this state or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the Corporation has an equity or any
other interest through stock ownership or otherwise.
6. EXPENSES AS A WITNESS. The Corporation may pay or reimburse
expenses incurred by a director, officer, employee, fiduciary, or agent in
connection with an appearance as a witness in a proceeding at a time when he
or she has not been made a named defendant or respondent in the proceeding.
7. NOTICE TO SHAREHOLDERS. If the Corporation indemnifies or advances
expenses to a director under this Article in connection with a proceeding by
or in the right of the Corporation, the Corporation shall give written notice
of the indemnification or advance to the shareholders with or before the
notice of the next shareholders' meeting. If the next shareholder action is
taken without a meeting at the instigation of the Board of Directors, such
notice shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action.
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ARTICLE VII.
EXECUTION OF INSTRUMENTS; LOANS; CHECKS AND ENDORSEMENTS;
DEPOSITS; PROXIES
1. EXECUTION OF INSTRUMENTS. The President, the Chief Executive
Officer or any Vice President shall have the power to execute and deliver on
behalf of and in the name of the Corporation any instrument requiring the
signature of an officer of the Corporation, except as otherwise provided in
these Bylaws or when the execution and delivery of the instrument shall be
expressly delegated by the Board of Directors to some other officer or agent
of the Corporation. Unless authorized to do so by these Bylaws or by the
Board of Directors, no officer, agent or employee shall have any power or
authority to bind the Corporation in any way, to pledge its credit or to
render it liable pecuniarily for any purpose or in any amount.
2. BORROWING. No loan shall be contracted on behalf of the
Corporation, and no evidence of indebtedness shall be issued, endorsed or
accepted in its name, unless authorized by the Board of Directors or a
committee designated by the Board of Directors so to act. Such authority may
be general or confined to specific instances. When so authorized, an officer
may (a) effect loans at any time for the Corporation from any bank or other
entity and for such loans may execute and deliver promissory notes or other
evidences of indebtedness of the Corporation; and (b) mortgage, pledge or
otherwise encumber any real or personal property, or any interest therein,
owned or held by the Corporation as security for the payment of any loans or
obligation of the Corporation, and to that end may execute and deliver for
the Corporation such instruments as may be necessary or proper in connection
with such transaction.
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3. LOANS TO DIRECTORS, OFFICERS AND EMPLOYEES. The Corporation may
lend money to, guarantee the obligations of and otherwise assist directors,
officers and employees of the Corporation, or directors of another
corporation of which the Corporation owns a majority of the voting stock,
only upon compliance with the requirements of the Act.
4. CHECKS AND ENDORSEMENTS. All checks, drafts or other orders for
the payment of money, obligations, notes or other evidences of indebtedness,
bills of lading, warehouse receipts, trade acceptances and other such
instruments shall be signed or endorsed for the Corporation by such officers
or agents of the Corporation as shall from time to time be determined by
resolution of the Board of Directors, which resolution may provide for the
use of facsimile signatures.
5. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the Corporation's credit in such
banks or other depositories as shall from time to time be determined by
resolution of the Board of Directors, which resolution may specify the
officers or agents of the Corporation who shall have the power, and the
manner in which such power shall be exercised, to make such deposits and to
endorse, assign and deliver for collection and deposit checks, drafts and
other orders for the payment of money payable to the Corporation or its order.
6. PROXIES. Unless otherwise provided by resolution adopted by the
Board of Directors, the President, the Chief Executive Officer or any Vice
President: (a) may from time to time appoint one or more agents of the
Corporation, in the name and on behalf of the Corporation, (i) to cast the
votes which the Corporation may be entitled to cast as the holder of stock or
other securities in any other corporation, association or
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other entity whose stock or other securities may be held by the Corporation,
at meetings of the holders of the stock or other securities of such other
corporation, association or other entity, or (ii) to consent in writing to
any action by such other corporation, association or other entity; (b) may
instruct the person so appointed as to the manner of casting such votes or
giving such consent; and (c) may execute or cause to be executed in the name
and on behalf of the Corporation and under its corporate seal, or otherwise,
all such written proxies or other instruments as may be deemed necessary or
proper.
ARTICLE VIII.
SHARES OF STOCK
1. CERTIFICATES OF STOCK. The shares of the Corporation may but need
not be represented by certificates. Unless the Act or another law expressly
provides otherwise, the fact that the shares are not represented by
certificates shall have no effect on the rights and obligations of
shareholders. If the shares are represented by certificates, such
certificates shall be signed either manually or in facsimile by (a) the
President or Chief Executive Officer and (b) the Secretary or by such other
representatives of the Corporation as are designated by the Board of
Directors. If the person who signed, either manually or in facsimile, a
share certificate, no longer holds office when the certificate is issued, the
certificate is nevertheless valid. Every certificate representing shares
issued by the Corporation shall state the number and class of shares and the
designation of the series, if any, the certificate represents, and shall
otherwise be in such form as is required by law and as the Board of Directors
shall prescribe.
2. SHARES WITHOUT CERTIFICATES. The Board of Directors may authorize
the issuance of any class or series of shares of the Corporation without
certificates. Such
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authorization shall not affect shares already represented by certificates
until they are surrendered to the Corporation. Within a reasonable time
following the issue or transfer of shares without certificates, the
Corporation shall send the shareholder a complete written statement of the
information required on certificates by the Act.
3. RECORD. A record shall be kept of the names and addresses of the
Corporation's shareholders, in a form that permits preparation of a list of
shareholders that is arranged by voting group and within each voting group by
class or series of shares, that is alphabetical within each class or series,
and that shows the addresses of, and the number of shares of each class and
series and the date of issuance of the shares (and in case of cancellation,
the date of cancellation) held by, each shareholder. The person or other
entity in whose name shares of stock stand on the books of the Corporation
shall be deemed the owner thereof, and thus a holder of record of such shares
of stock, for all purposes as regards the Corporation.
4. TRANSFER OF STOCK. Transfers of shares of the stock of the
Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by such registered holder's attorney thereunto
authorized, and on the surrender of the certificate or certificates for such
shares properly endorsed.
5. TRANSFER AGENTS AND REGISTRARS; REGULATIONS. The Board of
Directors may appoint one or more transfer agents or registrars with respect
to shares of the stock of the Corporation. The Board of Directors may make
such rules and regulations as it may deem expedient and as are not
inconsistent with these Bylaws, concerning the issue, transfer and
registration of certificates for shares of the stock of the Corporation.
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6. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case of the alleged
loss, destruction or mutilation of a certificate representing stock of the
Corporation, a new certificate may be issued in place thereof, in such manner
and upon such terms and conditions as the Board of Directors may prescribe,
and shall be issued in such situations as required by the Act.
ARTICLE IX.
CORPORATE SEAL
The corporate seal shall be in the form approved by resolution of the
Board of Directors. Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced. The
impression of the seal may be made and attested by either the Secretary or
any Assistant Secretary for the authentication of contracts or other papers
requiring the seal.
ARTICLE X.
FISCAL YEAR
The fiscal year of the Corporation shall be the year established by the
Board of Directors.
ARTICLE XI.
CORPORATE RECORDS
1. CORPORATE RECORDS. The Corporation shall comply with the
provisions of the Act regarding maintenance of records and shall keep such
records at such place as the Act may designate or, if the Act does not
designate the place for such records, then at such place or places as may be
from time to time designated by the Board of Directors.
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2. ADDRESSES OF SHAREHOLDERS. Each shareholder shall furnish to the
Secretary of the Corporation or the Corporation's transfer agent an address
to which notices from the Corporation, including notices of meetings, may be
directed and if any shareholder shall fail so to designate such an address,
it shall be sufficient for any such notice to be directed to such shareholder
at such shareholder's address last known to the Secretary or transfer agent.
3. FIXING RECORD DATE. The Board of Directors may fix in advance a
date as a record date for the determination of the shareholders entitled to a
notice of or to vote at any meeting of shareholders or entitled to receive
payment of any dividend or other distribution or allotment of rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action. Such record date shall not be more than 70 days
before the meeting or action requiring a determination of shareholders;
except that the record date for determining shareholders entitled to take
action without a meeting or entitled to be given notice of action so taken is
the date upon which a writing upon which such action is taken is first
received by the Corporation. Only such shareholders as shall be shareholders
of record on the date so fixed shall be so entitled with respect to the
matter to which the same relates. If the Board of Directors shall not fix a
record date as above provided, then the record date shall be determined in
accordance with the Act.
4. INSPECTION OF CORPORATE RECORDS. Shareholders shall have those
rights to inspect and copy the Corporation's records as provided in the Act.
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5. DISTRIBUTION OF FINANCIAL STATEMENTS. Upon the written request of
any shareholder of the Corporation, the Corporation shall mail to such
shareholder its last annual and most recently published financial statement,
if any.
6. AUDITS OF BOOKS AND ACCOUNTS. The Corporation's books and accounts
may be audited at such times and by such auditors as shall be specified and
designated by resolution of the Board of Directors.
ARTICLE XII.
EMERGENCY BYLAWS AND ACTIONS
Subject to repeal or change by action of the shareholders, the Board of
Directors may adopt emergency bylaws and exercise other powers in accordance
with and pursuant to the provisions of the Act.
ARTICLE XIII.
AMENDMENTS
Unless the Act, the Articles of Incorporation or a particular Bylaw
reserves the right to amend the Bylaws exclusively to the shareholders, the
Board of Directors may amend or repeal these Bylaws or adopt new bylaws. The
shareholders may also amend or repeal these Bylaws or adopt new bylaws.
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<PAGE>
Exhibit 4.2
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURUSANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
No. ________ ________ Warrants
TRAINING DEVICES INCORPORATED
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that Capital West Securities, Inc. or its assigns as
permitted in that certain Warrant Agreement (the "Warrant Agreement") dated
August __, 1999, by and among the Company (as hereinafter defined) and
Capital West Securities, Inc. is entitled to purchase at any time or from
time to time on or after the first anniversary of the Effective Date of the
Offering until 5:00 p.m., Oklahoma City, Oklahoma time on the fifth
anniversary of the Effective Date, an aggregate of 200,000 shares of Common
Stock without par value of Training Devices Incorporated, a Colorado
corporation (the "Company"), for an exercise price per share as set forth in
the Warrant Agreement referred to herein. This Warrant is issued pursuant to
the Warrant Agreement, and all rights of the holder of this Warrant are
further governed by, and subject to the terms and provisions of such Warrant
Agreement, copies of which are available upon request to the Company. The
holder of this Warrant and the shares issuable upon the exercise hereof shall
be entitled to the benefits, rights and privileges and subject to the
obligations, duties and liabilities provided in the Warrant Agreement.
The issuance of this Warrant and the shares issuable upon the due and
timely exercise hereof have not been registered under the Securities Act of
1933, as amended (the "Act"), or any similar state securities law or act,
and, as such, no public offering of either this Warrant of any of the shares
of Common Stock issuable upon exercise of this Warrant may be made other than
under an exemption under the Act or until the effectiveness of a registration
statement under such Act covering such offering. Transfer of this Warrant is
restricted as provided in Section 14 of the Warrant Agreement.
Subject to the provisions of the Act, of the Warrant Agreement and of
this Warrant, this Warrant and all rights hereunder are transferable, in
whole or in part, only to the extent expressly permitted in such documents
and then only at the office of the Company at 7367 S. Revere Parkway,
Building #2C, Englewood, Colorado 80112, Attention: President, by the holder
hereof or by a duly authorized attorney-in-fact, upon surrender of this
Warrant duly endorsed, together with the Assignment thereof duly endorsed.
Until transfer hereof on the books of the Company, the Company may treat the
registered holder as the owner hereof for all purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and its corporate seal to be hereunto affixed by its proper corporate
officers thereunto duly authorized.
TRAINING DEVICES INCORPORATED
By: ___________________________________
Bruce S. Betschart, President
<PAGE>
TRAINING DEVICES INCORPORATED
1997 INCENTIVE AND NONSTATUTORY
STOCK OPTION PLAN
(As amended on July 30, 1999)
1. PURPOSE OF PLAN. The purpose of this 1997 Incentive and Nonstatutory
Stock Option Plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
the Employees, Directors and Consultants of Training Devices Incorporated
(the "Company") and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as defined
in Section 422 of the Internal Revenue Code of 1986, as amended, or
"nonstatutory stock options," at the discretion of the Board and as reflected
in the terms of the written stock option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company if no Committee is appointed.
(b) "CHANGE IN CONTROL" shall be deemed to have occurred:
(i) At such time as a third person, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes
the beneficial owner of shares of the Company having 50% or more of the total
number of votes that may be cast for the election of Directors of the
Company; or
(ii) On the date on which the stockholder(s) of the Company
approve: (i) any agreement for a merger or consolidation of the Company with
another corporation, provided that there shall be no change of control if the
persons and entities who were the stockholders of the Company immediately
before such merger or consolidation continue to own, directly or indirectly,
more than two-thirds of the outstanding voting securities of the corporation
resulting from such merger or consolidation in substantially the same
proportion as their ownership of the voting securities of the Company
outstanding immediately before such merger or consolidation; or (ii) any
sale, exchange or other disposition of all or substantially all of the
Company's assets; or
(iii) on the effective date of any sale, exchange or other
disposition of greater than 50% in fair market value of the Company's assets,
other than in the ordinary course of business, whether in a single
transaction or a series of related transactions.
<PAGE>
In determining whether clause (i) of the preceding sentence has been
satisfied, the third person owning shares must be someone other than a person
or an Affiliate of a person that, as of September 7, 1999, was the beneficial
owner of shares of the Company having 10% or more of the total number of
votes that may be cast for the election of Directors of the Company. The
Committee's reasonable determination as to whether such an event has occurred
shall be final and conclusive.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" shall mean the no par value common stock of the
Company.
(e) "COMPANY" shall mean Training Devices Incorporated, a Colorado
corporation.
(f) "COMMITTEE" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan, if one is appointed,
or the Board if no committee is appointed.
(g) "CONSULTANT" shall mean any person who is engaged by the
Company or any Subsidiary to render consulting services and is compensated
for such consulting services.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of
any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board; provided
that such leave is for a period of not more than 90 days or reemployment upon
the expiration of such leave is guaranteed by contract or statute.
(i) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
(j) "INCENTIVE STOCK OPTION" shall mean an Option which is intended
to qualify as an incentive stock option within the meaning of Section 422 of
the Code and which shall be clearly identified as such in the written Stock
Option Agreement provided by the Company to each Optionee granted an
Incentive Stock Option under the Plan.
(k) "NON-EMPLOYEE DIRECTOR" shall mean a director who:
(i) Is not currently an officer (as defined in Section
16a-1(f) of the Securities Exchange Act of 1934, as amended) of the Company
or a Parent or Subsidiary of the Company, or otherwise currently employed by
the Company or a Parent or Subsidiary of the Company.
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<PAGE>
(ii) Does not receive compensation, either directly or
indirectly, from the Company or a Parent or Subsidiary of the Company, for
services rendered as a Consultant or in any capacity other than as a
director, except for an amount that does not exceed the dollar amount for
which disclosure would be required pursuant to Item 404(a) of Regulation S-K
adopted by the United States Securities and Exchange Commission.
(iii) Does not possess an interest in any other transaction
for which disclosure would be required pursuant to Item 404(a) of Regulation
S-K adopted by the United States Securities and Exchange Commission.
(l) "NONSTATUTORY STOCK OPTION" shall mean an Option granted under
this Plan which does not qualify as an Incentive Stock Option and which shall
be clearly identified as such in the written Stock Option Agreement provided
by the Company to each Optionee granted a Nonstatutory Stock Option under
this Plan. To the extent that the aggregate fair market value of Optioned
Stock to which Incentive Stock Options granted under Options to an Employee
are exercisable for the first time during any calendar year (under the Plan
and all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such Options shall be treated as Nonstatutory Stock Options under the Plan.
The aggregate fair market value of the Optioned Stock shall be determined as
of the date of grant of each Option and the determination of which Incentive
Stock Options shall be treated as qualified incentive stock options under
Section 422 of the Code and which Incentive Stock Options exercisable for the
first time in a particular year in excess of the $100,000 limitation shall be
treated as Nonstatutory Stock Options shall be determined based on the order
in which such Options were granted in accordance with Section 422(d) of the
Code.
(m) "OPTION" shall mean an Incentive Stock Option, a Nonstatutory
Stock Option or both as identified in a written Stock Option Agreement
representing such stock option granted pursuant to the Plan.
(n) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(o) "OPTIONEE" shall mean an Employee or other person who is
granted an Option.
(p) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(q) "PLAN" shall mean this 1997 Incentive and Nonstatutory Stock
Option Plan, as amended.
(r) "SHARE" shall mean a share of the Common Stock of the Company,
as adjusted in accordance with Section 12 of the Plan.
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<PAGE>
(s) "STOCK OPTION AGREEMENT" shall mean the agreement to be entered
into between the Company and each Optionee which shall set forth the terms
and conditions of each Option granted to each Optionee, including the number
of Shares underlying such Option and the exercise price of each Option
granted to such Optionee under such agreement.
(t) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,007,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should
expire or become unexercisable for any reason without having been exercised
in full, the unpurchased Shares which were subject thereto shall, unless the
Plan shall have been terminated, become available for future grant under the
Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board or a
Committee appointed by the Board consisting of two or more Non-Employee
Directors to administer the Plan on behalf of the Board, subject to such
terms and conditions as the Board may prescribe.
(i) Once appointed, the Committee shall continue to serve
until otherwise directed by the Board (which for purposes of this paragraph
(a)(i) of this Section 4 shall be the Board of Directors of the Company).
From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however
caused, or remove all members of the Committee and thereafter directly
administer the Plan.
(ii) Members of the Board who are granted, or have been
granted, Options may vote on any matters affecting the administration of the
Plan or the grant of any Options pursuant to the Plan.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan,
the Board shall have the authority, in its discretion:
(i) To grant Incentive Stock Options, in accordance with
Section 422 of the Code, and Nonstatutory Stock Options or both as provided
and identified in a separate written Stock Option Agreement to each Optionee
granted such Option or Options under the Plan; provided however, that in no
event shall an Incentive Stock Option and a Nonstatutory Stock Option granted
to any Optionee under a single Stock Option Agreement be subject to a
"tandem" exercise arrangement such that the exercise
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<PAGE>
of one such Option affects the Optionee's right to exercise the other Option
granted under such Stock Option Agreement;
(ii) To determine, upon review of relevant information and in
accordance with Section 8(b) of the Plan, the fair market value of the Common
Stock;
(iii) To determine the exercise price per Share of Options to
be granted, which exercise price shall be determined in accordance with
Section 8(a) of the Plan;
(iv) To determine the Employees or other persons to whom, and
the time or times at which, Options shall be granted and the number of Shares
to be represented by each Option;
(v) To interpret the Plan;
(vi) To prescribe, amend and rescind rules and regulations
relating to the Plan;
(vii) To determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the holder
thereof, modify or amend each Option;
(viii) To accelerate or defer (with the consent of the
Optionee) the exercise date of any Option, consistent with the provisions of
Section 7 of the Plan;
(ix) To authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
previously granted by the Board; and
(x) To make all other determinations deemed necessary or
advisable for the administration of the Plan.
(xi) To determine whether a holder of Nonstatutory Stock
Options granted under this Plan shall have engaged in conduct which is
contrary to the best interests of the Company and whose Nonstatutory Stock
Option is therefore subject to cancellation as set forth in Section 7.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and
any other permissible holders of any Options granted under the Plan.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE. Options may be granted to any person
selected by the Board. Incentive Stock Options may be granted only to
Employees. An Employee, who is also a director of the Company, its Parent or
a Subsidiary, shall be treated as an
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<PAGE>
Employee for purposes of this Section 5. An Employee or other person who has
been granted an Option may, if he is otherwise eligible, be granted an
additional Option or Options.
(b) NO EFFECT ON RELATIONSHIP. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or other
relationship with the Company nor shall it interfere in any way with his
right or the Company's right to terminate his employment or other
relationship at any time.
6. TERM OF PLAN. The Plan became effective on January 1, 1997. It shall
continue in effect until December 31, 2006, unless sooner terminated under
Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be 10 years from the
date of grant thereof or such shorter term as may be provided in the Stock
Option Agreement. However, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock
representing more than 10% of the total combined voting power of all classes
of stock of the Company or any Parent or Subsidiary, the term of the Option
shall be five years from the date of grant thereof or such shorter time as
may be provided in the Stock Option Agreement.
The Nonstatutory Stock Options granted to, and held by, any person
under this Plan, may be deemed canceled and forfeited by the Board, if the
Board, in its sole discretion, determines that the conduct of the holder of
such Nonstatutory Stock Option has been contrary to the best interests of the
Company and could reasonably be deemed by the Board to have a material
adverse effect on the Company or the business of the Company.
8. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be such price as is
determined by the Board, but the per Share exercise price under an Incentive
Stock Option shall be subject to the following:
(i) If granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than 10% of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall not be less than 110% of the
fair market value per Share on the date of grant.
(ii) If granted to any other Employee, the per Share exercise
price shall not be less than 100% of the fair market value per Share on the
date of grant.
(b) DETERMINATION OF FAIR MARKET VALUE. The fair market value per
Share on the date of grant shall be determined as follows:
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<PAGE>
(i) If the Common Stock is listed on the New York Stock
Exchange, the American Stock Exchange or such other securities exchange
designated by the Board, or admitted to unlisted trading privileges on any
such exchange, or if the Common Stock is quoted on a National Association of
Securities Dealers, Inc. system that reports closing prices, the fair market
value shall be the closing price of the Common Stock as reported by such
exchange or system on the day the fair market value is to be determined, or
if no such price is reported for such day, then the determination of such
closing price shall be as of the last immediately preceding day on which the
closing price is so reported;
(ii) If the Common Stock is not so listed or admitted to
unlisted trading privileges or so quoted, the fair market value shall be the
average of the last reported highest bid and the lowest asked prices quoted
on the National Association of Securities Dealers, Inc. Automated Quotations
System or, if not so quoted, then by the National Quotation Bureau, Inc. on
the day the fair market value is determined; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges or so quoted, and bid and asked prices are not
reported, the fair market value shall be determined in such reasonable manner
as may be prescribed by the Board.
(c) CONSIDERATION AND METHOD OF PAYMENT. The consideration to be
paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Board and may consist entirely
of cash, check, other shares of Common Stock having a fair market value on
the date of exercise equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, or any combination of such methods
of payment, or such other consideration and method of payment for the
issuance of Shares to the extent permitted under the Colorado Business
Corporation Act.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE: RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan.
In the sole discretion of the Board, at the time of the grant of an
Option or subsequent thereto but prior to the exercise of an Option, an
Optionee may be provided with the right to exchange, in a cashless
transaction, all or part of the Option for Common Stock of the Company on
terms and conditions determined by the Board.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the
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<PAGE>
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company.
Full payment, as authorized by the Board, may consist of a consideration and
method of payment allowable under Section 8(c) and this Section 9(a) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of the duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to
the Optioned Stock, notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 12
of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE. In the case of an
Incentive Stock Option, if any Employee ceases to serve as an Employee, he
may, but only within such period of time not exceeding three months as is
determined by the Board at the time of grant of the Option after the date he
ceases to be an Employee of the Company, exercise his Option to the extent
that he was entitled to exercise it at the date of such termination. To the
extent that he was not entitled to exercise the Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the case of an Incentive Stock
Option, notwithstanding the provisions of Section 9(b) above, in the event an
Employee is unable to continue his employment with the Company as a result of
his total and permanent disability (as defined in Section 22(e)(3) of the
Code), he may, but only within such period of time not exceeding 12 months as
is determined by the Board at the time of grant of the Option from the date
of termination, exercise his Option to the extent he was entitled to exercise
it at the date of such termination. To the extent that he was not entitled to
exercise the Option at the date of termination, or if he does not exercise
such Option (which he was entitled to exercise) within the time specified
herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the case of an Incentive Stock Option,
in the event of the death of the Optionee:
(i) During the term of the Option if the Optionee was at the
time of his death an Employee the Company and had been in Continuous Status
as an Employee or Consultant since the date of grant of the Option, the
Option may be exercised, at any time within 12 months following the date of
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Optionee
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<PAGE>
continued living and remained in Continuous Status as an Employee 12 months
after the date of death; or
(ii) Within such period of time not exceeding three months as
is determined by the Board at the time of grant of the Option after the
termination of Continuous Status as an Employee, the Option may be exercised,
at any time within 12 months following the date of death, by the Optionee's
estate or by a person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of termination.
10. CHANGE IN CONTROL. Notwithstanding any vesting requirements contained
in any Stock Option Agreement, all outstanding Options shall become
immediately exercisable in full upon the occurrence of a Change in Control.
11. NONTRANSFERABILITY OF OPTIONS. In the case of an Incentive Stock
Option, the Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the shareholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of any Option, as well as the price per Share covered by each
such outstanding Option, shall be proportionately adjusted for any increase
or decrease in the number of issued Shares resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may,
in the exercise of its sole discretion in such instances, declare that any
Option shall terminate as of a date fixed by the Board and give each Optionee
the right to exercise his Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.
In the event of the proposed sale of all or substantially all of the assets
of the Company, or the merger of the Company with or into another corporation
in a transaction in which the Company is not the survivor, the Option shall
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<PAGE>
be assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless
the Board determines, in the exercise of its sole discretion and in lieu of
such assumption or substitution, that the Optionee shall have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable. If the Board makes an
Option fully exercisable in lieu of assumption or substitution in the event
of such a merger or sale of assets, the Board shall notify the Optionee that
the Option shall be fully exercisable for a period of 30 days from the date
of such notice, and the Option will terminate upon the expiration of such
period.
13. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
other person to whom an Option is so granted within a reasonable time after
the date of such grant. Within a reasonable time after the date of the grant
of an Option, the Company shall enter into and deliver to each Employee or
other person granted such Option a written Stock Option Agreement as provided
in Sections 2(r) and 17 hereof, setting forth the terms and conditions of
such Option and separately identifying the portion of the Option which is an
Incentive Stock Option and/or the portion of such Option which is a
Nonstatutory Stock Option.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval
of the shareholders of the Company in the manner described in Section 18 of
the Plan:
(i) An increase in the number of Shares subject to the Plan
above 1,007,000 Shares, other than in connection with an adjustment under
Section 12 of the Plan;
(ii) Any change in the designation of the class of Employees
eligible to be granted Incentive Stock Options; or
(iii) Any material amendment under the Plan that would have to
be approved by the shareholders of the Company for the Board to continue to
be able to grant Incentive Stock Options under the Plan.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if the Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee
and the Board, which agreement must be in writing and signed by the Optionee
and the Company.
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15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the
rules and regulations promulgated thereunder, applicable state securities
laws, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of legal counsel
for the Company with respect to such compliance.
As a condition to the existence of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares and such
other representations and warranties which in the opinion of legal counsel
for the Company, are necessary or appropriate to establish an exemption from
the registration requirements under applicable federal and state securities
laws with respect to the acquisition of such Shares.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan. Inability of the
Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's legal counsel to be necessary for
the lawful issuance and sale of any Share hereunder, shall relieve the
Company of any liability relating to the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.
17. OPTION AGREEMENT. Each Option granted to an Employee or other persons
shall be evidenced by a written Stock Option Agreement in such form as the
Board shall approve.
18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company. Such shareholder approval and
any shareholder approval required under Section 14 of the Plan, may be
obtained at a duly held shareholders meeting by the affirmative vote of the
holders of a majority of the outstanding shares of the voting stock of the
Company, who are present or represented and entitled to vote thereon, or by
unanimous written consent of the shareholders in accordance with the
provisions of the Colorado Business Corporation Act.
19. INFORMATION TO OPTIONEES. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be
required to provide such information if the issuance of Options under the
Plan is limited to key employees whose duties in connection with the Company
assure their access to equivalent information.
20. GENDER. As used herein, the masculine, feminine and neuter genders
shall be deemed to include the others in all cases where they would so apply.
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21. CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS PLAN AND THE INSTRUMENTS EVIDENCING OPTIONS WILL
BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE
OF COLORADO.
Adopted by Directors: Effective December 20, 1996
Adopted by Shareholders: Effective December 20, 1996
TRAINING DEVICES INCORPORATED
organized under the laws of Colorado
By:
-----------------------------
Bruce S. Betschart, President
ATTEST:
- -----------------------------
Leonard Hawkins, Secretary
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TRAINING DEVICES INTERNATIONAL, INC.
1999 STOCK OPTION PLAN
SECTION 1: PURPOSE
The purpose of the Training Devices International, Inc. 1999 Stock
Option Plan (the "Plan") is to further the growth and development of Training
Devices International, Inc. (the "Company") by affording an opportunity for
stock ownership to selected employees, directors and consultants of the
Company and its subsidiaries who are responsible for the conduct and
management of its business or who are involved in endeavors significant to
its success.
SECTION 2: DEFINITIONS
Unless otherwise indicated, the following words when used herein shall
have the following meanings:
(a) "Affiliate" shall mean, with respect to any person or
entity, a person or entity that directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, such person or entity.
(b) "Board of Directors" shall mean the Board of Directors of
the Company.
(c) "Cause" shall mean a termination on account of (1) repeated
refusal to obey written directions of the Board of Directors or a
superior officer of the Company (so long as such directions do not
involve illegal or immoral acts); (2) repeated acts of substance abuse
which are materially injurious to the Company, (3) fraud or dishonesty
that is materially injurious to the Company, (4) commission of a criminal
offense involving money or other property of the Company (excluding any
traffic violations or similar violations), or (5) commission of a
criminal offense that constitutes a felony in the jurisdiction in which
the offense is committed. For purposes of this definition, the term
"materially injurious" means (i) an injury or damage involving an amount
equal to 10% of the then current assets of the Company, or, if less, 10%
of any positive amount of total stockholders' equity of the Company, or
(ii) any matter which causes any public disrepute of the Company or the
optionee.
(d) "Change in Control" shall be deemed to have occurred:
(1) At such time as a third person, including a "group"
as defined in Section 13(d)(3) of the Securities Exchange Act of
1934, becomes the beneficial owner of shares of the Company having
50% or
<PAGE>
more of the total number of votes that may be cast for the
election of Directors of the Company; or
(2) On the date on which the stockholder(s) of the
Company approve: (i) any agreement for a merger or consolidation
of the Company with another corporation, provided that there shall
be no change of control if the persons and entities who were the
stockholders of the Company immediately before such merger or
consolidation continue to own, directly or indirectly, more than
two-thirds of the outstanding voting securities of the corporation
resulting from such merger or consolidation in substantially the
same proportion as their ownership of the voting securities of the
Company outstanding immediately before such merger or
consolidation; or (ii) any sale, exchange or other disposition of
all or substantially all of the Company's assets; or
(3) on the effective date of any sale, exchange or other
disposition of greater than 50% in fair market value of the
Company's assets, other than in the ordinary course of business,
whether in a single transaction or a series of related
transactions.
In determining whether clause (1) of the preceding sentence has been
satisfied, the third person owning shares must be someone other than a
person or an Affiliate of a person that, as of September 7, 1999, was
the beneficial owner of shares of the Company having 10% or more of the
total number of votes that may be cast for the election of Directors of
the Company. The Committee's reasonable determination as to whether such
an event has occurred shall be final and conclusive.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Common Stock" shall mean the Company's common stock and
any share or shares of the Company's capital stock hereafter issued or
issuable in substitution for such shares.
(g) "Director" shall mean a member of the Board of Directors.
(h) "Incentive Stock Option" shall mean any option granted to
an eligible employee under the Plan, which the Company intends at the
time the option is granted to be an Incentive Stock Option within the
meaning of Section 422 of the Code.
(i) "Nonqualified Stock Option" shall mean any option granted
to an eligible employee, Director or consultant under the Plan which is
not an Incentive Stock Option.
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(j) "Option" shall mean and refer collectively to Incentive
Stock Options and Nonqualified Stock Options.
(k) "Option Agreement" means the agreement specified in
Section 7.2.
(l) "Optionee" shall mean any employee, Director or consultant
who is granted an Option under the Plan. "Optionee" shall also mean the
personal representative of an Optionee and any other person who acquires
the right to exercise an Option by bequest or inheritance.
(m) "Parent" shall mean a parent corporation of the Company as
defined in Section 424(e) of the Code.
(n) "Subsidiary" shall mean a subsidiary corporation of the
Company as defined in Section 424(f) of the Code.
SECTION 3: EFFECTIVE DATE
The effective date of the Plan is September 7, 1999; provided,
however, that the adoption of the Plan by the Board of Directors is subject
to approval and ratification by the shareholders of the Company within 12
months of the effective date. Options granted under the Plan prior to
approval of the Plan by the shareholders of the Company shall be subject to
approval of the Plan by the shareholders of the Company.
SECTION 4: ADMINISTRATION
4.1 ADMINISTRATIVE COMMITTEE. The Plan shall be administered by a
Committee appointed by and serving at the pleasure of the Board of Directors,
consisting of not less than two Directors (the "Committee"). The Board of
Directors may from time to time remove members from or add members to the
Committee, and vacancies on the Committee, howsoever caused, shall be filled
by the Board of Directors. The Committee may consist of all members of the
Board of Directors, who may take action during a meeting of the Board of
Directors or at a different time.
4.2 COMMITTEE MEETINGS AND ACTIONS. The Committee shall hold
meetings at such times and places as it may determine. A majority of the
members of the Committee shall constitute a quorum, and the acts of the
majority of the members present at a meeting or a consent in writing signed
by all members of the Committee shall be the acts of the Committee and shall
be final, binding and conclusive upon all persons, including the Company, its
Subsidiaries, its shareholders, and all persons having any interest in
Options which may be or have been granted pursuant to the Plan.
4.3 POWERS OF COMMITTEE. The Committee shall have the full and
exclusive right to grant and determine terms and conditions of all Options
granted under the Plan and to prescribe, amend and rescind rules and
regulations for administration of the Plan. In granting Options, the
Committee shall take into consideration the contribution
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the Optionee has made or may make to the success of the Company or its
Subsidiaries and such other factors as the Committee shall determine.
4.4 INTERPRETATION OF PLAN. The determination of the Committee as
to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, binding and conclusive upon
all persons, including the Company, its Subsidiaries, its shareholders, and
all persons having any interest in Options which may be or have been granted
pursuant to the Plan.
4.5 INDEMNIFICATION. Each person who is or shall have been a
member of the Committee or of the Board of Directors shall be indemnified and
held harmless by the Company against and from any loss, cost, liability or
expense that may be imposed upon or reasonably incurred in connection with or
resulting from any claim, action, suit or proceeding to which such person may
be a party or in which such person may be involved by reason of any action
taken or failure to act under the Plan and against and from any and all
amounts paid in settlement thereof, with the Company's approval, or paid in
satisfaction of a judgment in any such action, suit or proceeding against
him, provided such person shall give the Company an opportunity, at its own
expense, to handle and defend the same before undertaking to handle and
defend it on such person's own behalf. The foregoing right of
indemnification shall not be exclusive of, and is in addition to, any other
rights of indemnification to which any person may be entitled under the
Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
SECTION 5: STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The aggregate number of shares of Common Stock which
may be issued under Options granted pursuant to the Plan shall not exceed
400,000 shares. Shares which may be issued under Options may consist, in
whole or in part, of authorized but unissued stock or treasury stock of the
Company not reserved for any other purpose.
5.2 UNUSED STOCK. If any outstanding Option under the Plan expires
or for any other reason ceases to be exercisable, in whole or in part, other
than upon exercise of the Option, the shares which were subject to such
Option and as to which the Option had not been exercised shall continue to be
available under the Plan.
5.3 ADJUSTMENT FOR CHANGE IN OUTSTANDING SHARES. If, after the
effective date, there is any change, increase or decrease, in the outstanding
shares of Common Stock which is effected without receipt of additional
consideration by the Company, by reason of a stock dividend,
recapitalization, merger, consolidation, stock split, combination or exchange
of stock, or other similar circumstances, then in each such event, the
Committee shall make an appropriate adjustment in the aggregate number of
shares of stock available under the Plan, the number of shares of stock
subject to each outstanding Option and the Option prices in order to prevent
the dilution or enlargement of any Optionee's rights. In making such
adjustments, fractional shares shall be
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rounded to the nearest whole share. The Committee's determinations in making
adjustments shall be final and conclusive.
5.4 REORGANIZATION OR SALE OF ASSETS. If the Company is merged or
consolidated with another corporation and the Company is not the surviving
corporation, or if all or substantially all of the assets of the Company are
acquired by another entity, or if the Company is liquidated or reorganized,
(each of such events being referred to hereinafter as a "Reorganization
Event"), the Committee shall, as to outstanding Options, either (1) make
appropriate provision for the protection of any such outstanding Options by
the substitution on an equitable basis of appropriate stock of the Company,
or of the merged, consolidated or otherwise reorganized corporation, which
will be issuable in respect of the Common Stock, provided that no additional
benefits shall be conferred upon Optionees as a result of such substitution,
and provided further that the excess of the aggregate fair market value of
the shares subject to the Options immediately after such substitution over
the purchase price thereof is not more than the excess of the aggregate fair
market value of the shares subject to such Options immediately before such
substitution over the purchase price thereof, or (2) upon written notice to
all Optionees, which notice shall be given not less than 20 days prior to the
effective date of the Reorganization Event, provide that all unexercised
Options must be exercised within a specified number of days (which shall not
be less than ten) of the date of such notice or such Options will terminate.
In response to a notice provided pursuant to clause (2) of the preceding
sentence, an Optionee may make an irrevocable election to exercise the
Optionee's Option contingent upon and effective as of the effective date of
the Reorganization Event. The Committee may, in its sole discretion,
accelerate the exercise dates of outstanding Options in connection with any
Reorganization Event which does not also result in a Change in Control.
SECTION 6: ELIGIBILITY
All full- or part-time salaried employees of the Company and its
Subsidiaries who are responsible for the conduct and management of its
business or who are involved in endeavors significant to its success shall be
eligible to receive both Incentive Stock Options and Nonqualified Stock
Options under the Plan. Directors and consultants who are neither full- nor
part-time salaried employees of the Company or its Subsidiaries but who are
involved in endeavors significant to its success shall be eligible to receive
Nonqualified Stock Options, but not Incentive Stock Options, under the Plan.
Any Director who is otherwise eligible to participate, who makes an election
in writing not to receive any grants under the Plan, shall not be eligible to
receive any such grants during the period set forth in such election.
SECTION 7: GRANT OF OPTIONS
7.1 GRANT OF OPTIONS. The Committee may from time to time in its
discretion determine which of the eligible employees, directors and
consultants of the Company or its Subsidiaries should receive Options, the
type of Options to be granted (whether Incentive Stock Options or
Nonqualified Stock Options), the number of shares subject to such Options,
and the dates on which such Options are to be granted. No employee
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<PAGE>
may be granted Incentive Stock Options to the extent that the aggregate fair
market value (determined as of the time each Option is granted) of the Common
Stock with respect to which any such Options are exercisable for the first
time during a calendar year (under all incentive stock option plans of the
Company and its Parent and Subsidiaries) would exceed $100,000.
7.2 OPTION AGREEMENT. Each Option granted under the Plan shall be
evidenced by a written Option Agreement setting forth the terms upon which
the Option is granted. Each Option Agreement shall designate the type of
Options being granted (whether Incentive Stock Options or Nonqualified Stock
Options), and shall state the number of shares of Common Stock, as designated
by the Committee, to which that Option pertains. More than one Option may be
granted to an eligible person.
7.3 OPTION PRICE. The option price per share of Common Stock under
each Option shall be determined by the Committee and stated in the Option
Agreement. The option price for Incentive Stock Options granted under the
Plan shall not be less than 100% of the fair market value (determined as of
the day the Option is granted) of the shares subject to the Option. The
option price for Nonqualified Stock Options granted under the Plan shall not
be less than 85% of the fair market value (determined as of the day the
Option is granted) of the shares subject to the Option.
7.4 DETERMINATION OF FAIR MARKET VALUE. If the Common Stock is
listed upon an established stock exchange or exchanges, then the fair market
value per share shall be deemed to be the average of the quoted closing
prices of the Common Stock on such stock exchange or exchanges on the day for
which the determination is made, or if no sale of the Common Stock shall have
been made on any stock exchange on that day, on the next preceding day on
which there was such a sale. If the Common Stock is not listed upon an
established stock exchange but is traded in the Nasdaq National Market, the
fair market value per share shall be deemed to be the closing price of the
Common Stock in the National Market on the day for which the determination is
made, or if there shall have been no trading of the Common Stock on that day,
on the next preceding day on which there was such trading. If the Common
Stock is not listed upon an established stock exchange and is not traded in
the National Market, the fair market value per share shall be deemed to be
the mean between the dealer "bid" and "ask" closing prices of the Common
Stock on the Nasdaq System on the day for which the determination is made, or
if there shall have been no trading of the Common Stock on that day, on the
next preceding day on which there was such trading. If none of these
conditions apply, the fair market value per share shall be deemed to be an
amount as determined in good faith by the Committee by applying any
reasonable valuation method.
7.5 DURATION OF OPTIONS. Each Option shall be of a duration as
specified in the Option Agreement; provided, however, that the term of each
Option shall be no more than ten years from the date on which the Option is
granted and shall be subject to early termination as provided herein.
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7.6 ADDITIONAL LIMITATIONS ON GRANT. No Incentive Stock Option
shall be granted to an employee who, at the time the Incentive Stock Option
is granted, owns stock (as determined in accordance with Section 424(d) of
the Code) representing more than 10% of the total combined voting power of
all classes of stock of the Company or of any Parent or Subsidiary, unless
the option price of such Incentive Stock Option is at least 110% of the fair
market value (determined as of the day the Incentive Stock Option is granted)
of the stock subject to the Incentive Stock Option and the Incentive Stock
Option by its terms is not exercisable more than five years from the date it
is granted.
7.7 OTHER TERMS AND CONDITIONS. The Option Agreement may contain
such other provisions, which shall not be inconsistent with the Plan, as the
Committee shall deem appropriate, including, without limitation, provisions
that relate to the Optionee's ability to exercise an Option to the passage of
time or the achievement of specific goals established by the Committee or the
occurrence of certain events specified by the Committee. In the case of an
option granted prior to the consummation of an underwritten public offering
of shares of Common Stock of the Company pursuant to the Securities Act of
1933, the Option Agreement may also provide that any shares of Common Stock
acquired upon exercise of an Option shall become, upon such acquisition,
restricted stock subject to the terms of a Restricted Stock Agreement which
shall be set forth as an attachment to the Stock Option Agreement.
SECTION 8: EXERCISE OF OPTIONS
8.1 MANNER OF EXERCISE. Subject to the limitations and conditions
of the Plan or the Option Agreement, an Option shall be exercisable, in whole
or in part, from time to time, by giving written notice of exercise to the
Secretary of the Company, which notice shall specify the number of shares of
Common Stock to be purchased and shall be accompanied by (1) payment in full
to the Company of the purchase price of the shares to be purchased, plus (2)
payment in full of such amount as the Company shall determine to be
sufficient to satisfy any liability it may have for any withholding of
federal, state or local income or other taxes incurred by reason of the
exercise of the Option, and (3) a representation meeting the requirements of
Section 12.2 if requested by the Company, and (4) a Stock Restriction
Agreement meeting the requirements of Section 12.3 if requested by the
Company.
8.2 PAYMENT OF PURCHASE PRICE. Payment for shares and withholding
taxes shall be in the form of either (1) cash, (2) a certified or bank
cashier's check to the order of the Company, or (3) shares of the Common
Stock, properly endorsed to the Company, in an amount the fair market value
of which on the date of receipt by the Company (as determined in accordance
with Section 7.4) equals or exceeds the aggregate option price of the shares
with respect to which the Option is being exercised, or (4) in any
combination thereof; provided, however, that no payment may be made in shares
of Common Stock unless payment in such form and upon such exercise has been
approved in advance by the Committee. Upon the exercise of any Option, the
Company,
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in its sole discretion, may make financing available to the Optionee for the
payment of the purchase price on such terms and conditions as the Committee
shall specify.
SECTION 9: CHANGE IN CONTROL
Notwithstanding any vesting requirements contained in any Option
Agreement, all outstanding Options shall become immediately exercisable in
full upon the occurrence of a Change in Control.
SECTION 10: EFFECT OF TERMINATION OF EMPLOYMENT
10.1 TERMINATION OF EMPLOYMENT OTHER THAN UPON DEATH OR DISABILITY.
Upon termination of an Optionee's employment with the Company or a Subsidiary
other than upon death or disability (within the meaning of Section 22(e)(3)
of the Code) and other than for Cause, an Optionee may, at any time within
three months after the date of termination but not later than the date of
expiration of the Option, exercise the Option to the extent the Optionee was
entitled to do so on the date of termination. Any Options not exercisable as
of the date of termination and any Options or portions of Options of
terminated Optionees not exercised as provided herein shall terminate.
10.2 TERMINATION BY DEATH OF OPTIONEE. If an Optionee shall die
while in the employ of the Company or a Subsidiary or within a period of
three months after the termination of employment with the Company or a
Subsidiary under circumstances to which Section 10.1 apply, the personal
representatives of the Optionee's estate or the person or persons who shall
have acquired the Option from the Optionee by bequest or inheritance may
exercise the Option at any time within the year after the date of death but
not later than the expiration date of the Option, to the extent the Optionee
was entitled to do so on the date of death. Any Options not exercisable as
of the date of death and any Options or portions of Options of deceased
Optionees not exercised as provided herein shall terminate.
10.3 TERMINATION BY DISABILITY OF OPTIONEE. Upon termination of an
Optionee's employment with the Company or a Subsidiary by reason of the
Optionee's disability (within the meaning of Section 22(e)(3) of the Code),
the Optionee may exercise the Option at any time within one year after the
date of termination but not later than the expiration date of the Option, to
the extent the Optionee was entitled to do so on the date of termination.
Any Options not exercisable as of the date of termination and any Options or
portions of Options of disabled Optionees not exercised as provided herein
shall terminate.
10.4 TERMINATION OF DIRECTORS AND CONSULTANTS. For purposes of this
Section 10, a termination of employment shall be deemed to include the
termination of a Director's service as a member of the Board of Directors and
the termination of a consulting arrangement in the case of consultants.
10.5 OTHER TERMINATIONS. Upon termination of an Optionee's
employment with the Company or a Subsidiary under circumstances other than
those set forth in Sections
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10.1, 10.2 or 10.3, including without limitation a termination for Cause,
Options granted to the Optionee shall terminate immediately.
10.6 EXTENSION OF OPTION TERMINATION DATE. The Committee, in its
sole discretion, may extend the termination date of an Option granted under
the Plan without regard to the preceding provisions of this Section 10. In
such event, the termination date shall be a date selected by the Committee in
its sole discretion, but not later than the latest expiration date of the
Option permitted pursuant to Section 7.5. Such extension may be made in the
Option Agreement as originally executed or by amendment to the Option
Agreement, either prior to or following termination of an Optionee's
employment. The Committee shall have no power to extend the termination date
of an Incentive Stock Option beyond the periods provided in Sections 10.1,
10.2 and 10.3 prior to the termination of the Optionee's employment or
without the approval of the Optionee, which may be granted or withheld in the
Optionee's sole discretion. Any extension of the termination date of an
Incentive Stock Option shall be deemed to be the grant of a new Option for
purposes of the Code.
SECTION 11: NON-TRANSFERABILITY OF OPTION
Options granted pursuant to the Plan are not transferable by the
Optionee other than by Will or the laws of descent and distribution and shall
be exercisable during the Optionee's lifetime only by the Optionee. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the
Option contrary to the provisions hereof, or upon the levy of any attachment
or similar process upon the Option, the Option shall immediately become null
and void.
SECTION 12: ISSUANCE OF SHARES
12.1 TRANSFER OF SHARES TO OPTIONEE. As soon as practicable after
the Optionee has given the Company written notice of exercise of an Option
and has otherwise met the requirements of Section 8.1, the Company shall
issue or transfer to the Optionee the number of shares of Common Stock as to
which the Option has been exercised and shall deliver to the Optionee a
certificate or certificates therefor, registered in the Optionee's name. In
no event shall the Company be required to transfer fractional shares to the
Optionee, and in lieu thereof, the Company may pay an amount in cash equal to
the fair market value (as determined in accordance with Section 7.4) of such
fractional shares on the date of exercise. If the issuance or transfer of
shares by the Company would for any reason, in the opinion of counsel for the
Company, violate any applicable federal or state laws or regulations, the
Company may delay issuance or transfer of such shares to the Optionee until
compliance with such laws can reasonably be obtained. In no event shall the
Company be obligated to effect or obtain any listing, registration,
qualification, consent or approval under any applicable federal or state laws
or regulations or any contract or agreement to which the Company is a party
with respect to the issuance of any such shares.
12.2 INVESTMENT REPRESENTATION. Upon demand by the Company, the
Optionee shall deliver to the Company a representation in writing that the
purchase of all shares
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with respect to which notice of exercise of the Option has been given by the
Optionee is being made for investment only and not for resale or with a view
to distribution, and containing such other representations and provisions
with respect thereto as the Company may require. Upon such demand, delivery
of such representation promptly and prior to the transfer or delivery of any
such shares and prior to the expiration of the option period shall be a
condition precedent to the right to purchase such shares.
12.3 STOCK RESTRICTION AGREEMENT. This section shall only be
applicable to Options (if any) granted under this plan prior to the
consummation of an underwritten public offering of shares of Common Stock of
the Company pursuant to the Securities Act of 1933. Upon demand by the
Company, the Optionee shall execute and deliver to the Company a Stock
Restriction Agreement in such form as the Company may provide at the time of
exercise of the Option. Such Agreement may include, without limitation,
restrictions upon the Optionee's right to transfer shares, including the
creation of an irrevocable right of first refusal in the Company and its
designees, and provisions requiring the Optionee to transfer the shares to
the Company or the Company's designees upon a termination of employment.
Upon such demand, execution of the Stock Restriction Agreement by the
Optionee prior to the transfer or delivery of any shares and prior to the
expiration of the option period shall be a condition precedent to the right
to purchase such shares, unless such condition is expressly waived in writing
by the Company.
SECTION 13: AMENDMENTS
The Board of Directors may at any time and from time to time alter,
amend, suspend or terminate the Plan or any part thereof as it may deem
proper, except that no such action shall diminish or impair the rights under
an Option previously granted. Unless the shareholders of the Company shall
have given their approval, the total number of shares for which Options may
be issued under the Plan shall not be increased, except as provided in
Section 5.3, and no amendment shall be made which reduces the price at which
the Common Stock may be offered under the Plan below the minimum required by
Section 7.3, except as provided in Section 5.3, or which materially modifies
the requirements as to eligibility for participation in the Plan. Subject to
the terms and conditions of the Plan, the Board of Directors may modify,
extend or renew outstanding Options granted under the Plan, or accept the
surrender of outstanding Options to the extent not theretofore exercised and
authorize the granting of new Options in substitution therefor, except that
no such action shall diminish or impair the rights under an Option previously
granted without the consent of the Optionee.
SECTION 14: TERM OF PLAN
This Plan shall terminate on August 30, 2009; provided, however, that
the Board of Directors may at any time prior thereto suspend or terminate the
Plan.
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SECTION 15: RIGHTS AS STOCKHOLDER
An Optionee shall have no rights as a stockholder of the Company with
respect to any shares of Common Stock covered by an Option until the date of
the issuance of the stock certificate for such shares.
SECTION 16: NO EMPLOYMENT RIGHTS
Nothing contained in this Plan or in any Option granted under the Plan
shall confer upon any Optionee any right with respect to the continuation of
such Optionee's employment by the Company or any Subsidiary or interfere in
any way with the right of the Company or any Subsidiary, subject to the terms
of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Optionee from the rate in existence at the time of the grant of the Option.
SECTION 17: GOVERNING LAW
This Plan, and all Options granted under this Plan, shall be construed
and shall take effect in accordance with the laws of the State of Colorado,
without regard to the conflicts of laws rules of such State.
Adopted this 27th day of July, 1999.
TRAINING DEVICES INTERNATIONAL, INC.
By:
--------------------------------
Ronald C. Ellington
Chairman of the Board and
Chief Executive Officer
11
<PAGE>
THE SECURITIES, IN THE FORM OF THE PROMISSORY NOTE OF TRAINING DEVICES
INCORPORATED HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES CANNOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED, EXCEPT IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.
PROMISSORY NOTE
Englewood, Colorado
May____, 1999
FOR VALUE RECEIVED, TRAINING DEVICES INC, a Colorado corporation, 7367
S. Revere Parkway, Building #2, Englewood, Colorado 80112 and its successors
and assigns, (the "Maker") promises to pay to the order of [Name] ("Holder"),
at [Address] or at such other place as Holder may from time to time designate
in writing, the principal sum of one hundred thousand dollars ($100,000) in
lawful money of the United States of America, together with interest on so
much thereof as is from time to time outstanding at the rate hereinafter
provided, and payable as hereinafter provided. This Note is one of a series
of Notes containing the same terms as this Note.
1. INTEREST RATE. The unpaid principal balance of this Note shall bear
interest at the rate of fourteen percent (14%) per annum, simple interest.
2. PAYMENT/MATURITY DATE. The total outstanding principal balance
hereof, together with accrued and unpaid interest, shall be due and payable
on May 31, 2000. The Company may extend the maturity date of the Note for up
to two three-month periods upon providing notification of such extension to
the Noteholders, and by issuing the Noteholders 10,000 common stock purchase
warrants per each $100,000 principal amount Note, substantially similar to
the Warrants described in the Company's Private Placement Memorandum dated
May 25, 1999. The Notes will be payable earlier if the Company receives
gross proceeds of $5 million or more in any financing after the date of
issuance of this Note, excluding any funds received from the issuance of the
series of Notes of which this Note is a part.
3. DEFAULT INTEREST AND ATTORNEY FEES. Upon declaration of a default
hereunder, the balance of the principal remaining unpaid, interest accrued
thereon, and all other costs, and fees shall bear interest at the rate of
eighteen percent (18%) per annum from the date of default, or the date of
advance, as applicable. In the event of default, the Maker and all other
parties liable hereon agree to pay all costs of collection, including
reasonable attorneys' fees.
4. ADDITIONAL CASH PAYMENTS. As additional payment on the Notes, the
Maker will pay the Holder of this Note (or the last holder before the Note is
paid off) an additional amount of $10,000 per year per $100,000 Note for five
years, beginning June 1, 2000, with the first payment made on May 31, 2001.
5. INTEREST CALCULATION. Daily interest shall be calculated on a 365-day
year and the actual number of days in each month.
6. PREPAYMENT. This Note may be prepaid in whole but not in part.
7. COSTS OF COLLECTION. Maker agrees that if, and as often as, this
Note is placed in the hands of an attorney for collection or to defend or
enforce any of Holder's rights hereunder or under any instrument securing
payment of this Note, Maker shall pay to Holder its reasonable attorneys'
fees and all court costs and other expenses incurred in connection therewith,
regardless of whether a lawsuit is ever commenced or whether, if commenced,
the same proceeds to judgment or not. Such costs and expenses shall include,
without limitation, all costs, reasonable attorneys' fees, and expenses
incurred by Holder in connection with any insolvency, bankruptcy,
reorganization, foreclosure, deed in lieu of foreclosure or similar
proceedings involving Maker or any endorser, surety, guarantor, or other
person liable for this Note which in any way affect the exercise by Holder of
its rights and remedies under this Note, or any other document or instrument
securing, evidencing, or relating to the indebtedness evidenced by this Note.
8. DEFAULT. At the option of Holder, the unpaid principal balance of
this Note and all accrued interest thereon shall become immediately due,
payable, and collectible, with written notice of default and demand, and with
five
<PAGE>
days notice to cure any default, upon the occurrence at any time of any of
the following events, each of which shall be deemed to be an event of default
hereunder:
a. Maker's failure to make any payment of principal, interest, or
other charges on or before the date on which such payment becomes due and
payable under this Note.
b. Maker's breach or violation of any agreement or covenant
contained in this Note, or in any other document or instrument securing,
evidencing, or relating to the indebtedness evidenced by this Note.
c. Dissolution, liquidation or termination of Maker.
9. APPLICATION OF PAYMENTS. Any payment made against the indebtedness
evidenced by this Note shall be applied against the following items in the
following order: (1) costs of collection, including reasonable attorney's
fees incurred or paid and all costs, expenses, default interest, late charges
and other expenses incurred by Holder and reimbursable to Holder pursuant to
this Note (as described herein); (2) default interest accrued to the date of
said payment; (3) ordinary interest accrued to the date of said payment; and
(4) finally, outstanding principal.
10. ASSIGNMENT OF NOTE. This Note may be assigned by Maker to any entity
that acquires Maker or substantially all of Maker's assets.
11. NON-WAIVER. No delay or omission on the part of Holder in
exercising any rights or remedy hereunder shall operate as a waiver of such
right or remedy or of any other right or remedy under this Note. A waiver on
any one or more occasion shall not be construed as a bar to or waiver of any
such right and/or remedy on any future occasion.
12. MAXIMUM INTEREST. In no event whatsoever shall the amount paid, or
agreed to be paid, to Holder for the use, forbearance, or retention of the
money to be loaned hereunder ("Interest") exceed the maximum amount
permissible under applicable law. If the performance or fulfillment of any
provision hereof, or any agreement between Maker and Holder shall result in
Interest exceeding the limit for Interest prescribed by law, then the amount
of such Interest shall be reduced to such limit. If, from any circumstance
whatsoever, Holder should receive as Interest an amount which would exceed
the highest lawful rate, the amount which would be excessive Interest shall
be applied to the reduction of the principal balance owing hereunder (or, at
the option of Holder, be paid over to Maker) and not to the payment of
Interest.
13. PURPOSE OF LOAN. Maker certifies that the loan evidenced by this
Note is obtained for business or commercial purposes and that the proceeds
thereof will not be used primarily for personal, family, household, or
agricultural purposes.
14. GOVERNING LAW. As an additional consideration for the extension of
credit, Maker and each endorser, surety, guarantor, and any other person who
may become liable for all or any part of this obligation understand and agree
that the loan evidenced by this Note is made in the State of Colorado and the
provisions hereof will be construed in accordance with the laws of the State
of Colorado, and such parties further agree that in the event of default this
Note may be enforced in any court of competent jurisdiction in the State of
Colorado, and they do hereby submit to the jurisdiction of such court
regardless of their residence or where this Note or any endorsement hereof
may be executed.
15. BINDING EFFECT. The term "Maker" as used herein shall include the
original Maker of this Note and any party who may subsequently become liable
for the payment hereof as an assumer with the consent of the Holder, provided
that Holder may, at its option, consider the original Maker of this Note
alone as Maker unless Holder has consented in writing to the substitution of
another party as Maker. The term "Holder" as used herein shall mean Holder
or, if this Note is transferred, the then Holder of this Note.
16. RELATIONSHIP OF PARTIES. Nothing herein contained shall create or
be deemed or construed to create a joint venture or partnership between Maker
and Holder, Holder is acting hereunder as a lender only.
2
<PAGE>
17. SEVERABILITY. Invalidation of any of the provisions of this Note
or of any paragraph, sentence, clause, phrase, or word herein, or the
application thereof in any given circumstance, shall not affect the validity
of the remainder of this Note.
18. AMENDMENT. This Note may not be amended, modified, or changed,
except only by an instrument in writing signed by both of the parties.
19. TIME OF THE ESSENCE. Time is of the essence for the performance of
each and every obligation of Maker hereunder.
IN WITNESS WHEREOF, the undersigned has executed this Note this _______ day
of May, 1999.
TRAINING DEVICES INC.,
a Colorado corporation
By:
-------------------------------
Ronald C. Ellington, CEO
- -----------------------------------
Witness
3
<PAGE>
SCHEDULE 10.3
As of July 29, 1999, the following persons and entities have subscribed for
Promissory Notes, the form of which is attached as EXHIBIT 10.3, issued in the
1999 private offering:
<TABLE>
<CAPTION>
INVESTOR NOTE WARRANTS
AMOUNT DUE
<S> <C> <C>
Eugene C. McColley $50,000 15,000
Margaret M. Bathgate 50,000 15,000
Leonard Hawkins 25,000 7,500
Victor Kashner 25,000 7,500
FISERV FBO James E. Hosch IRA 20,000 6,000
Robert Dunham Nostrand 50,000 15,000
FCS FBO Dudley Bailey, IRA 25,000 7,500
Edward C. Larkin 15,000 4,500
OK Associates Pension Trust 25,000 7,500
Robert M. Nieder 50,000 15,000
Richard F. Cooper, JR 25,000 7,500
Russell E. And Lucia Stubbings JTWROS 50,000 15,000
George Andrew Johnson 100,000 30,000
James Hosch 30,000 9,000
Dick Huebner 50,000 15,000
Paul P. Giunto 50,000 15,000
Suzanne Knight Nostrand 50,000 15,000
Claire D. Mindock 50,000 15,000
-------- --------
$740,000 222,000
-------- --------
-------- --------
</TABLE>
Schedule 10-3 - Page 1
<PAGE>
THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144
UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
Warrant No.
***TRAINING DEVICES INC.***
WARRANT TO PURCHASE SHARES OF COMMON STOCK
WARRANT TO PURCHASE ______SHARES
(SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)
EXERCISE PRICE $.25 PER SHARE
(SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)
VOID AFTER 3:00 P.M., MOUNTAIN TIME, ON May 31, 2004
THIS CERTIFIES THAT [INVESTOR'S NAME], [INVESTOR'S ADDRESS] is entitled
to purchase from Training Devices Inc., a Colorado corporation (hereinafter
called the "Company") with its principal office located at 7367 South Revere
Parkway, Building #2C, Englewood, Colorado 80112, at any time after 9:00 AM, on
June 1, 2000, but before 3:00 P.M., Mountain Time, on May 31, 2004, at the
purchase price of $.25 per share, the number of shares (the "Shares") of the
Company's Common Stock set forth above. The number of Shares purchasable upon
exercise of this Warrant and the Exercise Price per Share shall be subject to
adjustment from time to time as set forth in Section 4 below.
SECTION 1. DEFINITIONS.
The following terms used in this agreement shall have the following
meanings (unless otherwise expressly provided herein):
1.1. THE "ACT." The Securities Act of 1933, as amended.
1.2. THE "COMMISSION." The Securities and Exchange Commission.
1.3. THE "COMPANY." Training Devices Inc..
1.4. "COMMON STOCK." The Company's Common Stock.
1.5. "CURRENT MARKET PRICE." The Current Market Price shall be
determined as follows:
(a) if the security at issue is listed on a national
securities exchange or admitted to unlisted trading privileges on such
an exchange or quoted on either the National Market System or the Small
Cap Market of the automated quotation service operated by Nasdaq, Inc.
("NASDAQ"), the current value shall be the last reported sale price of
that security on such exchange or system on the day for which the
Current Market Price is to be determined or, if no such sale is made on
such day, the average of the highest closing bid and lowest asked price
for such day on such exchange or system; or
(b) if the security at issue is not so listed or quoted or
admitted to unlisted trading privileges, the Current Market Value shall
be the average of the last reported highest bid and lowest asked prices
quoted on the NASDAQ Electronic Bulletin Board, or, if not so quoted,
then by the National Quotation Bureau, Inc. on the last business day
prior to the day for which the Current Market Price is to be
determined; or
(c) if the security at issue is not so listed or quoted or
admitted to unlisted trading privileges and bid and asked prices are
not reported, the current market value shall be determined in such
reasonable
<PAGE>
manner as may be prescribed from time to time by the Board of Directors
of the Company, subject to the objection and arbitration procedure as
described in Section (6) below.
1.6. "EXERCISE DATE." June 1, 2000.
1.7. "EXERCISE PRICE." $.25 per Share, as modified in accordance
with Section (4), below.
1.8. "EXPIRATION DATE." May 31, 2004.
1.9. "HOLDER " OR "WARRANTHOLDER." The person to whom this Warrant
is issued, and any valid transferee thereof pursuant to Section (3.1) below.
1.10. "NASD." The National Association of Securities Dealers, Inc.
1.11. "NASDAQ." The automated quotation system operated by NASDAQ,
Inc.
1.12. "TERMINATION OF BUSINESS." Any sale, lease or exchange of all,
or substantially all, of the Company's assets or business or any dissolution,
liquidation or winding up of the Company.
1.13. "WARRANTS." The warrants issued in accordance with the terms
of this Agreement and any Warrants issued in substitution for or replacement of
such warrants, including those evidenced by a certificate or certificates
originally issued or issued upon division, exchange, substitution or transfer
pursuant to this Agreement.
1.14. "WARRANT SECURITIES." The Common Stock purchasable upon
exercise of a Warrant including the Common Stock underlying unexercised portions
of a Warrant.
SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANT.
2.1. EXERCISE OF WARRANT. Subject to the terms of this Agreement,
the Holder shall have the right, at any time prior to 5:00 p.m., Denver Time, on
the Expiration Date, to purchase from the Company up to the number of fully paid
and nonassessable Shares to which the Holder may at the time be entitled to
purchase pursuant to this Agreement, upon surrender to the Company, at its
principal office, of the Warrant to be exercised, together with the purchase
form on the reverse thereof, or the Warrant Conversion Exercise Form in the case
of a warrant conversion pursuant to Section (2.3) herein, duly filled in and
signed, and upon payment to the Company of the Exercise Price for the number of
Shares in respect of which such Warrants are then exercised, but in no event for
less than 100 Shares (unless fewer than an aggregate of 100 shares are then
purchasable under all outstanding Warrants held by a Holder).
2.2. PAYMENT OF EXERCISE PRICE. Payment of the aggregate
Exercise Price shall be made in cash or by check, or any combination thereof.
2.3. ISSUANCE OF SHARES. Upon such surrender of the Warrants and
payment of such Exercise Price as aforesaid, the Company shall issue and cause
to be delivered with all reasonable dispatch to or upon the written order of the
Holder and in such name or names as the Holder may designate, a certificate or
certificates for the number of full Shares so purchased upon the exercise of the
Warrant, together with cash, as provided in Section (12) hereof, in respect of
any fractional Shares otherwise issuable upon such surrender.
2.4. CONVERSION RIGHT. In addition to and without limiting the
rights of the Warrantholder under the terms of the Warrant, the Holder shall
have the right (the "Conversion Right") to convert the Warrant evidenced by this
certificate or any portion thereof into Shares as provided in this Section 2.4
at any time or from time to time prior to its expiration.
a. Upon exercise of the Conversion Right with respect to a
particular number of Shares (the "Conversion Shares"), the Company shall deliver
to the Holder, without payment by the Holder of any Exercise Price or any cash
or other consideration, that number of Shares equal to the quotient obtained by
dividing the Net Value (as hereinafter defined in this paragraph 2.4(a)) of the
Converted Shares by the Current Market Price of a single Share, determined in
each case as of the close of business on the Conversion Date (as hereinafter
defined).
-2-
<PAGE>
The "Net Value" of the Converted Shares shall be determined by subtracting the
aggregate Exercise Price of the Converted Shares from the aggregate Current
Market Price of the Converted Shares. No fractional securities shall be issuable
upon exercise of the Conversion Right, and if the number of securities to be
issued in accordance with the foregoing formula is other than a whole number,
the Company shall pay to the Holder an amount in cash equal to the Current
Market Price of the resulting fractional Share.
b. The Conversion Right may be exercised by the Holder by the
surrender of the Warrant at the principal office of the Company or at the office
of the Company's stock transfer agent, if any, together with a written statement
specifying that the Holder thereby intends to exercise the Conversion Right and
indicating the number of Shares subject to the Warrant which are being
surrendered (referred to in subparagraph 2.3(a) above as the Converted Shares),
on the reverse side of the Warrant, in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of the Warrant, or on
such later date as is specified therein (the "Conversion Date"), but not later
than the Expiration Date. Certificates for the Converted Shares issuable upon
exercise of the Conversion Right, together with a check in payment of any
fractional Warrant Share and, in the case of a partial exercise a new Warrant
evidencing the Warrant Shares remaining subject to the Warrant, shall be issued
as of the Conversion Date and shall be delivered to the Holder within seven (7)
days following the Conversion Date.
2.5. Upon receipt of the Warrant by the company as described in
Sections 2.1 or 2.4 above, the Holder shall be deemed to be the holder of record
of the Shares issuable upon such exercise, notwithstanding that the transfer
books of the Company may then be closed or that certificates representing such
Shares may not have been prepared or actually delivered to the Holder.
SECTION 3. TRANSFERABILITY AND FORM OF WARRANT
3.1. LIMITATION ON TRANSFER. Any assignment or transfer of a
Warrant shall be made by the presentation and surrender of the Warrant to the
Company at its principal office or the office of its transfer agent, if any,
accompanied by a duly executed Assignment Form. Upon the presentation and
surrender of these items to the Company, the Company, at its sole expense, shall
execute and deliver to the new Holder or Holders a new Warrant or Warrants, in
the name of the new Holder or Holders as named in the Assignment Form, and the
Warrant presented or surrendered shall at that time be canceled.
3.2. EXCHANGE OF CERTIFICATE. Any Warrant may be exchanged for
another certificate or certificates entitling the Warrantholder to purchase a
like aggregate number of Shares as the certificate or certificates surrendered
then entitled such Warrantholder to purchase. Any Warrantholder desiring to
exchange a Warrant shall make such request in writing delivered to the Company,
and shall surrender, properly endorsed, with signatures guaranteed, the
certificate evidencing the Warrant to be so exchanged. Thereupon, the Company
shall execute and deliver to the person entitled thereto a new Warrant as so
requested.
3.3. MUTILATED, LOST, STOLEN, OR DESTROYED CERTIFICATE. In case the
certificate or certificates evidencing the Warrants shall be mutilated, lost,
stolen or destroyed, the Company shall, at the request of the Warrantholder,
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated certificate or certificates, or in lieu of and substitution for the
certificate or certificates lost, stolen or destroyed, a new Warrant or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and a bond of indemnity, if requested, also
satisfactory in form and amount, at the applicant's cost. Applicants for such
substitute Warrant shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Company may prescribe.
3.4. FORM OF CERTIFICATE. The text of the Warrant and of the form
of election to purchase Shares shall be substantially as set forth in Exhibit A
attached hereto. The number of Shares issuable upon exercise of the Warrants is
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by its
President or by a Vice President and attested to by its Secretary or an
Assistant Secretary. A Warrant bearing the signature of an individual who was at
any time the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such officer
prior to the delivery of such Warrant or did not hold such office on the date of
this Agreement.
The Warrants shall be dated as of the date of signature
thereof by the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
-3-
<PAGE>
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
4.1. ADJUSTMENTS. The number of Shares purchasable upon the
exercise of the Warrants shall be subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend in Common
Stock or make a distribution to its stockholders in Common Stock, (ii)
subdivide its outstanding Common Stock, (iii) combine its outstanding
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by classification of its Common Stock other securities of the
Company, the number of Shares purchasable upon exercise of the Warrants
immediately prior thereto shall be adjusted so that the Warrantholder
shall be entitled to receive the kind and number of Shares or other
securities of the Company which it would have owned or would have been
entitled to receive immediately after the happening of any of the
events described above, had the Warrants been exercised immediately
prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this subsection (4.1.(a))
shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights, options, warrants,
or convertible securities to all or substantially all holders of its
Common Stock, without any charge to such holders, entitling them to
subscribe for or purchase Common Stock at a price per share which is
lower at the record date mentioned below than the then Current Market
Price, the number of Shares thereafter purchasable upon the exercise of
each Warrant shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of the Warrants by a fraction, of
which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, options,
warrants or convertible securities plus the number of additional shares
of Common Stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, options, warrants, or
convertible securities plus the number of shares which the aggregate
offering price of the total number of shares offered would purchase at
such Current Market Price. Such adjustment shall be made whenever such
rights, options, warrants, or convertible securities are issued, and
shall become effective immediately and retroactively to the record date
for the determination of stockholders entitled to receive such rights,
options, warrants, or convertible securities.
(c) In case the Company shall distribute to all or
substantially all holders of its Common Stock evidences of its
indebtedness or assets (excluding cash dividends or distributions out
of earnings) or rights, options, warrants, or convertible securities
containing the right to subscribe for or purchase Common Stock
(excluding those referred to in subsection (4.1(b)) above), then in
each case the number of Shares thereafter purchasable upon the exercise
of the Warrants shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of the Warrants by a fraction, of
which the numerator shall be the then Current Market Price on the date
of such distribution, and of which the denominator shall be such
Current Market Price on such date minus the then fair value (determined
as provided in subparagraph (e) below of the portion of the assets or
evidences of indebtedness so distributed or of such subscription
rights, options, warrants, or convertible securities applicable to one
share. Such adjustment shall be made whenever any such distribution is
made and shall become effective on the date of distribution retroactive
to the record date for the determination of stockholders entitled to
receive such distribution.
(d) No adjustment in the number of Shares purchasable pursuant
to the Warrants shall be required unless such adjustment would require
an increase or decrease of at least one percent in the number of Shares
then purchasable upon the exercise of the Warrants or, if the Warrants
are not then exercisable, the number of Shares purchasable upon the
exercise of the Warrants on the first date thereafter that the Warrants
become exercisable; provided, however, that any adjustments which by
reason of this subsection (4.1(d)) are not required to be made
immediately shall be carried forward and taken into account in any
subsequent adjustment.
-4-
<PAGE>
(e) Whenever the number of Shares purchasable upon the
exercise of the Warrant is adjusted, as herein provided, the Exercise
Price payable upon exercise of the Warrant shall be adjusted by
multiplying such Exercise Price immediately prior to such adjustment by
a fraction, of which the numerator shall be the number of Warrant
Shares purchasable upon the exercise of the Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of
Warrant Shares so purchasable immediately thereafter.
(f) Whenever the number of Shares purchasable upon exercise of
the Warrants is adjusted as herein provided, the Company shall cause to
be promptly mailed to the Warrantholder by first class mail, postage
prepaid, notice of such adjustment and a certificate of the chief
financial officer of the Company setting forth the number of Shares
purchasable upon the exercise of the Warrants after such adjustment, a
brief statement of the facts requiring such adjustment and the
computation by which such adjustment was made.
(g) For the purpose of this Section (4.1), the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock
of the Company at the date of this Agreement, or (ii) any other class
of stock resulting from successive changes or reclassifications of such
Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event
that at any time, as a result of an adjustment made pursuant to this
Section (4), the Warrantholder shall become entitled to purchase any
securities of the Company other than Common Stock, (y) if the
Warrantholder's right to purchase is on any other basis than that
available to all holders of the Company's Common Stock, the Company
shall obtain an opinion of an independent investment banking firm
valuing such other securities and (z) thereafter the number of such
other securities so purchasable upon exercise of the Warrants shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Shares contained in this Section (4).
(h) Upon the expiration of any rights, options, warrants, or
conversion privileges, if such shall have not been exercised, the
number of Shares purchasable upon exercise of the Warrants, to the
extent the Warrants have not then been exercised, shall, upon such
expiration, be readjusted and shall thereafter be such as they would
have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) on the basis of (i)
the fact that the only shares of Common Stock so issued were the shares
of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants, or conversion privileges, and (ii) the
fact that such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Company upon such exercise
plus the consideration, if any, actually received by the Company for
the issuance, sale or grant of all such rights, options, warrants, or
conversion privileges whether or not exercised; provided, however, that
no such readjustment shall have the effect of decreasing the number of
Shares purchasable upon exercise of the Warrants by an amount in excess
of the amount of the adjustment initially made in respect of the
issuance, sale, or grant of such rights, options, warrants, or
conversion rights.
4.2. NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section
(4.1), no adjustment in respect of any dividends or distributions out of
earnings shall be made during the term of the Warrants or upon the exercise of
the Warrants.
4.3. PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation, or in case of any sale or conveyance to
another corporation of the property, assets, or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Warrantholder
an agreement that the Warrantholder shall have the right thereafter upon payment
of the Exercise Price in effect immediately prior to such action to purchase,
upon exercise of the Warrants, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale, or conveyance
had the Warrants been exercised immediately prior to such action. In the event
of a merger described in Section 368(a)(2)(E) of the Internal Revenue Code of
1986, in which the Company is the surviving corporation, the right to purchase
Shares under the Warrants shall terminate on the date of such merger and
thereupon the Warrants shall become null and void, but only if the controlling
corporation shall agree to substitute for the Warrants, its warrants which
entitle the holder thereof to purchase upon their exercise the kind and amount
of shares and other securities and property which it would have owned or been
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entitled to receive had the Warrants been exercised immediately prior to such
merger. Any such agreements referred to in this Section (4.4) shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section (4) hereof. The provisions of this Section
(4.4) shall similarly apply to successive consolidations, mergers, sales, or
conveyances.
4.4. PAR VALUE OF SHARES OF COMMON STOCK. Before taking any action
which would cause an adjustment effectively reducing the portion of the Exercise
Price allocable to each Share below the par value per share of the Common Stock
issuable upon exercise of the Warrants, the Company will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable Common Stock
upon exercise of the Warrants.
4.5. INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a firm
of independent public accountants of recognized national standing (which may be
any such firm regularly employed by the Company) to make any computation
required under this Section (4), and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section (4).
4.6. STATEMENT ON WARRANTS. Irrespective of any adjustments in the
number of securities issuable upon exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same number of
securities as are stated in the similar Warrants initially issuable pursuant to
this Agreement. However, the Company may, at any time in its sole discretion
(which shall be conclusive), make any change in the form of Warrant that it may
deem appropriate and that does not affect the substance thereof; and any Warrant
thereafter issued, whether upon registration of transfer of, or in exchange or
substitution for, an outstanding Warrant, may be in the form so changed.
4.7. TREASURY STOCK. For purposes of this Section (4), shares of
Common Stock owned or held at any relevant time by, or for the account of, the
Company, in its treasury or otherwise, shall not be deemed to be outstanding for
purposes of the calculations and adjustments described.
SECTION 5. NOTICE TO HOLDERS.
If, prior to the expiration of this Warrant either by its terms or by
its exercise in full, any of the following shall occur:
(a) the Company shall declare a dividend or authorize any other
distribution on its Common Stock; or
(b) the Company shall authorize the granting to the shareholders
of its Common Stock of rights to subscribe for or purchase any securities or any
other similar rights; or
(c) any reclassification, reorganization or similar change of the
Common Stock, or any consolidation or merger to which the Company is a party, or
the sale, lease, or exchange of any significant portion of the assets of the
Company; or
(d) the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) any purchase, retirement or redemption by the Company of its
Common Stock;
then, and in any such case, the Company shall deliver to the Holder or Holders
written notice thereof at least 30 days prior to the earliest applicable date
specified below with respect to which notice is to be given, which notice shall
state the following:
(x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights, or, if a record is not to be taken, the
date as of which the shareholders of Common Stock of record to be entitled to
such dividend, distribution or rights are to be determined;
(y) the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, dissolution, liquidation, winding up or
purchase, retirement or redemption is expected to become effective, and the
date, if any, as of which the Company's shareholders of Common Stock of record
shall be entitled to exchange their
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Common Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, sale, transfer,
dissolution, liquidation, winding up, purchase, retirement or redemption; and
(z) if any matters referred to in the foregoing clauses (x) and
(y) are to be voted upon by shareholders of Common Stock, the date as of which
those shareholders to be entitled to vote are to be determined.
SECTION 6. OFFICERS' CERTIFICATE.
Whenever the Exercise Price or the aggregate number of Warrant
Securities purchasable pursuant to this Warrant shall be adjusted as required by
the provisions of Section (4) above, the Company shall promptly file with its
Secretary or an Assistant Secretary at its principal office, and with its
transfer agent, if any, an officers' certificate executed by the Company's
President and Secretary or Assistant Secretary, describing the adjustment and
setting forth, in reasonable detail, the facts requiring such adjustment and the
basis for and calculation of such adjustment in accordance with the provisions
of this Warrant. Each such officers' certificate shall be made available to the
Holder or Holders of this Warrant for inspection at all reasonable times, and
the Company, after each such adjustment, shall promptly deliver a copy of the
officers' certificate relating to that adjustment to the Holder or Holders of
this Warrant. The officers' certificate described in this Section (6) shall be
deemed to be conclusive as to the correctness of the adjustment reflected
therein if, and only if, no Holder of this Warrant delivers written notice to
the Company of an objection to the adjustment within 30 days after the officers'
certificate is delivered to the Holder or Holders of this Warrant. The Company
will make its books and records available for inspection and copying during
normal business hours by the Holder so as to permit a determination as to the
correctness of the adjustment. If written notice of an objection is delivered by
a Holder to the Company and the parties cannot reconcile the dispute, the Holder
and the Company shall submit the dispute to arbitration pursuant to the
provisions of Section 19 below. Failure to prepare or provide the officers'
certificate shall not modify the parties' rights hereunder.
SECTION 7. RESERVATION OF WARRANT SECURITIES.
There has been reserved, and the Company shall at all times keep
reserved so long as the Warrants remain outstanding, out of its authorized and
unissued Common Stock, such number of shares of Common Stock as shall be subject
to purchase under the Warrants. Every transfer agent for the Common Stock and
other securities of the Company issuable upon the exercise of the Warrants will
be irrevocably authorized and directed at all times to reserve such number of
authorized shares and other securities as shall be requisite for such purpose.
The Company will keep a copy of this Agreement on file with every transfer agent
for the Common Stock and other securities of the Company issuable upon the
exercise of the Warrants. The Company will supply every such transfer agent with
duly executed stock and other certificates, as appropriate, for such purpose and
will provide or otherwise make available any cash which may be payable as
provided in Section 12 hereof.
SECTION 8. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
8.1. RESTRICTIONS ON TRANSFER. The Warrantholder agrees that prior
to making any disposition of the Warrants or the Shares, the Warrantholder shall
give written notice to the Company describing briefly the manner in which any
such proposed disposition is to be made; and no such disposition shall be made
if the Company has notified the Warrantholder that in the opinion of counsel
reasonably satisfactory to the Warrantholder a registration statement or other
notification or post-effective amendment thereto (hereinafter collectively a
"Registration Statement") under the Act is required with respect to such
disposition and no such Registration Statement has been filed by the Company
with, and declared effective, if necessary, by, the Commission.
8.2. PIGGY-BACK REGISTRATION RIGHT. If at any time prior to the
Expiration Date the Company files a registration statement with the Commission
pursuant to the Act, or pursuant to any other act passed after the date of this
Agreement, which filing provides for the sale of securities by the Company to
the public, or files a Regulation A offering statement under the Act, the
Company shall offer to the Holder or Holders of this Warrant and the holders of
any Warrant Securities the opportunity to register or qualify the Warrant
Securities at the Company's sole expense, regardless of whether the Holder or
Holders of this Warrant or the holders of Warrant Securities or both may have
previously availed themselves of any of the registration rights described in
this Section (8); provided, however, that in the case of a Regulation A
offering, the opportunity to qualify shall be limited to the amount of the
available exemption after taking into account the securities that the Company
wishes to qualify. Notwithstanding anything to the contrary, this Section (8.2)
shall not be applicable to a registration statement registering securities
issued pursuant
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to an employee benefit plan or as to a transaction subject to
Rule 145 promulgated under the Act or which a form S-4 registration statement
could be used; nor shall it be applicable to the first underwritten registered
public offering of the Company.
The Company shall deliver written notice to the Holder or Holders of
this Warrant and to any holders of the Warrant Securities of its intention to
file a registration statement or Regulation A offering statement under the Act
at least 60 days prior to the filing of such registration statement or offering
statement, and the Holder or Holders and holders of Warrant Securities shall
have 30 days thereafter to request in writing that the Company register or
qualify the Warrant Securities or the Warrant Securities underlying the
unexercised portion of this Warrant in accordance with this Section (8.2). Upon
the delivery of such a written request within the specified time, the Company
shall be obligated to include in its contemplated registration statement or
offering statement all information necessary or advisable to register or qualify
the Warrant Securities or Warrant Securities underlying the unexercised portion
of this Warrant for a public offering, if the Company does file the contemplated
registration statement or offering statement; provided, however, that neither
the delivery of the notice by the Company nor the delivery of a request by a
Holder or by a holder of Warrant Securities shall in any way obligate the
Company to file a registration statement or offering statement. Furthermore,
notwithstanding the filing of a registration statement or offering statement,
the Company may, at any time prior to the effective date thereof, determine not
to offer the securities to which the registration statement or offering
statement relates, other than the Warrant, Warrant Securities and Warrant
Securities underlying the unexercised portion of this Warrant. Notwithstanding
the foregoing, if, as a qualification of any offering in any state or
jurisdiction in which the Company (by vote of its Board of Directors) or any
underwriter determines in good faith that it wishes to offer securities
registered in the offering, it is required that offering expenses be allocated
in a manner different from that provided above, then the offering expenses shall
be allocated in whatever manner is most nearly in compliance with the provisions
set out above.
If the registration for which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise as part of the written notice given pursuant to this Section. In such
event, the right of any Warrantholder or holder of Shares to registration
pursuant to this Section 8.2 shall not be conditioned upon such holder's
participation in such underwriting, and the inclusion of Shares in the
underwriting shall be limited to the extent provided herein. All holders
proposing to distribute their Shares through such underwriting shall (together
with the Company and the other holders distributing their Shares through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section, if the managing underwriter
determines that marketing factors require a limitation of the number of shares
to be underwritten, such underwriter may limit the amount of securities to be
included in the registration and underwriting by the holders of Company
securities exercising "piggyback" registration rights (including the
Warrantholder and each holder of Warrants and Shares). The Company shall so
advise all such holders, and the number of shares of such securities that may be
included in the registration and underwriting shall be allocated among all of
such holders, in proportion, as nearly as practicable, to the respective amounts
of securities requested to be included in such registration held by such holders
at the time of filing the registration statement, PROVIDED, HOWEVER, that no
security holder other than one exercising a demand registration right shall have
superior rights with respect to inclusion in a registration than those of the
Warrantholder and each holder of Warrants and Shares and if any party is granted
such superior rights hereafter the Warrantholder and each holder of Warrants and
Shares shall be deemed to be automatically granted similar rights. The Company
shall advise all such holders of any such limitations and of the number of
securities that may be included in the registration. Any securities excluded or
withdrawn from such underwriting shall not be transferred prior to one hundred
twenty (120) days after the effective date of the registration statement
relating thereto, or such shorter period of time as the underwriters may
require.
The Company shall comply with the requirements of this Section (8.2)
and the related requirements of Section (8.6) at its own expense. That expense
shall include, but not be limited to, legal, accounting, consulting, printing,
federal and state filing fees, NASD fees, out-of-pocket expenses incurred by
counsel, accountants and consultants retained by the Company, and miscellaneous
expenses directly related to the registration statement or offering statement
and the offering. However, this expense shall not include the portion of any
underwriting commissions, transfer taxes and the underwriter's accountable and
nonaccountable expense allowances attributable to the offer and sale of the
Warrant, Warrant Securities and the Warrant Securities underlying the
unexercised portion of this Warrant, all of which expenses shall be borne by the
Holder or Holders of this Warrant and the holders of the Warrant Securities
registered or qualified.
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8.3. INCLUSION OF INFORMATION. In the event that the Company
registers or qualifies the Warrant Securities pursuant to Section (8.2) above,
the Company shall include in the registration statement or qualification, and
the prospectus included therein, all information and materials necessary or
advisable to comply with the applicable statutes and regulations so as to permit
the public sale of the Warrant Securities or the Warrant Securities underlying
the unexercised portion of this Warrant. As used in Section (8.2), reference to
the Company's securities shall include, but not be limited to, any class or type
of the Company's securities or the securities of any of the Company's
subsidiaries or affiliates.
8.4. CONDITION OF COMPANY'S OBLIGATIONS. As to each registration
statement or offering statement, the Company's obligations contained in this
Section (8) shall be conditioned upon a timely receipt by the Company in writing
of the following:
(a) Information as to the terms of the contemplated public
offering furnished by and on behalf of each Holder or holder intending
to make a public distribution of the Warrant Securities or Warrant
Securities underlying the unexercised portion of the Warrant; and
(b) Such other information as the Company may reasonably
require from such Holders or holders, or any underwriter for any of
them, for inclusion in the registration statement or offering
statement.
8.5. ADDITIONAL REQUIREMENTS. In each instance in which the
Company shall take any action to register or qualify the Warrant Securities or
the Warrant Securities underlying the unexercised portion of this Warrant, if
any, pursuant to this Section (8), the Company shall do the following:
(a) supply to Bathgate McColley Capital Group, LLC, as the
representative of the Holders of the Warrant and the holders of Warrant
Securities whose Warrant Securities are being registered or qualified,
one copy of each registration statement or offering statement, and all
amendments thereto, and a reasonable number of copies of the
preliminary, final or other prospectus or offering circular, all
prepared in conformity with the requirements of the Act and the rules
and regulations promulgated thereunder, and such other documents as
Bathgate McColley shall reasonably request;
(b) cooperate with respect to (i) all necessary or advisable
actions relating to the preparation and the filing of any registration
statements or offering statements, and all amendments thereto, arising
from the provisions of this Section (8), (ii) all reasonable efforts to
establish an exemption from the provisions of the Act or any other
federal or state securities statutes, (iii) all necessary or advisable
actions to register or qualify the public offering at issue pursuant to
federal securities statutes and the state "blue sky" securities
statutes of each jurisdiction that the Holders of the Warrant or
holders of Warrant Securities shall reasonably request, and (iv) all
other necessary or advisable actions to enable the Holders of the
Warrant Securities to complete the contemplated disposition of their
securities in each reasonably requested jurisdiction; and
(c) keep all registration statements or offering statements to
which this Section (8) applies, and all amendments thereto, effective
under the Act until the later to occur of (i) all of the securities
registered in such registration statement have been sold, or all the
securities registered in such registration statement can be sold under
Securities Act Rule 144 without registration. The Company shall
cooperate with respect to all necessary or advisable actions to permit
the completion of the public sale or other disposition of the
securities subject to a registration statement or offering statement.
8.8. RECIPROCAL INDEMNIFICATION. In each instance in which pursuant
to this Section (8) the Company shall take any action to register or qualify the
Securities or the Warrant Securities underlying the unexercised portion of this
Warrant, prior to the effective date of any registration statement or offering
statement, the Company and each Holder or holder of Warrants or Warrant
Securities being registered or qualified shall enter into reciprocal
indemnification agreements, in the form customarily used by reputable investment
bankers with respect to public offerings of securities, containing substantially
the same terms as described in Section (10). These indemnification agreements
also shall contain an agreement by the Holder or shareholder at issue to
indemnify and hold harmless the Company, its officers and directors from and
against any and all losses, claims, damages and liabilities, including, but not
limited to, all expenses reasonably incurred in investigating, preparing,
defending or settling any claim, directly resulting from any untrue statements
of material facts, or omissions to state a material fact necessary to make
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a statement not misleading, contained in a registration statement or offering
statement to which this Section (8) applies, if, and only if, the untrue
statement or omission directly resulted from information provided in writing to
the Company by the indemnifying Holder or shareholder expressly for use in the
registration statement or offering statement at issue.
8.9. SURVIVAL. The Company's obligations described in this Section
(8) shall continue in full force and effect regardless of the exercise,
surrender, cancellation or expiration of this Warrant.
SECTION 9. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any, attributable
to the initial issuance of the Warrants or the securities comprising the Shares;
provided, however, the Company shall not be required to pay any tax which may be
payable in respect of any transfer of the Warrants or the securities comprising
the Shares.
SECTION 10. INDEMNIFICATION AND CONTRIBUTION
10.1. INDEMNIFICATION BY COMPANY. In the event of the filing of any
Registration Statement with respect to the Warrant Shares pursuant to Section
(8) hereof, the Company agrees to indemnify and hold harmless the Warrantholder
or any holder of Warrant Shares and each person, if any, who controls the
Warrantholder or any holder of Warrant Shares within the meaning of the Act,
against any and all loss, claim, damage or liability, joint or several (which
shall, for all purposes of this Agreement include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), to which such
Warrantholder or any holder of Warrant Shares may become subject, under the Act
or otherwise, insofar as such loss, claim, damage, or liability (or action with
respect thereto) arises out of or is based upon (a) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus, or the Final
Prospectus or any amendment or supplement thereto; or (b) the omission or
alleged omission to state in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or the Final Prospectus or any amendment or
supplement thereto a material fact required to be stated therein or necessary to
make the statements therein not misleading; except that the Company shall not be
liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage, or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by such Warrantholder or the holder of such Warrant Shares specifically
for use in the preparation of the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus and the Final Prospectus or any amendment
or supplement thereto. This indemnity will be in addition to any liability which
the Company may otherwise have.
10.2. INDEMNIFICATION BY WARRANTHOLDERS. The Warrantholders and the
holders of Warrant Shares agree that they, severally, but not jointly, shall
indemnify and hold harmless the Company, each other person referred to in
subparts (1), (2) and (3) of Section 11(a) of the Act in respect of the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Act, against any and all loss, claim, damage or liability,
joint or several (which shall, for all purposes of this Agreement include, but
not be limited to, all costs of defense and investigation and all attorneys'
fees), to which the Company may become subject under the Act or otherwise,
insofar as such loss, claim, damage, liability (or action in respect thereto)
arises out of or are based upon (a) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or the Final Prospectus or any
amendment or supplement thereto; or (b) the omission or alleged omission to
state in the Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or the Final Prospectus or any amendment or supplement thereto a
material fact required to be stated therein or necessary to make the statements
therein not misleading; except that such indemnification shall be available in
each such case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon information and in conformity with written information furnished to the
Company by the Warrantholder or the holder of Warrant Shares specifically for
use in the preparation thereof. This indemnity will be in addition to any
liability which such Warrantholder or holder of Warrant Shares may otherwise
have.
10.3. RIGHT TO PROVIDE DEFENSE. Promptly after receipt by an
indemnified party under Section (10.1) or (10.2) above of written notice of the
commencement of any action, the indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such section, notify
the indemnifying party in writing of the claim or the commencement of that
action; the failure to notify the indemnifying party shall not relieve it of any
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liability which it may have to an indemnified party, except to the extent that
the indemnifying party did not otherwise have knowledge of the commencement of
the action and the indemnifying party's ability to defend against the action was
prejudiced by such failure. Such failure shall not relieve the indemnifying
party from any other liability which it may have to the indemnified party. If
any such claim or action shall be brought against an indemnified party, and it
shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under such section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; except that Bathgate
McColley Capital Group, LLC shall have the right to employ counsel to represent
it and the other Warrantholders or holders of Shares who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by such persons against the Company under such section if, in Bathgate McColley
Capital Group, LLC's reasonable judgment, it is advisable for Bathgate McColley
Capital Group, LLC and those Warrantholders or holders of Shares to be
represented by separate counsel, and in that event the fees and expenses of such
separate counsel shall be paid by the Company.
10.4. CONTRIBUTION. If the indemnification provided for in Sections
(10.1) and (10.2) of this Agreement is unavailable or insufficient to hold
harmless an indemnified party, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages, or liabilities referred to in Sections (10.1) or (10.2) above
(a) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Warrantholders on the other; or
(b) if the allocation provided by clause (a) above is not permitted by
applicable law, in such proportion as is appropriate to reflect the relative
benefits referred to in clause (a) above but also the relative fault of the
Company on the one hand and the Warrantholders on the other in connection with
the statements or omissions which resulted in such losses, claims, damages, or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Warrantholders shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and un-itemized expenses received by the Underwriters, in each case as
set forth in the table on the cover page of the Final Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the Company or the Underwriter and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such untrue statement or omission. For purposes of this Section (10.4), the term
"damages" shall include any counsel fees or other expenses reasonably incurred
by the Company or the Underwriters in connection with investigating or defending
any action or claim which is the subject of the contribution provisions of this
Section (10.4). No person adjudged guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it shall promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in Section (10.4) hereof).
SECTION 11. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933
This Warrant, the Warrant Securities, and all other securities issued
or issuable upon exercise of this Warrant, may not be offered, sold or
transferred, in whole or in part, except in compliance with the Act, and except
in compliance with all applicable state securities laws. The Company may cause
substantially the following legends, or their equivalents, to be set forth on
each certificate representing the Warrant Securities, or any other security
issued or issuable upon exercise of this Warrant, not theretofore distributed to
the public or sold to underwriters, as defined by the Act, for distribution to
the public pursuant to Section 8 above:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED
OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH THE
AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED."
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(b) Any legend required by applicable state securities laws.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legends (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Securities Act of 1933, as amended (the "Act"), or the securities
represented thereby) shall also bear the above legends unless, in the opinion of
the Company's counsel, the securities represented thereby need no longer be
subject to such restrictions.
SECTION 12. FRACTIONAL SHARES
No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of all or any part of this Warrant. With
respect to any fraction of a share of any security called for upon any exercise
of this Warrant, the Company shall pay to the Holder an amount in money equal to
that fraction multiplied by the Current Market Price of that share.
SECTION 13. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Agreement or in the Warrants shall be
construed as conferring upon the Warrantholder or its transferees any rights as
a stockholder of the Company, including the right to vote, receive dividends,
consent or receive notices as a stockholder in respect to any meeting of
stockholders for the election of directors of the Company or any other matter.
The Company covenants, however, that for so long as this Warrant is at least
partially unexercised, it will furnish any Holder of this Warrant with copies of
all reports and communications furnished to the shareholders of the Company. In
addition, if at any time prior to the expiration of the Warrants and prior to
their exercise, any one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to
Section (4.1) (except subsections (4.1(e)) and (4.1(h)) or (4.4); or
(b) a dissolution, liquidation, or winding up of the Company
(other than in connection with a consolidation, merger, or sale of its
property, assets, and business as an entirety or substantially as an
entirety) shall be proposed:
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section (15) hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the determination of
stockholders entitled to vote on such proposed dissolution, liquidation, or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to mail or receive notice or any
defect therein shall not affect the validity of any action taken with respect
thereto.
SECTION 14. WARRANT SECURITIES TO BE FULLY PAID
The Company covenants that all Warrant Securities that may be issued
and delivered to a Holder of this Warrant upon the exercise of this Warrant and
payment of the Exercise Price will be, upon such delivery, validly and duly
issued, fully paid and nonassessable.
SECTION 15. NOTICES
Any notice pursuant to this Agreement by the Company or by a
Warrantholder or a holder of Shares shall be in writing and shall be deemed to
have been duly given if delivered or mailed by certified mail, return receipt
requested:
(i) If to a Warrantholder or a holder of Shares, addressed to the
address set forth above.
(ii) If to the Company addressed to it at 7367 South Revere
Parkway, Building 2C, Englewood, Colorado 80112, Attn: President.
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Each party may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
SECTION 16. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section (4.4) are complied with.
SECTION 17. APPLICABLE LAW
This Warrant shall be governed by and construed in accordance with the laws of
the State of Colorado, and courts located in Colorado shall have exclusive
jurisdiction over all disputes arising hereunder.
SECTION 18. ARBITRATION.
The Company and the Holder, and by receipt of this Warrant or any Warrant
Securities, all subsequent Holders or holders of Warrant Securities, agree to
submit all controversies, claims, disputes and matters of difference with
respect to this Warrant, including, without limitation, the application of this
Section (19) to arbitration in Denver, Colorado, according to the rules and
practices of the American Arbitration Association from time to time in force;
provided, however, that if such rules and practices conflict with the applicable
procedures of Colorado courts of general jurisdiction or any other provisions of
Colorado law then in force, those Colorado rules and provisions shall govern.
This agreement to arbitrate shall be specifically enforceable. Arbitration may
proceed in the absence of any party if notice of the proceeding has been given
to that party. The parties agree to abide by all awards rendered in any such
proceeding. These awards shall be final and binding on all parties to the extent
and in the manner provided by the rules of civil procedure enacted in Colorado.
All awards may be filed, as a basis of judgment and of the issuance of execution
for its collection, with the clerk of one or more courts, state or federal,
having jurisdiction over either the party against whom that award is rendered or
its property. No party shall be considered in default hereunder during the
pendency of arbitration proceedings relating to that default.
SECTION 19. ACCEPTANCE OF TERMS; SUCCESSORS.
By its acceptance of this Warrant Certificate, the Holder accepts and agrees to
comply with all of the terms and provisions hereof. All the covenants and
provisions of this Warrant Certificate by or for the benefit of the Company or
the Holder shall bind and inure to the benefit of their respective successors
and assigns hereunder.
SECTION 20. MISCELLANEOUS PROVISIONS
(a) Subject to the terms and conditions contained herein, this
Warrant shall be binding on the Company and its successors and shall inure to
the benefit of the original Holder, its successors and assigns and all holders
of Warrant Securities and the exercise of this Warrant in full shall not
terminate the provisions of this Warrant as it relates to holders of Warrant
Securities.
(b) If the Company fails to perform any of its obligations hereunder,
it shall be liable to the Holder for all damages, costs and expenses resulting
from the failure, including, but not limited to, all reasonable attorney's fees
and disbursements.
(c) This Warrant cannot be changed or terminated or any performance
or condition waived in whole or in part except by an agreement in writing signed
by the party against whom enforcement of the change, termination or waiver is
sought; provided, however, that any provisions hereof may be amended, waived,
discharged or terminated upon the written consent of the Company and the Holder.
(d) If any provision of this Warrant shall be held to be invalid,
illegal or unenforceable, such provision shall be severed, enforced to the
extent possible, or modified in such a way as to make it enforceable, and the
invalidity, illegality or unenforceability shall not affect the remainder of
this Warrant.
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(e) The Company agrees to execute such further agreements,
conveyances, certificates and other documents as may be reasonably requested by
the Holder to effectuate the intent and provisions of this Warrant.
(f) Paragraph headings used in this Warrant are for convenience only
and shall not be taken or construed to define or limit any of the terms or
provisions of this Warrant. Unless otherwise provided, or unless the context
shall otherwise require, the use of the singular shall include the plural and
the use of any gender shall include all genders.
Dated
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TRAINING DEVICES INCORPORATED
By:
--------------------------
Ronald C. Ellington, CEO
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SCHEDULE 10.4
As of July 19, 1999, the following persons and entities have subscribed
for Warrants, the form of which is attached as EXHIBIT 10.4, issued in the 1999
private offering:
See SCHEDULE 10.3
<PAGE>
PLACEMENT AGENT AGREEMENT
May 25, 1999
Board of Directors
Training Devices Incorporated
7367 S Revere Parkway, Bldg #2C
Englewood, Colorado 80112
Gentlemen:
Bathgate McColley Capital Group, LLC. (the "Placement Agent"), hereby
confirms its agreement with you (the "Company") as follows:
SECTION 1
DESCRIPTION OF SECURITIES
The Company proposes to offer and sell to qualified investors up to
seven (7) units of the Company's securities on terms as set forth herein.
Each unit ("Unit" or "Units") shall consist of a $100,000 Promissory
Note ("Note") and 30,000 Common Stock Purchase Warrants ("Warrant" or
"Warrants"). Each Warrant will entitle the Holder to purchase one share of
Common Stock at an exercise price (the "Exercise Price") of $.25 per share. As
used in this Agreement, the term "Memorandum" refers to a Private Placement
Memorandum dated May 25, 1999. The Units, Notes and Warrants shall be as further
described in the Memorandum and shall be sold on the terms and conditions as
described herein and in the Memorandum.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Placement Agent to enter into this Agreement,
the Company hereby represents and warrants to and agrees with the Placement
Agent as follows:
2.01. PRIVATE PLACEMENT MEMORANDUM. The Memorandum with respect to the
Units and all exhibits thereto, copies of which have heretofore been delivered
by the Company to the Placement Agent, has been carefully prepared by the
Company in conformity with Regulation D ("Regulation D") promulgated pursuant to
the Securities Act of 1933, as amended (the "Act"), and with comparable
provisions of the securities laws of and other states as may be reasonably
requested by the Placement Agent. The Memorandum does not include 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 under which they were made, not misleading; provided, however, the
Company does not make any representations or warranties as to information
contained in or omitted from the Memorandum in reliance upon written information
furnished on behalf of the Placement Agent specifically for use therein. Any
additional written information authorized by the Company to be provided to
prospective purchasers 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 under which they were
made, not misleading.
2.02. FINANCIAL STATEMENTS. The financial statements of the Company,
together with related Schedules and Notes as set forth in the Memorandum,
present fairly the financial position and the results of operations of the
Company at the represented dates and for the represented periods to which they
apply.
2.03. NO MATERIAL ADVERSE CHANGE. Except as may be reflected in or
contemplated by the Memorandum, subsequent to the dates as of which information
is given in the Memorandum, and prior to the Closing Date (as defined
hereinafter), (i) there shall not be any material adverse change in the
business, properties, options to lease, leases, financial condition, management,
or otherwise of the Company or in the Company's business taken as a
<PAGE>
whole, (ii) there shall not have been any material transaction entered into by
the Company other than transactions in the ordinary course of business; (iii)
the Company shall not have incurred any material obligations, contingent or
otherwise, which are not disclosed in the Memorandum; (iv) there shall not have
been nor will there be any change in the capital stock or adverse change in the
short-term or long-term debt (except current payments) of the Company; and (v)
the Company has not and will not have paid or declared any dividends or other
distributions.
2.04. NO DEFAULTS. The Company is not in default in the performance of
any obligation, agreement or condition contained in any debenture, note or other
evidence of indebtedness or any indenture or loan agreement of the Company,
other than as set forth in the Memorandum. The execution and delivery of this
Agreement and the consummation of the transactions herein contemplated, and
compliance with the terms of this Agreement will not conflict with or result in
a breach of any of the terms, conditions or provisions of, or constitute a
default under, the articles of incorporation or bylaws of the Company, or any
note, indenture, mortgage, deed of trust, or other agreement or instrument to
which the Company is a party or by which it or any of its property is bound, or
any existing law, order, rule, regulation, writ, injunction, or decree or any
government, governmental instrumentality, agency or body, arbitrator, tribunal
or court, domestic or foreign, having jurisdiction over the Company or its
property. The consent, approval, authorization, or order of any court or
governmental instrumentality, agency or body is not required for the
consummation of the transactions herein contemplated except such as may be
required under the Act or under the securities laws of any state or
jurisdiction.
2.05. ORGANIZATION AND STANDING. The Company is, and at the Closing
Date will be, duly organized and validly existing in good standing as a
corporation under the laws of its state of incorporation and with full power and
authority to own its property and conduct its business, present and proposed, as
described in the Memorandum; the Company has full power and authority to enter
into this Agreement and to issue the securities comprising the Units, and the
Company is duly qualified and in good standing as a foreign corporation in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes such qualification necessary. The
Company has paid all fees required by the jurisdiction of organization and any
jurisdiction in which it is qualified as a foreign corporation.
2.06. CAPITALIZATION. Prior to the Closing Date, the capitalization of
the Company shall be as described in the Memorandum.
2.07. LEGALITY OF UNITS. The securities comprising the Units have been
duly and validly authorized and, when issued or sold and delivered against
payment therefor as provided in this Agreement, will be validly issued, fully
paid and nonassessable. The securities comprising the Units will conform in all
material respects to all statements with regard thereto in the Memorandum. A
sufficient number of shares of Common Stock of the Company has been reserved for
issuance upon exercise of the Warrants.
2.08. PRIOR SALES. No securities of the Company have been sold by the
Company or by, or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company at any time
prior to the date hereof, except as set out in the Memorandum. No prior
securities sales by the Company or any affiliate are required to be integrated
with the proposed sale of the Units such that the availability of Regulation D
or any other claimed exemption from the registration requirements of the Act
would be made unavailable to the offer and sale of the Units.
2.09. LITIGATION. There is and at the Closing Date there will be no
action, suit or proceeding before any court or governmental agency, authority or
body pending or to the knowledge of the Company threatened which might result in
judgments against the Company, or its officers, directors, employees or agents
which the Company is obligated to indemnify, not adequately covered by insurance
and which collectively might result in any material adverse change in the
condition (financial or otherwise), the business or the prospects of the Company
or would materially affect the properties or assets of the Company.
2.10. FINDER. No person has acted as a finder in connection with the
transactions contemplated herein, and the Company will indemnify the Placement
Agent with respect to any claim for finder's fees in connection herewith. The
Company further represents that it has no management or financial consulting or
advisory agreement with anyone except as set forth in the Memorandum. The
Company additionally represents that no officer, director,
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<PAGE>
or 5% or greater shareholder of the Company is, directly or indirectly,
associated with a National Association of Securities Dealers, Inc. member
broker-dealer, other than such persons as the Company has advised the Placement
Agent in writing are so associated.
2.11. CONTRACTS. Each contract to which the Company is a party and to
which reference is made in the Memorandum has been duly and validly executed, is
in full force and effect in all material respects in accordance with their
respective terms, and none of such contracts has been assigned by the Company;
and the Company knows of no present situation or condition or fact which would
prevent compliance with the terms of such contracts, as amended to date. Except
for amendments or modifications of such contracts in the ordinary course of
business, the Company has no intention of exercising any right which it may have
to cancel any of its obligations under any of such contracts, and has no
knowledge that any other party to any of such contracts has any intention not to
render full performance under such contracts.
2.12. TAX RETURNS. The Company has filed all federal, state and
municipal tax returns which are required to be filed, and has paid all taxes
shown on such returns and on all assessments received by it to the extent such
taxes have become due. All other taxes with respect to which the Company is
obligated have been paid or adequate accruals have been set up to cover any such
unpaid taxes, including all federal and state withholding and FICA payments.
2.13. PROPERTY. Except as otherwise set forth in the Memorandum, the
Company has good title, free and clear of all liens, encumbrances and defects,
except liens for current taxes not due and payable, to all property and assets
which are described in the Memorandum as being owned by the Company, subject
only to such exceptions as are not material and do not adversely affect the
present or prospective business of the Company. All of the claims, options to
lease, leases and subleases material to the business of the Company under which
the Company holds or uses any real or personal property, including those
described or referred to in the Memorandum, are in full force and effect, and
the Company is not in default in respect of any of the terms or provisions of
any such claims, options to lease, leases or subleases, and no claim of any sort
has been asserted by anyone adverse to the Company's rights under any such
claims, options to lease, leases or subleases or affecting or questioning the
Company's rights to the continued possession of the claimed, optioned, leased or
subleased property covered by such claim, options to lease, lease or sublease.
2.14. AUTHORITY. The execution and delivery by the Company of this
Agreement has been duly authorized, and this Agreement is the valid, binding and
legally enforceable obligation of the Company.
2.15. USE OF PROCEEDS. The Company will apply the proceeds from the
sale of the Units to the purposes set forth in the Memorandum. The Company will
also establish procedures to ensure proper application and stewardship of such
proceeds.
2.16. NO LIMITATIONS ON PAYMENT OF DIVIDENDS. Except as otherwise set
forth in the Memorandum, there are no limitations, either contractual or
otherwise, nor will the Company enter into any agreement with any other party,
which prevents or limits the Company's ability to declare or pay dividends on
its Common Stock.
SECTION 3
ISSUE, SALE AND DELIVERY OF THE UNITS
3.01. PLACEMENT AGENT APPOINTMENT. The Company hereby appoints the
Placement Agent as its exclusive agent until (a) all of the Units have been
purchases, or (b) the Offering is terminated by the Placement Agent or the
Company (the "Sales Termination Date"), to solicit purchasers for up to seven
(7) Units on a "best efforts basis; and the Placement Agent, on the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, accepts such appointment and agrees to use its best
efforts to find purchasers for the Units at the price of $100,000 per Unit,
provided that the Company reserves the right to reject in good faith any
prospective investor ("Investor") and no commission shall be payable to the
Placement Agent in respect of any proposed sale to any rejected Investor. No
other person will be or has been authorized to solicit purchasers for the Units,
except those persons selected by the Placement Agent. Each Investor must
subscribe for at least one (1) Unit ($100,000), and must certify to the Company
that such investor is an "Accredited Investor" as
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<PAGE>
defined in Rule 501(a) of Regulation D. Notwithstanding the above, the Company
and the Placement Agent may mutually agree to accept a subscription for fewer
than one (1) Unit.
3.02. SEPARATE ACCOUNT. It is hereby agreed between the Company and the
Placement Agent that all funds from subscribers will be promptly delivered to
the Company by the Placement Agent.
3.03. SUBSCRIPTION AGREEMENT. Each Investor desiring to purchase Units
will be required to complete and execute a Subscription Agreement and, if
applicable, all other offering documents. The Placement Agent shall have the
right to review such documents for each Investor and to reject the tender of any
Investor which it deems not acceptable. All documents concerning any Investor
the Placement Agent has not rejected will be promptly forwarded to the Company
at the address set forth below. The Company, upon receipt of the documents, will
determine within three (3) business days whether it wishes to accept the
Investor.
3.04. SUBSCRIPTION ACCEPTANCE. If subscriptions are received for more
than seven (7) Units, the Company may accept one subscription over another
and/or allocate available Units among subscribers as it deems appropriate. As an
alternative, the Company may, in its own discretion, accept subscriptions for up
to 8 1/2 Units.
3.05. COMPENSATION OF PLACEMENT AGENT. In consideration for the
Placement Agent's execution of this Agreement, and for the performance of its
obligations hereunder, the Company agrees to pay the Placement Agent a
commission of ten percent (10%) of the gross proceeds received from the sale of
the Units ($10,000 per Unit). Payments for Units sold shall be made promptly
after subscriptions are accepted by the Company. In addition, the Company shall
issue to the Placement Agent warrants described in Section 14 hereof.
3.06. PAYMENT. Payment for Units sold shall be made to the Company
promptly after they are received by the Placement Agent. The date that Units are
accepted by the Company is defined as the "Closing" and the time and date
thereof are defined as the "Closing Date." As soon as practicable after each
Closing Date, the Company shall deliver by mail to each Investor a certificate
for the securities underlying the Units that have been purchased and which
contains a legend conforming to the requirements of Rule 502(d)(3) under the
Act.
3.07. OBLIGATIONS OF PLACEMENT AGENT. The Company agrees that the
obligations of the Placement Agent under this Agreement: (i) shall not preclude
the Placement Agent from contemporaneously participating in the offering or
underwriting of securities of other issuers; (ii) shall not impose any
obligation on the Placement Agent to require its registered representatives to
offer or to sell the Units, (iii) shall require the Placement Agent to make an
effort to find purchasers for the Units only to the extent the Placement Agent
is motivated to do so by the compensation and other provisions of this
Agreement, (iv) shall not otherwise limit or prevent the Placement Agent from
carrying on its customary business as a securities broker-dealer, and (v)shall
not require the Placement Agent to engage in any conduct which is violative of
any law or industry standard of conduct applicable to the Placement Agent.
3.8. REPRESENTATIONS AND WARRANTIES. The parties hereto each represent
that as of each Closing Date the representations and warranties herein contained
and the statements contained in all the certificates heretofore or
simultaneously delivered by any party to another, pursuant to this Agreement,
shall in all material respects be true and correct.
3.9. FORM D. The Placement Agent agrees that it will timely supply the
Company from time to time with all information required from the Placement Agent
for the completion of Form D to be filed with the Securities and Exchange
Commission and such additional information as the Company may reasonably request
to be supplied to the securities authorities of such states in which the Units
have been qualified for sale or are exempt from qualification or registration. A
copy of all such filings shall be delivered to the Placement Agent and counsel
for the Placement Agent promptly prior to their being filed.
SECTION 4
OFFERING OF THE UNITS ON BEHALF OF THE COMPANY
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4.01. AGENT. In offering the Units for sale, the Placement Agent shall
offer the Units solely as an agent for the Company, and such offer shall be made
upon the terms and subject to the conditions set forth herein and in the
Memorandum. The Placement Agent shall commence making such offers as an agent
for the Company as soon after the date of the Memorandum (the "Offering Date")
as it in its sole discretion may deem advisable; provided, however, that if the
Placement Agent does not commence such offering within ten (10) business days
after the Offering Date, it shall promptly advise the Company, and the Company
may terminate this agreement.
4.02. SELECTED DEALERS. The Placement Agent may offer and sell the
Units for the account of the Company through registered broker-dealers selected
by it ("Selected Dealers") and pursuant to a form of Selected Dealer Agreement
between the Placement Agent and the Selected Dealers, pursuant to which the
Placement Agent may allow such concession (out of its commissions) as it may
determine. Such Agreement shall provide that the Selected Dealers are acting as
agents of the Company. On such sale or allotment by the Placement Agent of any
of the Units to Selected Dealers, the Placement Agent shall require the Selected
Dealer selling any such Units to agree to offer and sell the same on the terms
and conditions of offering set forth in the Memorandum and in this Agreement.
SECTION 5
MEMORANDUM
5.01. DELIVERY AND FORM OF MEMORANDUM. The Company will procure, at its
expense, as many copies of the Memorandum as the Placement Agent may reasonably
require for the purposes contemplated by this Agreement and shall deliver said
copies of the Memorandum within two (2) business days after execution of this
Agreement at addresses, and in the quantity at each address, as specified by the
Placement Agent. Each Memorandum shall be of a size and format as determined by
the Placement Agent and shall be suitable for mailing and other distribution.
5.02. AMENDMENT OF MEMORANDUM. If during the offering any event occurs
or any event known to the Company relating to or affecting the Company shall
occur as a result of which the Memorandum as then amended or supplemented would
include an untrue statement of a material fact, or omits to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary at any time
after the Offering Date to amend or supplement the Memorandum to comply with the
Act, the Company will immediately notify the Placement Agent thereof and the
Company will prepare such further amendment to the Memorandum or supplemental or
amended Memorandum or Memoranda as may be required and furnish and deliver to
the Placement Agent, all at the cost of the Company, a reasonable number of
copies of the supplemental or amended Memorandum which as so amended or
supplemented will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the Memorandum not misleading
in the light of the circumstances existing at the time it is delivered.
5.03. USE OF MEMORANDUM. The Company authorizes the Placement Agent and
the Selected Dealers, if any, in connection with the offer and sale of the Units
and all dealers to whom any of the Units may be sold by the Placement Agent or
by any Selected Dealer, to use the Memorandum as from time to time amended or
supplemented, in connection with the offering and sale of the Units and in
accordance with the provisions of the Act, the Rules and Regulations thereunder
and applicable state securities laws.
SECTION 6
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Placement Agent that:
6.01. NOTIFICATION OF CHANGES. After the date hereof, the Company will
not at any time, whether before or after the date of the Memorandum, make any
amendment or supplement to the Memorandum of which amendment or supplement the
Placement Agent shall not have previously been advised and a copy of which shall
not have previously been furnished to the Placement Agent a reasonable time
period prior to the proposed date of such amendment or supplement, or which the
Placement Agent or counsel for the Placement Agent shall have reasonably
objected to in writing solely on the grounds that it is not in compliance with
the Act or the Rules and Regulations or with other federal or state laws.
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6.02. PROCEEDING. The Company will promptly advise the Placement Agent,
and will confirm such advice in writing, upon the happening of any event which,
in the judgment of the Company, makes any material statement in the Memorandum
untrue or which requires the making of any changes in the Memorandum in order to
make the statements therein not misleading, and upon the refusal of any state
securities administrator or similar official to qualify, or the suspension of
the qualification of the Units for offering or sale in any jurisdiction where
the Units are not exempt from qualification or registration, or of the
institution of any proceedings for the suspension of any exemption or for any
other purposes. The Company will use every reasonable effort to prevent any such
refusal to qualify or any such suspension and to obtain as soon as possible the
lifting of any such order, the reversal of any such refusal, and the termination
of any such suspension.
6.03. BLUE SKY EXEMPTIONS. As a condition of closing, the Company will
take whatever action is necessary in connection with filing or maintaining any
appropriate exemption from registration under the applicable laws of such states
as may be selected by the Placement Agent and agreed to by the Company, and
continue such qualifications and exemptions in effect so long as required for
the purposes of the offer and sale of the Units.
6.04. AGREEMENT TO PROVIDE INFORMATION. The Company, at its own
expense, will prepare and give and will continue to give such financial
statements and other information to and as may be required by the Commission or
the governmental authorities of states in which the Units may be exempt from
qualification or registration.
6.05. COSTS OF OFFERING. The Company will pay, whether or not the
transactions contemplated hereunder are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of its
obligations under this Agreement, including all expenses incident to the
authorization and issuance of the Units, any taxes incident to the initial sale
of the Units hereunder, the fees and expenses of the Company's counsel and
accountants, the costs and expenses incident to the preparation and printing of
the Memorandum and any amendments or supplements thereto, the cost of preparing
and printing all exhibits to the Memorandum, the Blue Sky Memorandum, the cost
of furnishing to the Placement Agent copies of the Memorandum as herein
provided, and the cost of any filing with the Commission or pursuant to state
securities laws, including all filing fees.
6.06. USE OF PROCEEDS. The Company will apply the proceeds from the
sale of the Units to the purposes set forth in the Memorandum.
6.07. DUE DILIGENCE. Prior to the Final Closing, the Company will
cooperate with the Placement Agent in such investigation as the Placement Agent
may make or cause to be made of the properties, business, management and
operations of the Company in connection with the offering of the Units, and the
Company will make available to the Placement Agent in connection therewith such
information in its possession as the Placement Agent may reasonably request.
6.08. DOCUMENTATION. Prior to the Closing Date, the Company will
deliver to the Placement Agent true and correct copies of such documents and
information as is reasonably requested by the Placement Agent. To the extent
such documents had previously been provided, only amendments or updates need be
furnished.
6.09. MANAGEMENT COOPERATION. The Company shall provide the Placement
Agent, at any time, an opportunity to meet with and question management of the
Company and authorize management of the Company to speak at such meetings as the
Placement Agent reasonably requests.
6.10. PERIODIC REPORTS. The Company will provide to the Placement Agent
for not less than three (3) years following the Date of this Agreement,
quarterly and annual financial statements, copies of all correspondence to
shareholders and copies of all press releases or news items concerning the
Company.
6.11. COMPLIANCE WITH CONDITIONS PRECEDENT. The Company will use all
reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Placement Agent specified in this
Agreement.
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6.12. REPORTS. The Company agrees to file with the Commission, and
states where required, all reports on Form D in accordance with the provisions
of Regulation D promulgated under the Act and to promptly provide copies of such
reports to the Placement Agent and its counsel.
SECTION 7
INDEMNIFICATION
7.01. INDEMNIFICATION BY COMPANY. The Company agrees to indemnify,
defend and hold harmless the Placement Agent, its agents, managers, members,
representatives, guarantors, sureties and each person who controls the Placement
Agent within the meaning of either Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934 ("Indemnified Persons") from and against any and
all losses, claims, damages, liabilities or expenses, joint or several,
(including reasonable legal or other expenses incurred by each such person in
connection with defending or investigating any such claims or liabilities,
whether or not resulting in any liability to such Indemnified Persons) which
they or any of them may incur under the Act, or any state securities law and the
Rules and Regulations or the rules and regulations under any state securities
laws or any other statute or at common law or otherwise and to reimburse such
Indemnified Persons for any legal or other expense (including the cost of any
investigation and preparation) incurred by any of them in connection with any
litigation, whether or not resulting in any liability, but only insofar as such
losses, claims, damages, liabilities and expenses arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Memorandum or any amendment or supplement thereto or any authorized sales
literature or any application or other document filed with the Commission or in
any state or other jurisdiction in order to qualify the Units under the
securities laws thereof, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, all as of the date of the Memorandum or such amendment
or supplement, as the case may be, or any untrue statement or alleged untrue
statement of a material fact contained in the Memorandum (as amended or
supplemented) or other document, or the failure to comply with the security
registration requirement of the Act or any applicable state law; provided,
however, that the indemnity agreement contained in this Section 7.01 shall not
apply to amounts paid in settlement of any such litigation if such settlements
are effected without the consent of the Company, nor shall it apply to any
Indemnified Persons in respect of any such losses, claims, damages, liabilities
or actions arising out of or based upon any such untrue statement or alleged
untrue statement, or any such omission or alleged omission, if such statement or
omission was made in reliance upon information furnished in writing to the
Company by such Indemnified Persons specifically for use in connection with the
preparation of the Memorandum or any such amendment or supplement thereto. This
indemnity agreement is in addition to any other liability which the Company may
otherwise have to the Indemnified Persons.
7.02. NOTIFICATION TO COMPANY. The Indemnified Persons agree to notify
the Company promptly of the commencement of any litigation or proceeding against
the Indemnified Persons, of which it may be advised, in connection with the
offer and sale of any of the Units of the Company, and to furnish to the Company
at its request copies of all pleadings therein and permit the Company to be an
observer therein and apprise it of all the developments therein. In case of
commencement of any action in which indemnity may be sought from the Company on
account of the indemnity agreement contained in Section 7.01, the Indemnified
Persons within ten (10) days after the receipt of written notice of the
commencement of any action against the Indemnified Persons, shall notify the
Company in writing of the commencement thereof. The omission of the Indemnified
Persons to so notify the Company of any such action shall relieve the Company
from any liability which it may have to the Indemnified Persons on account of
the indemnity agreement contained in Section 7.01 or otherwise. In case any such
action shall be brought against the Indemnified Persons of which the Indemnified
Persons shall have notified the Company of the commencement thereof, the Company
shall be entitled to participate in (and to the extent that it shall wish, to
direct) the defense thereto at its own expense, but such defense shall be
conducted by counsel of recognized standing and reasonably satisfactory to the
Indemnified Persons in such litigation. After notice that the Company elects to
direct the defense, the Company will not be liable for any legal or other
expenses incurred by the Indemnified Persons without the prior written consent
of the Company. The Company shall not be liable for amounts paid in settlement
of any litigation if such settlement was effected without its consent.
7.03. INDEMNIFICATION BY PLACEMENT AGENT. The Placement Agent agrees to
indemnify and hold harmless the Company, its agents, officers, directors,
representatives, guarantors, sureties and each person who controls the Company
within the meaning of either Section 15 of the Act or Section 20 of the
Securities Exchange
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<PAGE>
Act of 1934 ("Indemnified Persons") from and against any and all losses, claims,
damages, liabilities or expenses, joint or several, (including reasonable legal
or other expenses incurred by each such person in connection with defending or
investigating any such claims or liabilities, whether or not resulting in any
liability to such person) which they or any of them may incur under the Act, or
any state securities law and the Rules and Regulations or the rules and
regulations under any state securities laws or any other statute or at common
law or otherwise and to reimburse persons indemnified as above for any legal or
other expense (including the cost of any investigation and preparation) incurred
by any of them in connection with any litigation, whether or not resulting in
any liability, but only insofar as such losses, claims, damages, liabilities and
litigation arise out of or are based upon any statement in or omission from the
Memorandum or any amendment or supplement thereto, or any application or other
document filed with the Commission or in any state or other jurisdiction in
order to qualify the Units under the securities laws thereof, or any information
furnished pursuant to Section 3.10 hereof, if such statements or omissions were
made in reliance upon information furnished in writing to the Company by the
Placement Agent or on its behalf specifically for use in connection with the
preparation of the Memorandum or amendment or supplement thereto or application
or document filed. This indemnity agreement is in addition to any other
liability which the Placement Agent may otherwise have to the Company and other
indemnified persons.
7.04. NOTIFICATION TO PLACEMENT AGENT. The Company and other
Indemnified Persons agree to notify the Placement Agent promptly of commencement
of any litigation or proceedings against the Placement Agent or other
Indemnified Persons, in connection with the offer and sale of any of the Units
and to furnish to the Placement Agent, at its request, copies of all pleadings
therein and permit the Placement Agent to be an observer therein and apprise the
Placement Agent of all developments therein, all at the Company's expense. In
case of commencement of any action in which indemnity may be sought from the
Placement Agent on account of the indemnity agreement contained in Section 7.03,
the Company or other Indemnified Persons shall notify the Placement Agent of the
commencement thereof in writing within ten (10) days after the receipt of
written notice of the commencement of any action against the Company or against
any other person indemnified, shall notify the Placement Agent in writing of
such notification. The omission of the Company or other Indemnified Persons to
so notify the Placement Agent of any such action shall relieve the Placement
Agent from any liability which it may have to the Company, its agents, officers,
directors, representatives, guarantors, sureties or any person controlling it,
on account of the indemnity agreement contained in Section 7.03 or otherwise. In
case any such action shall be brought against the Company or any other person
indemnified of which the Company shall have notified the Placement Agent of the
commencement thereof, the Placement Agent shall be entitled to participate in
(and to the extent that it shall wish, to direct) the defense thereto at its own
expense, but such defense shall be conducted by counsel of recognized standing
and reasonably satisfactory to the Company or other persons indemnified in such
litigation. After notice that the Placement Agent elects to direct the defense,
the Placement Agent will not be liable for any legal or other expenses incurred
by the indemnified party without the prior written consent of the Placement
Agent. The Placement Agent shall not be liable for amounts paid in settlement of
any litigation if such settlement was effected without its consent.
7.05. INDEMNIFICATION OF SELECTED DEALERS. The Company agrees to
indemnify Selected Dealers, if any, and its agents, officers, directors,
representatives, guarantors and sureties on substantially the same terms and
conditions as it indemnifies the Placement Agent and Indemnified Persons
pursuant to Section 7.01 provided that each such Selected Dealer agrees in
writing with the Placement Agent to indemnify the Company and its agents,
officers, directors, representatives, guarantors and sureties on substantially
the same terms and conditions as the Placement Agent indemnifies the Company in
Section 7.03. The Company hereby authorizes the Placement Agent to enter into
agreements with Selected Dealers providing for such indemnity by the Company.
7.06. CONTRIBUTION. If the indemnification provided for in Sections
7.01, 7.03 and 7.05 is unavailable to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under either such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities: (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and by the Placement Agent or
Selected Dealer on the other from the offering and sale of the Units, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the Placement Agent or Selected Dealer on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations.
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<PAGE>
The relative benefits received by the Company on the one hand and the Placement
Agent or Selected Dealer on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total commissions received by the
Placement Agent or Selected Dealer, as in each case set forth in the Memorandum.
The relative fault of the Company and of the Placement Agent or Selected Dealer
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the Company or by the Placement Agent or
Selected Dealer and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Placement Agent agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, the Placement Agent shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Units sold by it and distributed exceeds the amount of any
damages which such Placement Agent otherwise has been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution hereunder from any person
who was not guilty of such fraudulent misrepresentation.
7.07. LIMITATION OF LEGAL EXPENSES. Notwithstanding anything herein to
the contrary, the indemnification for legal expenses included in Sections 7.01,
7.03 And 7.05 shall be limited to the legal expenses of one law firm, except in
the event of a bona fide conflict of interest, in which event such legal
expenses shall be limited to the legal expenses of two law firms.
SECTION 8
EFFECTIVENESS OF AGREEMENT
8.01. This Agreement shall become effective upon execution by all
parties hereto.
SECTION 9
CONDITIONS OF THE PLACEMENT AGENT'S OBLIGATIONS
The Placement Agent's obligations to act as agent of the Company
hereunder shall be subject to the accuracy of the representations and warranties
on the part of the Company herein contained, to the performance by the Company
of all its agreements herein contained, to the fulfillment of or compliance by
the Company with all covenants and conditions hereof, and to the following
additional conditions:
9.01. NO MATERIAL CHANGES. Except as contemplated herein or as set
forth in the Memorandum, during the period subsequent to the date of the last
balance sheet included in the Memorandum the Company: (a) shall have conducted
its business in the usual and ordinary manner as the same was being conducted on
the date of the last balance sheet included in the Memorandum, and (b) except in
the ordinary course of its business, the Company shall not have incurred any
material liabilities, claims or obligations (direct or contingent) or disposed
of any material portion of its assets, or entered into any material transaction
or suffered or experienced any materially adverse change in its condition,
financial or otherwise. The capitalization and short term debt of the Company
shall be substantially the same as at the date of the latest balance sheet
included in the Memorandum, without considering the proceeds from the sale of
the Units, other than as may be set forth in the Memorandum, and except as the
financial statements of the Company reflect the result of continued losses from
operations consistent with prior periods.
9.02. AUTHORIZATION. The authorization for the issuance of the
securities comprising the Units and the use of the Memorandum and all corporate
proceedings and other legal matters incident thereto and to this Agreement shall
be reasonably satisfactory in all respects to counsel to the Placement Agent.
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<PAGE>
9.03. STATE QUALIFICATION OR EXEMPTION. The Company shall use its best
efforts to secure an exemption from registration or qualification in those
states identified in Section 2.01, and such exemption shall be in effect and not
subject to any stop order or other proceeding on the Closing Date.
9.04. ADVERSE EVENTS. Between the date hereof and each Closing Date,
the Company shall not have sustained any loss on account of fire, explosion,
flood, accident, calamity or any other cause, of such character as materially
adversely affects its business or property considered as an entity, whether or
not such loss is covered by insurance.
9.05. LITIGATION. Between the date hereof and each Closing Date, there
shall be no litigation instituted or threatened against the Company and there
shall be no proceeding instituted or threatened against the Company before or by
any federal or state commission, regulatory body or administrative agency or
other governmental body, domestic or foreign, wherein an unfavorable ruling,
decision or finding would materially adversely affect the business, franchises,
licenses, operations or financial condition or income of the Company.
9.06. CERTIFICATES. Any certificate signed by an officer of the Company
and delivered to the Placement Agent shall be deemed a representation and
warranty by the Company to the Placement Agent as to the statements made
therein.
SECTION 10
TERMINATION
10.01. FAILURE TO COMPLY WITH AGREEMENT. This Agreement may be
terminated by either party hereto by notice to the other party in the event that
such party shall have failed or been unable to comply with any of the terms,
conditions or provisions of this Agreement required by the Company or the
Placement Agent to be performed, complied with or fulfilled by it within the
respective times herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by the non-defaulting
party in writing.
10.02. GOVERNMENT RESTRICTIONS. This Agreement may be terminated by
either party by notice to the other party at any time if, in the judgment of
either party, payment for and delivery of the Units are rendered impracticable
or inadvisable because: (i) additional material governmental restrictions not in
force and effect on the date hereof shall have been imposed upon the trading in
securities generally, or minimum or maximum prices shall have been generally
established on the New York Stock Exchange, the Chicago Board of Trade or the
Commodity Futures Trading Commission, or trading in securities generally on such
Exchange, Board, or Commission shall have been suspended, or a general
moratorium shall have been established by federal or state authorities; or (ii)
a war or other national calamity shall have occurred; or (iii) the condition of
any matter affecting the Company or any other circumstance is such that it would
be undesirable, impracticable or inadvisable in the judgment of the Placement
Agent to proceed with this Agreement or with the sale of the Units.
10.03. LIABILITY ON TERMINATION. Any termination of this Agreement
pursuant to this Section 10 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages on the part of any party thereto); except that the Company and the
Placement Agent shall be obligated to pay, respectively, all losses, claims,
damages or liabilities, joint or several, under Section 7.01 in the case of the
Company, Section 7.03 in the case of the Placement Agent and Section 7.06 as to
all parties.
SECTION 11
PLACEMENT AGENT'S REPRESENTATIONS AND WARRANTIES
The Placement Agent represents and warrants to and agrees with the
Company that:
11.01. REGISTRATION. The Placement Agent is registered as a
broker-dealer with the Securities and Exchange Commission, and is a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD").
The Placement Agent is registered or otherwise qualified to sell the Units in
each state in which the Placement Agent sells such Units or is exempt from such
registration or qualification.
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<PAGE>
11.02. ABILITY TO ACT AS AGENT. There is not now pending or, to the
knowledge of the Placement Agent, threatened against the Placement Agent any
action or proceeding of which the Placement Agent has been advised, either in
any court of competent jurisdiction, before the NASD, the Securities and
Exchange Commission or any state securities commission concerning the Placement
Agent's activities as a broker or dealer, nor has the Placement Agent been named
as a "cause" in any action or proceeding, any of which may be expected to have a
material adverse effect upon the Placement Agent's ability to act as agent to
the Company as contemplated herein.
11.03. TERMINATE AGREEMENT. In the event any action or proceeding of
the type referred to in Section 11.02 above (except for actions referred to in
the Memorandum) shall be instituted or, to the knowledge of the Placement Agent,
threatened against the Placement Agent at any time prior to the termination of
the Offering, or in the event there shall be filed by or against the Placement
Agent in any court pursuant to any federal, state, local or municipal statute, a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of its assets or if the Placement Agent
makes an assignment for the benefit of creditors, the Company shall have the
right on three (3) days' written notice to the Placement Agent to terminate this
Agreement without any liability to the Placement Agent of any kind, except the
payment of any commissions earned by the Placement Agent pursuant to Paragraph
3.05 hereof.
SECTION 12
NOTICE
Except as otherwise expressly provided in this Agreement:
12.01. NOTICE TO COMPANY. Whenever notice is required by the provisions
of this Agreement to be given to the Company, such notice shall be in writing
addressed to the Company as provided below:
Training Devices Incorporated
Ronald C. Ellington, CEO
7367 E. Revere Parkway, Bldg. 2C
Englewood, Colorado 80112-3931
with a copy to:
Neuman Drennen & Stone, LLC
Attn: David H. Drennen, Esq.
5445 DTC Parkway, PH-4
Englewood, Colorado 80111
12.02. NOTICE TO PLACEMENT AGENT. Whenever notice is required by the
provisions of this Agreement to be given to the Placement Agent, such notice
shall be given in writing addressed to the Placement Agent as follows:
Bathgate McColley Capital Group, LLC
5350 S. Roslyn Street, Suite 380
Englewood, Colorado 80111
Attn: Eugene C. McColley
SECTION 13
MISCELLANEOUS
13.01. BENEFITS. This Agreement is made solely for the benefit of the
Placement Agent, the Company, their respective agents, officers, directors,
managers, members, representatives, guarantors, sureties and any controlling
person referred to in Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, and their respective successors and assigns, and no other
person shall acquire or have any right under or by virtue of this
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<PAGE>
Agreement. The term "successor" or the term "successors and assigns" as used in
this Agreement shall not include any purchasers, as such, of any of the Units.
13.02. SURVIVAL. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company or
the Company's officers, as set forth in or made pursuant to this Agreement and
the indemnity agreements of the Company and the Placement Agent contained in
Section 7 hereof shall survive and remain in full force and effect, regardless
of (i) any investigation made by or on behalf of the Company or the Placement
Agent or any affiliated persons thereof or any controlling person of the Company
or of the Placement Agent, (ii) delivery of or payment for the Units and (iii)
the Closing Date, and any successor of the Company, the Placement Agent and
Selected Dealers, or any controlling person, or other person indemnified by
section 7, as the case may be, shall be entitled to the benefits hereof.
13.03. GOVERNING LAW. The validity, interpretation and construction of
this Agreement and of each part hereof will be governed by the laws of the State
of Colorado. The parties agree that any dispute which arises between them
relating to this Agreement or otherwise shall be submitted for resolution in
conformity with the Securities Arbitration Rules of the American Arbitration
Association. The parties agree that the situs of an arbitration hearing before
the arbitrators shall be in Denver, Colorado, and each party shall request such
situs.
13.04. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will constitute an original.
SECTION 14
PLACEMENT AGENT'S WARRANTS
14.01. WARRANTS. The Company shall sell to the Placement Agent, for a
total of $100, warrants to purchase Shares ("Placement Agent's Warrants") on the
basis of one (1) warrant for each $10.00 sold in the Offering. Each Placement
Agent's Warrant will entitle the holder to purchase one Share (which Share shall
be identical to the Shares offered hereunder) of the Company, exercisable at
$1.00 per Share. The Placement Agent's Warrants will be exercisable for a period
of five (5) years after their issuance; and if the Placement Agent's Warrants
are not exercised during this term, they shall, by their terms, automatically
expire. The Company shall set aside and at all times have available a sufficient
number of shares of its Common Stock to be issued upon the exercise of the
Placement Agent's Warrants and the warrants comprising part of the Shares. At
the option of the Placement Agent, the Placement Agent's Warrants shall be
represented by a separate warrant for each security comprising the Shares.
14.02. REGISTRATION RIGHTS. The Company understands and agrees that if,
at any time during the seven-year period commencing the Closing Date, it should
file a Registration Statement with the Commission pursuant to the Act, for a
public offering of securities, either for the account of the Company or for the
account of any other person, the Company at its own expense, will offer to
holders of Placement Agent's Warrants or shares of common stock previously
issued upon the exercise thereof, the opportunity to register or qualify for
public offering the Placement Agent's Warrants and shares of common stock
underlying the Placement Agent's Warrants or the shares so issued. This
paragraph is not applicable to a Registration Statement filed with the
Securities and Exchange Commission on Forms S-4 or S-8 or any other
inappropriate forms; nor does it apply to the public offering.
In addition to the rights above provided, the Company will cooperate
with the then holder(s) of the Placement Agent's Warrants and common stock
issued upon the exercise of the Placement Agent's Warrants, no more often than
once in any twelve (12) month period, in preparing and signing any Registration
Statement other than the Registration Statement discussed above, required in
order to sell or transfer the aforesaid Placement Agent's Warrants and
underlying shares of common stock and shall supply all information required
therefore, but such additional Registration Statement shall be at the then
holder(s) cost and expense.
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<PAGE>
Please confirm that the foregoing correctly sets forth the Agreement
between you and the Placement Agent.
Very truly yours,
BATHGATE MCCOLLEY CAPITAL GROUP, LLC
By /s/ Eugene C. McColley
----------------------------------
Eugene C. McColley
We hereby confirm as of the date hereof that the above letter sets
forth the Agreement between the Placement Agent and us.
TRAINING DEVICES INCORPORATED
5/25/99 By /s/ Ronald C. Ellington, CEO
- ------------------ ----------------------------------
Date Ronald C. Ellington, CEO
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<PAGE>
WARRANT AGREEMENT
BETWEEN
TRAINING DEVICES, INC.
AND
BATHGATE MCCOLLEY CAPITAL GROUP, LLC.
Dated as of ___,1999
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement"), dated as of ____, 1999, is
made and entered into by and between Training Devices, Inc., a Colorado
corporation (the "Company"), and Bathgate McColley Capital Group, LLC
("Placement Agent").
The Company agrees to issue and sell, and the Placement Agent has the
right to purchase, for the price of $100, warrants to purchase up to an
aggregate of ____ shares ("Shares") of the Company's Common Stock, subject to
the terms and conditions set forth below.
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and
obligations thereunder, the Company and the Placement Agent, for value
received, hereby agree as follows:
SECTION 1. DEFINITIONS.
The following terms used in this agreement shall have the following
meanings (unless otherwise expressly provided herein):
1.1. THE "ACT." The Securities Act of 1933, as amended.
1.2. THE "COMMISSION." The Securities and Exchange Commission.
1.3. THE "COMPANY." Training Devices, Inc..
1.4. "COMMON STOCK." The Company's Common Stock.
1.5. "CURRENT MARKET PRICE." The Current Market Price shall be
determined as follows:
(a) if the security at issue is listed on a national
securities exchange or admitted to unlisted trading privileges on such an
exchange or quoted on either the National Market System or the Small Cap
Market of the automated quotation service operated by Nasdaq, Inc.
("NASDAQ"), the current value shall be the last reported sale price of that
security on such exchange or system on the day for which the Current Market
Price is to be determined or, if no such sale is made on such day, the
average of the highest closing bid and lowest asked price for such day on
such exchange or system; or
(b) if the security at issue is not so listed or quoted or
admitted to unlisted trading privileges, the Current Market Value shall be
the average of the last reported highest bid and lowest asked prices quoted
on the NASDAQ Electronic Bulletin Board, or, if not so quoted, then by the
National Quotation Bureau, Inc. on the last business day prior to the day for
which the Current Market Price is to be determined; or
(c) if the security at issue is not so listed or quoted or
admitted to unlisted trading privileges and bid and asked prices are not
reported, the current market value shall be determined in such reasonable
manner as may be prescribed from time to time by the Board of Directors of
the Company, subject to the objection and arbitration procedure as described
in Section (6) below.
1.6. "EXERCISE DATE." ____________, 1999.
1.7. "EXERCISE PRICE." $1.00 per Share, as modified in accordance
with Section (4), below.
1.8. "EXPIRATION DATE." ____________, 2004.
1.9. "HOLDER " OR "WARRANTHOLDER." Bathgate McColley Capital Group,
LLC, and any valid transferee thereof pursuant to Section (3.1) below.
1.10. "NASD." The National Association of Securities Dealers, Inc.
1.11. "NASDAQ." The automated quotation system operated by The Nasdaq
Stock Market, Inc.
1.12. "TERMINATION OF BUSINESS." Any sale, lease or exchange of all,
or substantially all, of the Company's
<PAGE>
assets or business or any dissolution, liquidation or winding up of the
Company.
1.13. "WARRANT CERTIFICATES." The certificates that are issued to a
Holder of a Warrant, in the form attached hereto as Exhibit "A" and
incorporated by reference herein.
1.14. "WARRANTS." The warrants issued in accordance with the terms
of this Agreement and any Warrants issued in substitution for or replacement
of such warrants, including those evidenced by a certificate or certificates
originally issued or issued upon division, exchange, substitution or transfer
pursuant to this Agreement.
1.15. "WARRANT SECURITIES." The Common Stock purchasable upon
exercise of a Warrant including the Common Stock underlying unexercised
portions of a Warrant.
SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANT.
2.1. EXERCISE OF WARRANT. Subject to the terms of this Agreement,
the Holder shall have the right, at any time prior to 5:00 p.m., Denver Time,
on the Expiration Date, to purchase from the Company up to the number of
fully paid and nonassessable Shares to which the Holder may at the time be
entitled to purchase pursuant to this Agreement, upon surrender to the
Company, at its principal office, of the Warrant Certificate evidencing the
Warrants to be exercised, together with the purchase form on the reverse
thereof, or the Warrant Conversion Exercise Form in the case of a warrant
conversion pursuant to Section (2.3) herein, duly filled in and signed, and
upon payment to the Company of the Exercise Price for the number of Shares in
respect of which such Warrants are then exercised, but in no event for less
than 100 Shares (unless fewer than an aggregate of 100 shares are then
purchasable under all outstanding Warrants held by a Holder).
2.2. PAYMENT OF EXERCISE PRICE. Payment of the aggregate Exercise
Price shall be made in cash or by check, or any combination thereof.
2.3. ISSUANCE OF SHARES. Upon such surrender of the Warrants and
payment of such Exercise Price as aforesaid, the Company shall issue and
cause to be delivered with all reasonable dispatch to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Shares so purchased upon
the exercise of the Warrant, together with cash, as provided in Section (12)
hereof, in respect of any fractional Shares otherwise issuable upon such
surrender.
2.4. CONVERSION RIGHT. In addition to and without limiting the
rights of the Warrantholder under the terms of the Warrant Agreement, the
Holder shall have the right (the "Conversion Right") to convert the Warrant
evidenced by this certificate or any portion thereof into Shares as provided
in this Section 2.4 at any time or from time to time prior to its expiration.
a. Upon exercise of the Conversion Right with respect to a
particular number of Shares (the "Conversion Shares"), the Company shall
deliver to the Holder, without payment by the Holder of any Exercise Price or
any cash or other consideration, that number of Shares equal to the quotient
obtained by dividing the Net Value (as hereinafter defined in this paragraph
2.4(a)) of the Converted Shares by the Current Market Price of a single
Share, determined in each case as of the close of business on the Conversion
Date (as hereinafter defined). The "Net Value" of the Converted Shares shall
be determined by subtracting the aggregate Exercise Price of the Converted
Shares from the aggregate Current Market Price of the Converted Shares. No
fractional securities shall be issuable upon exercise of the Conversion
Right, and if the number of securities to be issued in accordance with the
foregoing formula is other than a whole number, the Company shall pay to the
Holder an amount in cash equal to the Current Market Price of the resulting
fractional Share.
b. The Conversion Right may be exercised by the Holder by
the surrender of the Warrant Certificate at the principal office of the
Company or at the office of the Company's stock transfer agent, if any,
together with a written statement specifying that the Holder thereby intends
to exercise the Conversion Right and indicating the number of Shares subject
to the Warrant Certificate which are being surrendered (referred to in
subparagraph 2.3(a) above as the Converted Shares), on the reverse side of
the Warrant Certificate, in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of the Warrant
Certificate, or on such later date as is specified therein (the "Conversion
Date"), but not later than the Expiration Date. Certificates for the
Converted Shares issuable upon exercise of the Conversion Right, together
with a check in payment of any fractional Warrant Share and, in the case of a
partial exercise a new Warrant Certificate evidencing the Warrant Shares
remaining subject to the Warrant, shall be issued as of the Conversion Date
and shall be delivered to the Holder within seven (7) days following the
Conversion Date.
2.5. Upon receipt of the Warrant Certificate by the company as
described in Sections 2.1 or 2.4 above, the
<PAGE>
Holder shall be deemed to be the holder of record of the Shares issuable upon
such exercise, notwithstanding that the transfer books of the Company may
then be closed or that certificates representing such Shares may not have
been prepared or actually delivered to the Holder.
SECTION 3. TRANSFERABILITY AND FORM OF WARRANT
3.1. LIMITATION ON TRANSFER. Any assignment or transfer of a
Warrant shall be made by the presentation and surrender of the Warrant
Certificate to the Company at its principal office or the office of its
transfer agent, if any, accompanied by a duly executed Assignment Form. Upon
the presentation and surrender of these items to the Company, the Company, at
its sole expense, shall execute and deliver to the new Holder or Holders a
new Warrant Certificate or Warrant Certificates, in the name of the new
Holder or Holders as named in the Assignment Form, and the Warrant
Certificate presented or surrendered shall at that time be canceled.
3.2. EXCHANGE OF CERTIFICATE. Any Warrant Certificate may be
exchanged for another certificate or certificates entitling the Warrantholder
to purchase a like aggregate number of Shares as the certificate or
certificates surrendered then entitled such Warrantholder to purchase. Any
Warrantholder desiring to exchange a Warrant Certificate shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, with signatures guaranteed, the certificate evidencing the Warrant
to be so exchanged. Thereupon, the Company shall execute and deliver to the
person entitled thereto a new Warrant Certificate as so requested.
3.3. MUTILATED, LOST, STOLEN, OR DESTROYED CERTIFICATE. In case the
certificate or certificates evidencing the Warrants shall be mutilated, lost,
stolen or destroyed, the Company shall, at the request of the Warrantholder,
issue and deliver in exchange and substitution for and upon cancellation of
the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent
right or interest, but only upon receipt of evidence satisfactory to the
Company of such loss, theft or destruction of such Warrant and a bond of
indemnity, if requested, also satisfactory in form and amount, at the
applicant's cost. Applicants for such substitute Warrant certificate shall
also comply with such other reasonable regulations and pay such other
reasonable charges as the Company may prescribe.
3.4. FORM OF CERTIFICATE. The text of the Warrant Certificate and
of the form of election to purchase Shares shall be substantially as set
forth in Exhibit A attached hereto. The number of Shares issuable upon
exercise of the Warrants is subject to adjustment upon the occurrence of
certain events, all as hereinafter provided. The Warrant Certificates shall
be executed on behalf of the Company by its President or by a Vice President
and attested to by its Secretary or an Assistant Secretary. A Warrant
Certificate bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that
such individual shall have ceased to hold such officer prior to the delivery
of such Warrant Certificate or did not hold such office on the date of this
Agreement.
The Warrant Certificates shall be dated as of the date of
signature thereof by the Company either upon initial issuance or upon
division, exchange, substitution or transfer.
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
4.1. ADJUSTMENTS. The number of Shares purchasable upon the exercise
of the Warrants shall be subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend in Common
Stock or make a distribution to its stockholders in Common Stock, (ii)
subdivide its outstanding Common Stock, (iii) combine its outstanding Common
Stock into a smaller number of shares of Common Stock, or (iv) issue by
classification of its Common Stock other securities of the Company, the
number of Shares purchasable upon exercise of the Warrants immediately prior
thereto shall be adjusted so that the Warrantholder shall be entitled to
receive the kind and number of Shares or other securities of the Company
which it would have owned or would have been entitled to receive immediately
after the happening of any of the events described above, had the Warrants
been exercised immediately prior to the happening of such event or any record
date with respect thereto. Any adjustment made pursuant to this subsection
(4.1.(a)) shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights, options, warrants,
or convertible securities to all or substantially all holders of its Common
Stock, without any charge to such holders, entitling them to subscribe for or
purchase Common Stock at a price per share which is lower at the record date
mentioned below than the then Current Market Price, the number of Shares
thereafter purchasable upon the exercise of each Warrant shall be determined
by multiplying the
<PAGE>
number of Shares theretofore purchasable upon exercise of the Warrants by a
fraction, of which the numerator shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such rights, options,
warrants or convertible securities plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, options, warrants, or
convertible securities plus the number of shares which the aggregate offering
price of the total number of shares offered would purchase at such Current
Market Price. Such adjustment shall be made whenever such rights, options,
warrants, or convertible securities are issued, and shall become effective
immediately and retroactively to the record date for the determination of
stockholders entitled to receive such rights, options, warrants, or
convertible securities.
(c) In case the Company shall distribute to all or
substantially all holders of its Common Stock evidences of its indebtedness
or assets (excluding cash dividends or distributions out of earnings) or
rights, options, warrants, or convertible securities containing the right to
subscribe for or purchase Common Stock (excluding those referred to in
subsection (4.1(b)) above), then in each case the number of Shares thereafter
purchasable upon the exercise of the Warrants shall be determined by
multiplying the number of Shares theretofore purchasable upon exercise of the
Warrants by a fraction, of which the numerator shall be the then Current
Market Price on the date of such distribution, and of which the denominator
shall be such Current Market Price on such date minus the then fair value
(determined as provided in subparagraph (e) below of the portion of the
assets or evidences of indebtedness so distributed or of such subscription
rights, options, warrants, or convertible securities applicable to one share.
Such adjustment shall be made whenever any such distribution is made and
shall become effective on the date of distribution retroactive to the record
date for the determination of stockholders entitled to receive such
distribution.
(d) No adjustment in the number of Shares purchasable pursuant
to the Warrants shall be required unless such adjustment would require an
increase or decrease of at least one percent in the number of Shares then
purchasable upon the exercise of the Warrants or, if the Warrants are not
then exercisable, the number of Shares purchasable upon the exercise of the
Warrants on the first date thereafter that the Warrants become exercisable;
provided, however, that any adjustments which by reason of this subsection
(4.1(d)) are not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(e) Whenever the number of Shares purchasable upon the
exercise of the Warrant is adjusted, as herein provided, the Exercise Price
payable upon exercise of the Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of which
the numerator shall be the number of Warrant Shares purchasable upon the
exercise of the Warrant immediately prior to such adjustment, and of which
the denominator shall be the number of Warrant Shares so purchasable
immediately thereafter.
(f) Whenever the number of Shares purchasable upon exercise of
the Warrants is adjusted as herein provided, the Company shall cause to be
promptly mailed to the Warrantholder by first class mail, postage prepaid,
notice of such adjustment and a certificate of the chief financial officer of
the Company setting forth the number of Shares purchasable upon the exercise
of the Warrants after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which such adjustment was
made.
(g) For the purpose of this Section (4.1), the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock of
the Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to this Section (4), the Warrantholder
shall become entitled to purchase any securities of the Company other than
Common Stock, (y) if the Warrantholder's right to purchase is on any other
basis than that available to all holders of the Company's Common Stock, the
Company shall obtain an opinion of an independent investment banking firm
valuing such other securities and (z) thereafter the number of such other
securities so purchasable upon exercise of the Warrants shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares contained in this
Section (4).
(h) Upon the expiration of any rights, options, warrants, or
conversion privileges, if such shall have not been exercised, the number of
Shares purchasable upon exercise of the Warrants, to the extent the Warrants
have not then been exercised, shall, upon such expiration, be readjusted and
shall thereafter be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may
be) on the basis of (i) the fact that the only shares of Common Stock so
issued were the shares of Common Stock, if any, actually issued or sold upon
the exercise of such rights, options, warrants, or conversion privileges, and
(ii) the fact that such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon such exercise
plus the consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options, warrants, or conversion
privileges whether or not exercised; provided, however, that no such
readjustment shall have the effect of decreasing the number of Shares
purchasable upon exercise of the Warrants by an amount in excess of the
<PAGE>
amount of the adjustment initially made in respect of the issuance, sale, or
grant of such rights, options, warrants, or conversion rights.
4.2. NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section
(4.1), no adjustment in respect of any dividends or distributions out of
earnings shall be made during the term of the Warrants or upon the exercise
of the Warrants.
4.3. NO ADJUSTMENT IN CERTAIN CASES. No adjustments shall be made
pursuant to Section (4) hereof in connection with the issuance of the Common
Stock upon exercise of the Warrants. No adjustments shall be made pursuant
to Section (4) hereof in connection with grant or exercise of presently
authorized or outstanding options to purchase, or the issuance of shares of
Common Stock under the Company's director or employee benefit plan.
4.4. PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or
merger of the Company into another corporation, or in case of any sale or
conveyance to another corporation of the property, assets, or business of the
Company as an entirety or substantially as an entirety, the Company or such
successor or purchasing corporation, as the case may be, shall execute with
the Warrantholder an agreement that the Warrantholder shall have the right
thereafter upon payment of the Exercise Price in effect immediately prior to
such action to purchase, upon exercise of the Warrants, the kind and amount
of shares and other securities and property which it would have owned or have
been entitled to receive after the happening of such consolidation, merger,
sale, or conveyance had the Warrants been exercised immediately prior to such
action. In the event of a merger described in Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, in which the Company is the surviving
corporation, the right to purchase Shares under the Warrants shall terminate
on the date of such merger and thereupon the Warrants shall become null and
void, but only if the controlling corporation shall agree to substitute for
the Warrants, its warrants which entitle the holder thereof to purchase upon
their exercise the kind and amount of shares and other securities and
property which it would have owned or been entitled to receive had the
Warrants been exercised immediately prior to such merger. Any such
agreements referred to in this Section (4.4) shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in Section (4) hereof. The provisions of this Section (4.4)
shall similarly apply to successive consolidations, mergers, sales, or
conveyances.
4.5. PAR VALUE OF SHARES OF COMMON STOCK. Before taking any action
which would cause an adjustment effectively reducing the portion of the
Exercise Price allocable to each Share below the par value per share of the
Common Stock issuable upon exercise of the Warrants, the Company will take
any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable Common Stock upon exercise of the Warrants.
4.6. INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a firm
of independent public accountants of recognized national standing (which may
be any such firm regularly employed by the Company) to make any computation
required under this Section (4), and a certificate signed by such firm shall
be conclusive evidence of the correctness of any computation made under this
Section (4).
4.7. STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the number of securities issuable upon exercise of the
Warrants, Warrant certificates theretofore or thereafter issued may continue
to express the same number of securities as are stated in the similar Warrant
certificates initially issuable pursuant to this Agreement. However, the
Company may, at any time in its sole discretion (which shall be conclusive),
make any change in the form of Warrant certificate that it may deem
appropriate and that does not affect the substance thereof; and any Warrant
certificate thereafter issued, whether upon registration of transfer of, or
in exchange or substitution for, an outstanding Warrant certificate, may be
in the form so changed.
4.8. TREASURY STOCK. For purposes of this Section (4), shares of
Common Stock owned or held at any relevant time by, or for the account of,
the Company, in its treasury or otherwise, shall not be deemed to be
outstanding for purposes of the calculations and adjustments described.
SECTION 5. NOTICE TO HOLDERS.
If, prior to the expiration of this Warrant either by its terms or by
its exercise in full, any of the following shall occur:
(a) the Company shall declare a dividend or authorize any
other distribution on its Common Stock; or
(b) the Company shall authorize the granting to the
shareholders of its Common Stock of rights to subscribe for or purchase any
securities or any other similar rights; or
<PAGE>
(c) any reclassification, reorganization or similar change
of the Common Stock, or any consolidation or merger to which the Company is a
party, or the sale, lease, or exchange of any significant portion of the
assets of the Company; or
(d) the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) any purchase, retirement or redemption by the Company of
its Common Stock;
then, and in any such case, the Company shall deliver to the Holder or
Holders written notice thereof at least 30 days prior to the earliest
applicable date specified below with respect to which notice is to be given,
which notice shall state the following:
(x) the date on which a record is to be taken for the
purpose of such dividend, distribution or rights, or, if a record is not to
be taken, the date as of which the shareholders of Common Stock of record to
be entitled to such dividend, distribution or rights are to be determined;
(y) the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, dissolution, liquidation, winding up
or purchase, retirement or redemption is expected to become effective, and
the date, if any, as of which the Company's shareholders of Common Stock of
record shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reclassification, reorganization,
consolidation, merger, sale, transfer, dissolution, liquidation, winding up,
purchase, retirement or redemption; and
(z) if any matters referred to in the foregoing clauses (x)
and (y) are to be voted upon by shareholders of Common Stock, the date as of
which those shareholders to be entitled to vote are to be determined.
SECTION 6. OFFICERS' CERTIFICATE.
Whenever the Exercise Price or the aggregate number of Warrant
Securities purchasable pursuant to this Warrant shall be adjusted as required
by the provisions of Section (4) above, the Company shall promptly file with
its Secretary or an Assistant Secretary at its principal office, and with its
transfer agent, if any, an officers' certificate executed by the Company's
President and Secretary or Assistant Secretary, describing the adjustment and
setting forth, in reasonable detail, the facts requiring such adjustment and
the basis for and calculation of such adjustment in accordance with the
provisions of this Warrant. Each such officers' certificate shall be made
available to the Holder or Holders of this Warrant for inspection at all
reasonable times, and the Company, after each such adjustment, shall promptly
deliver a copy of the officers' certificate relating to that adjustment to
the Holder or Holders of this Warrant. The officers' certificate described
in this Section (6) shall be deemed to be conclusive as to the correctness of
the adjustment reflected therein if, and only if, no Holder of this Warrant
delivers written notice to the Company of an objection to the adjustment
within 30 days after the officers' certificate is delivered to the Holder or
Holders of this Warrant. The Company will make its books and records
available for inspection and copying during normal business hours by the
Holder so as to permit a determination as to the correctness of the
adjustment. If written notice of an objection is delivered by a Holder to
the Company and the parties cannot reconcile the dispute, the Holder and the
Company shall submit the dispute to arbitration pursuant to the provisions of
Section 19 below. Failure to prepare or provide the officers' certificate
shall not modify the parties' rights hereunder.
SECTION 7. RESERVATION OF WARRANT SECURITIES.
There has been reserved, and the Company shall at all times keep
reserved so long as the Warrants remain outstanding, out of its authorized
and unissued Common Stock, such number of shares of Common Stock as shall be
subject to purchase under the Warrants. Every transfer agent for the Common
Stock and other securities of the Company issuable upon the exercise of the
Warrants will be irrevocably authorized and directed at all times to reserve
such number of authorized shares and other securities as shall be requisite
for such purpose. The Company will keep a copy of this Agreement on file with
every transfer agent for the Common Stock and other securities of the Company
issuable upon the exercise of the Warrants. The Company will supply every
such transfer agent with duly executed stock and other certificates, as
appropriate, for such purpose and will provide or otherwise make available
any cash which may be payable as provided in Section 12 hereof.
SECTION 8. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
8.1. RESTRICTIONS ON TRANSFER. The Warrantholder agrees that prior
to making any disposition of the Warrants or the Shares, other than to
officers of Placement Agent, the Warrantholder shall give written notice to
the Company describing briefly the manner in which any such proposed
disposition is to be made; and no such disposition shall be made if the
<PAGE>
Company has notified the Warrantholder that in the opinion of counsel
reasonably satisfactory to the Warrantholder a registration statement or
other notification or post-effective amendment thereto (hereinafter
collectively a "Registration Statement") under the Act is required with
respect to such disposition and no such Registration Statement has been filed
by the Company with, and declared effective, if necessary, by, the Commission.
8.2. PIGGY-BACK REGISTRATION RIGHT. If at any time prior to the
Expiration Date the Company files a registration statement with the
Commission pursuant to the Act, or pursuant to any other act passed after the
date of this Agreement, which filing provides for the sale of securities by
the Company to the public, or files a Regulation A offering statement under
the Act, the Company shall offer to the Holder or Holders of this Warrant and
the holders of any Warrant Securities the opportunity to register or qualify
the Warrant Securities at the Company's sole expense, regardless of whether
the Holder or Holders of this Warrant or the holders of Warrant Securities or
both may have previously availed themselves of any of the registration rights
described in this Section (8); provided, however, that in the case of a
Regulation A offering, the opportunity to qualify shall be limited to the
amount of the available exemption after taking into account the securities
that the Company wishes to qualify. Notwithstanding anything to the
contrary, this Section (8.2) shall not be applicable to a registration
statement registering securities issued pursuant to an employee benefit plan
or as to a transaction subject to Rule 145 promulgated under the Act or which
a form S-4 registration statement could be used; nor shall it be applicable
to the first underwritten registered public offering of the Company.
The Company shall deliver written notice to the Holder or Holders of
this Warrant and to any holders of the Warrant Securities of its intention to
file a registration statement or Regulation A offering statement under the
Act at least 60 days prior to the filing of such registration statement or
offering statement, and the Holder or Holders and holders of Warrant
Securities shall have 30 days thereafter to request in writing that the
Company register or qualify the Warrant Securities or the Warrant Securities
underlying the unexercised portion of this Warrant in accordance with this
Section (8.2). Upon the delivery of such a written request within the
specified time, the Company shall be obligated to include in its contemplated
registration statement or offering statement all information necessary or
advisable to register or qualify the Warrant Securities or Warrant Securities
underlying the unexercised portion of this Warrant for a public offering, if
the Company does file the contemplated registration statement or offering
statement; provided, however, that neither the delivery of the notice by the
Company nor the delivery of a request by a Holder or by a holder of Warrant
Securities shall in any way obligate the Company to file a registration
statement or offering statement. Furthermore, notwithstanding the filing of
a registration statement or offering statement, the Company may, at any time
prior to the effective date thereof, determine not to offer the securities to
which the registration statement or offering statement relates, other than
the Warrant, Warrant Securities and Warrant Securities underlying the
unexercised portion of this Warrant. Notwithstanding the foregoing, if, as a
qualification of any offering in any state or jurisdiction in which the
Company (by vote of its Board of Directors) or any underwriter determines in
good faith that it wishes to offer securities registered in the offering, it
is required that offering expenses be allocated in a manner different from
that provided above, then the offering expenses shall be allocated in
whatever manner is most nearly in compliance with the provisions set out
above.
If the registration for which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise as part of the written notice given pursuant to this Section. In such
event, the right of any Warrantholder or holder of Shares to registration
pursuant to this Section (8.2) shall be conditioned upon such holder's
participation in such underwriting, and the inclusion of Shares in the
underwriting shall be limited to the extent provided herein. All holders
proposing to distribute their Shares through such underwriting shall
(together with the Company and the other holders distributing their Shares
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section, if the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, such underwriter may limit the amount of
securities to be included in the registration and underwriting by the holders
of Company securities exercising "piggyback" registration rights (including
the Warrantholder and each holder of Warrants and Shares). The Company shall
so advise all such holders, and the number of shares of such securities that
may be included in the registration and underwriting shall be allocated among
all of such holders, in proportion, as nearly as practicable, to the
respective amounts of securities requested to be included in such
registration held by such holders at the time of filing the registration
statement, PROVIDED, HOWEVER, that no security holder other than one
exercising a demand registration right shall have superior rights with
respect to inclusion in a registration than those of the Warrantholder and
each holder of Warrants and Shares and if any party is granted such superior
rights hereafter the Warrantholder and each holder of Warrants and Shares
shall be deemed to be automatically granted similar rights. The Company
shall advise all such holders of any such limitations and of the number or
securities that may be included in the registration. Any securities excluded
or withdrawn from such underwriting shall not be transferred prior to one
hundred twenty (120) days after the effective date of the registration
statement relating thereto, or such shorter period of time as the
underwriters may require.
The Company shall comply with the requirements of this Section (8.2)
and the related requirements of Section (8.6) at its own expense. That
expense shall include, but not be limited to, legal, accounting, consulting,
printing, federal
<PAGE>
and state filing fees, NASD fees, out-of-pocket expenses incurred by counsel,
accountants and consultants retained by the Company, and miscellaneous
expenses directly related to the registration statement or offering statement
and the offering. However, this expense shall not include the portion of any
underwriting commissions, transfer taxes and the underwriter's accountable
and nonaccountable expense allowances attributable to the offer and sale of
the Warrant, Warrant Securities and the Warrant Securities underlying the
unexercised portion of this Warrant, all of which expenses shall be borne by
the Holder or Holders of this Warrant and the holders of the Warrant
Securities registered or qualified.
8.3. INCLUSION OF INFORMATION. In the event that the Company
registers or qualifies the Warrant Securities pursuant to Section (8.2)
above, the Company shall include in the registration statement or
qualification, and the prospectus included therein, all information and
materials necessary or advisable to comply with the applicable statutes and
regulations so as to permit the public sale of the Warrant Securities or the
Warrant Securities underlying the unexercised portion of this Warrant. As
used in Section (8.2), reference to the Company's securities shall include,
but not be limited to, any class or type of the Company's securities or the
securities of any of the Company's subsidiaries or affiliates.
8.4. REGISTRATION STATEMENT FILED BY HOLDER. In addition to the
registration rights described in Sections (8.1) and (8.2) above, upon the
written request of any Holder of this Warrant or any holder of Warrant
Securities, the Company, as promptly as possible after delivery of such
request, shall cooperate with the requesting Holder or holder in preparing
and signing any registration statement or offering statement that the Holder
or holder may desire to file in order to sell or transfer the Warrant and
Warrant Securities. Within 10 days after the delivery of the written request
described above, the Company shall deliver written notice to all other
Holders of this Warrant and holders of Warrant Securities, if any, advising
them that the Company is proceeding with a registration statement or offering
statement and that their Warrant and Warrant Securities will be included
therein if they so desire and agree to pay their pro rata share of the cost
of registration or qualification and provided that the Holder or holder
delivers written notice to the Company of their desire to be included and
their agreement to pay their pro rata share of the cost within 30 days after
the delivery of the Company's notice to them. The Company will supply all
information necessary or advisable for any such registration statements or
offering statements; provided, however, that all the costs and expenses of
such registration statements or offering statements shall be borne, in a
manner proportionate to the number of securities for which they indicate a
desire to register, by the Holders of this Warrant and the holders of Warrant
Securities who seek the registration or qualification of their Warrant,
Warrant Securities or Warrant Securities underlying the unexercised portion
of their Warrant. In determining the amount of costs and expenses to be
borne by those Holders or holders, the only costs and expenses of the Company
to be included are the additional costs and expenses that would not have
otherwise been incurred by the Company if those Holders or holders had not
desired to file a registration statement or offering statement. As an
example, and without limitation, audit fees would not be charged to those
Holders or holders if or to the extent that the Company would have incurred
the same audit fees for its year-end or other use in the absence of the
registration statement or offering statement. The Holders or holders
responsible for the costs and expenses shall reimburse the Company for those
reimbursable costs and expenses reasonably incurred by the Company within 30
days after the initial effective date of the registration statement or
qualification at issue.
No other securities of the Company of any type shall be included in,
be the subject of, or be publicly offered pursuant to any registration
statement or offering statement filed within 180 days following the latest
effective date of any registration statement or offering statement filed
pursuant to this Section (8.4) unless (a) the Company obtains the prior
written consent of Cohig upon such terms and conditions as Cohig in its sole
discretion may deem desirable, and (b) the owners or holders of those other
securities, including, without limitation, the Company, agree to bear an
equitable portion, reasonably acceptable to Cohig of the costs and expenses
of the registration statement or offering statement filed pursuant to this
Section (8.4).
8.5. PAYMENT OF EXERCISE PRICE FROM PROCEEDS. In the event that any
such Registration Statement is utilized for a public offering of any of the
Shares to be received upon exercise of the Warrants pursuant to this Section
(8), the Warrantholder may elect to pay the exercise price of the Warrants to
the Company out of the proceeds of the sale of the Shares pursuant to the
Registration Statement concurrently with the closing of such sale of the
Shares; provided that if such sale is not closed within 90 days of the
effective date of such Registration Statement, then the Warrantholder shall
be obligated to pay the exercise price of the Warrants to the Company on such
90 day.
8.6. CONDITION OF COMPANY'S OBLIGATIONS. As to each registration
statement or offering statement, the Company's obligations contained in this
Section (8) shall be conditioned upon a timely receipt by the Company in
writing of the following:
(a) Information as to the terms of the contemplated public
offering furnished by and on behalf of each Holder or holder intending to
make a public distribution of the Warrant Securities or Warrant Securities
underlying the unexercised portion of the Warrant; and
<PAGE>
(b) Such other information as the Company may reasonably
require from such Holders or holders, or any underwriter for any of them, for
inclusion in the registration statement or offering statement.
8.7. ADDITIONAL REQUIREMENTS. In each instance in which the Company
shall take any action to register or qualify the Warrant Securities or the
Warrant Securities underlying the unexercised portion of this Warrant, if
any, pursuant to this Section (8), the Company shall do the following:
(a) supply to Placement Agent, as the representative of the
Holders of the Warrant and the holders of Warrant Securities whose Warrant
Securities are being registered or qualified, two (2) manually signed copies
of each registration statement or offering statement, and all amendments
thereto, and a reasonable number of copies of the preliminary, final or other
prospectus or offering circular, all prepared in conformity with the
requirements of the Act and the rules and regulations promulgated thereunder,
and such other documents as Placement Agent shall reasonably request;
(b) cooperate with respect to (i) all necessary or advisable
actions relating to the preparation and the filing of any registration
statements or offering statements, and all amendments thereto, arising from
the provisions of this Section (8), (ii) all reasonable efforts to establish
an exemption from the provisions of the Act or any other federal or state
securities statutes, (iii) all necessary or advisable actions to register or
qualify the public offering at issue pursuant to federal securities statutes
and the state "blue sky" securities statutes of each jurisdiction that the
Holders of the Warrant or holders of Warrant Securities shall reasonably
request, and (iv) all other necessary or advisable actions to enable the
Holders of the Warrant Securities to complete the contemplated disposition of
their securities in each reasonably requested jurisdiction; and
(c) keep all registration statements or offering statements to
which this Section (8) applies, and all amendments thereto, effective under
the Act for a period of at least 9 months after their initial effective date
and cooperate with respect to all necessary or advisable actions to permit
the completion of the public sale or other disposition of the securities
subject to a registration statement or offering statement.
8.8. RECIPROCAL INDEMNIFICATION. In each instance in which pursuant
to this Section (8) the Company shall take any action to register or qualify
the Securities or the Warrant Securities underlying the unexercised portion
of this Warrant, prior to the effective date of any registration statement or
offering statement, the Company and each Holder or holder of Warrants or
Warrant Securities being registered or qualified shall enter into reciprocal
indemnification agreements, in the form customarily used by reputable
investment bankers with respect to public offerings of securities, containing
substantially the same terms as described in Section (10) . These
indemnification agreements also shall contain an agreement by the Holder or
shareholder at issue to indemnify and hold harmless the Company, its officers
and directors from and against any and all losses, claims, damages and
liabilities, including, but not limited to, all expenses reasonably incurred
in investigating, preparing, defending or settling any claim, directly
resulting from any untrue statements of material facts, or omissions to state
a material fact necessary to make a statement not misleading, contained in a
registration statement or offering statement to which this Section (8)
applies, if, and only if, the untrue statement or omission directly resulted
from information provided in writing to the Company by the indemnifying
Holder or shareholder expressly for use in the registration statement or
offering statement at issue.
8.9. PLACEMENT AGENT AS REPRESENTATIVE. For purposes of subsection
(8.7(a)) above, by the receipt of this Warrant or any Warrant Securities, all
Holders and all holders of Warrant Securities acknowledge and agree that
Placement Agent is and shall be their representative.
8.10. SURVIVAL. The Company's obligations described in this
Section (8) shall continue in full force and effect regardless of the
exercise, surrender, cancellation or expiration of this Warrant.
SECTION 9. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of the Warrants or the securities
comprising the Shares; provided, however, the Company shall not be required
to pay any tax which may be payable in respect of any transfer of the
Warrants or the securities comprising the Shares.
SECTION 10. INDEMNIFICATION AND CONTRIBUTION
10.1. INDEMNIFICATION BY COMPANY. In the event of the filing of any
Registration Statement with respect to the Warrant Shares pursuant to Section
(8) hereof, the Company agrees to indemnify and hold harmless the
Warrantholder or any holder of Warrant Shares and each person, if any, who
controls the Warrantholder or any holder of Warrant Shares within the meaning
of the Act, against any and all loss, claim, damage or liability, joint or
several (which shall, for all purposes of this Agreement include, but not be
limited to, all costs of defense and investigation and all attorneys'
<PAGE>
fees), to which such Warrantholder or any holder of Warrant Shares may become
subject, under the Act or otherwise, insofar as such loss, claim, damage, or
liability (or action with respect thereto) arises out of or is based upon (a)
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, any Preliminary Prospectus, the Effective
Prospectus, or the Final Prospectus or any amendment or supplement thereto;
or (b) the omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or the Final
Prospectus or any amendment or supplement thereto a material fact required to
be stated therein or necessary to make the statements therein not misleading;
except that the Company shall not be liable in any such case to the extent,
but only to the extent, that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by such
Warrantholder or the holder of such Warrant Shares specifically for use in
the preparation of the Registration Statement, any Preliminary Prospectus,
the Effective Prospectus and the Final Prospectus or any amendment or
supplement thereto. This indemnity will be in addition to any liability
which the Company may otherwise have.
10.2. INDEMNIFICATION BY WARRANTHOLDERS. The Warrantholders and the
holders of Warrant Shares agree that they, severally, but not jointly, shall
indemnify and hold harmless the Company, each other person referred to in
subparts (1), (2) and (3) of Section 11(a) of the Act in respect of the
Registration Statement and each person, if any, who controls the Company
within the meaning of the Act, against any and all loss, claim, damage or
liability, joint or several (which shall, for all purposes of this Agreement
include, but not be limited to, all costs of defense and investigation and
all attorneys' fees), to which the Company may become subject under the Act
or otherwise, insofar as such loss, claim, damage, liability (or action in
respect thereto) arises out of or are based upon (a) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or the Final
Prospectus or any amendment or supplement thereto; or (b) the omission or
alleged omission to state in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or the Final Prospectus or any amendment
or supplement thereto a material fact required to be stated therein or
necessary to make the statements therein not misleading; except that such
indemnification shall be available in each such case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon information and in
conformity with written information furnished to the Company by the
Warrantholder or the holder of Warrant Shares specifically for use in the
preparation thereof. This indemnity will be in addition to any liability
which such Warrantholder or holder of Warrant Shares may otherwise have.
10.3. RIGHT TO PROVIDE DEFENSE. Promptly after receipt by an
indemnified party under Section (10.1) or (10.2) above of written notice of
the commencement of any action, the indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under such
section, notify the indemnifying party in writing of the claim or the
commencement of that action; the failure to notify the indemnifying party
shall not relieve it of any liability which it may have to an indemnified
party, except to the extent that the indemnifying party did not otherwise
have knowledge of the commencement of the action and the indemnifying party's
ability to defend against the action was prejudiced by such failure. Such
failure shall not relieve the indemnifying party from any other liability
which it may have to the indemnified party. If any such claim or action
shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under such section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; except that Cohig shall
have the right to employ counsel to represent it and the other Warrantholders
of holders of Shares who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by such persons against the
Company under such section if, in Cohig's reasonable judgment, it is
advisable for Cohig and those Warrantholders or holders of Shares to be
represented by separate counsel, and in that event the fees and expenses of
such separate counsel shall be paid by the Company.
10.4. CONTRIBUTION. If the indemnification provided for in Sections
(10.1) and (10.2) of this Agreement is unavailable or insufficient to hold
harmless an indemnified party, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages, or liabilities referred to in Sections (10.1) or
(10.2) above (a) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Warrantholders on the other; or (b) if the allocation provided by clause (a)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect the relative benefits referred to in clause (a) above
but also the relative fault of the Company on the one hand and the
Warrantholders on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, or liabilities, as well as
any other relevant equitable considerations. The relative benefits received
by the Company and the Warrantholders shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts
and un-itemized expenses received by the Underwriters, in each case as set
forth in the table on the cover page of the Final Prospectus. Relative fault
shall be determined by reference
<PAGE>
to, among other things, whether the untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
Company or the Underwriter and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such untrue
statement or omission. For purposes of this Section (10.4), the term
"damages" shall include any counsel fees or other expenses reasonably
incurred by the Company or the Underwriters in connection with investigating
or defending any action or claim which is the subject of the contribution
provisions of this Section (10.4). No person adjudged guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it shall promptly
give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise (except as specifically provided in Section (10.4) hereof).
SECTION 11. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933
This Warrant, the Warrant Securities, and all other securities issued
or issuable upon exercise of this Warrant, may not be offered, sold or
transferred, in whole or in part, except in compliance with the Act, and
except in compliance with all applicable state securities laws. The Company
may cause substantially the following legends, or their equivalents, to be
set forth on each certificate representing the Warrant Securities, or any
other security issued or issuable upon exercise of this Warrant, not
theretofore distributed to the public or sold to underwriters, as defined by
the Act, for distribution to the public pursuant to Section 8 above:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND
MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT
IN COMPLIANCE WITH THE AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED."
(b) Any legend required by applicable state securities laws.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legends (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Act"), or the securities
represented thereby) shall also bear the above legends unless, in the opinion
of the Company's counsel, the securities represented thereby need no longer
be subject to such restrictions.
SECTION 12. FRACTIONAL SHARES
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of all or any part of this Warrant. With respect to
any fraction of a share of any security called for upon any exercise of this
Warrant, the Company shall pay to the Holder an amount in money equal to that
fraction multiplied by the Current Market Price of that share.
SECTION 13. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Agreement or in the Warrants shall be
construed as conferring upon the Warrantholder or its transferees any rights
as a stockholder of the Company, including the right to vote, receive
dividends, consent or receive notices as a stockholder in respect to any
meeting of stockholders for the election of directors of the Company or any
other matter. The Company covenants, however, that for so long as this
Warrant is at least partially unexercised, it will furnish any Holder of this
Warrant with copies of all reports and communications furnished to the
shareholders of the Company. In addition, if at any time prior to the
expiration of the Warrants and prior to their exercise, any one or more of
the following events shall occur:
(a) any action which would require an adjustment pursuant to Section
(4.1) (except subsections (4.1(e)) and (4.1(h)) or (4.4); or
(b) a dissolution, liquidation, or winding up of the Company (other
than in connection with a consolidation, merger, or sale of its property,
assets, and business as an entirety or substantially as an entirety) shall be
proposed:
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section (16) hereof, at
<PAGE>
least 20 days prior to the date fixed as a record date or the date of closing
the transfer books for the determination of the stockholders entitled to any
relevant dividend, distribution, subscription rights or other rights or for
the determination of stockholders entitled to vote on such proposed
dissolution, liquidation, or winding up. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to mail or receive notice or any defect therein shall not affect the
validity of any action taken with respect thereto.
SECTION 14. CHARGES DUE UPON EXERCISE.
The Company shall pay any and all issue or transfer taxes, including,
but not limited to, all federal or state taxes, that may be payable with
respect to the transfer of this Warrant or the issue or delivery of Warrant
Securities upon the exercise of this Warrant.
SECTION 15. WARRANT SECURITIES TO BE FULLY PAID
The Company covenants that all Warrant Securities that may be issued
and delivered to a Holder of this Warrant upon the exercise of this Warrant
and payment of the Exercise Price will be, upon such delivery, validly and
duly issued, fully paid and nonassessable.
SECTION 16. NOTICES
Any notice pursuant to this Agreement by the Company or by a
Warrantholder or a holder of Shares shall be in writing and shall be deemed
to have been duly given if delivered or mailed by certified mail, return
receipt requested:
(i) If to a Warrantholder or a holder of Shares, addressed to
Bathgate McColley Capital Group, LLC, 5350 S. Roslyn Street, Suite 380,
Englewood, Colorado 80111, Attention: Corporate Finance Department; or
(ii) If to the Company addressed to it at 7367 S. Revere Parkway,
Bldg. #2C, Englewood, Colorado 80112, Attention: President.
Each party may from time to time change the address to which notices
to it are to be delivered or mailed hereunder by notice in accordance
herewith to the other party.
SECTION 17. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section (4.4) are complied with.
SECTION 18. APPLICABLE LAW
This Warrant shall be governed by and construed in accordance with the
laws of the State of Colorado, and courts located in Colorado shall have
exclusive jurisdiction over all disputes arising hereunder.
SECTION 19. ARBITRATION.
The Company and the Holder, and by receipt of this Warrant or any
Warrant Securities, all subsequent Holders or holders of Warrant Securities,
agree to submit all controversies, claims, disputes and matters of difference
with respect to this Warrant, including, without limitation, the application
of this Section (19) to arbitration in Denver, Colorado, according to the
rules and practices of the American Arbitration Association from time to time
in force; provided, however, that if such rules and practices conflict with
the applicable procedures of Colorado courts of general jurisdiction or any
other provisions of Colorado law then in force, those Colorado rules and
provisions shall govern. This agreement to arbitrate shall be specifically
enforceable. Arbitration may proceed in the absence of any party if notice
of the proceeding has been given to that party. The parties agree to abide
by all awards rendered in any such proceeding. These awards shall be final
and binding on all parties to the extent and in the manner provided by the
rules of civil procedure enacted in Colorado. All awards may be filed, as a
basis of judgment and of the issuance of execution for its collection, with
the clerk of one or more courts, state or federal, having jurisdiction over
either the party against whom that award is rendered or its property. No
party shall be considered in default hereunder during the pendency of
arbitration proceedings relating to that default.
SECTION 20. MISCELLANEOUS PROVISIONS
(a) Subject to the terms and conditions contained herein, this
Warrant shall be binding on the Company and its successors and shall inure to
the benefit of the original Holder, its successors and assigns and all
holders of Warrant
<PAGE>
Securities and the exercise of this Warrant in full shall not terminate the
provisions of this Warrant as it relates to holders of Warrant Securities.
(b) If the Company fails to perform any of its obligations
hereunder, it shall be liable to the Holder for all damages, costs and
expenses resulting from the failure, including, but not limited to, all
reasonable attorney's fees and disbursements.
(c) This Warrant cannot be changed or terminated or any performance
or condition waived in whole or in part except by an agreement in writing
signed by the party against whom enforcement of the change, termination or
waiver is sought; provided, however, that any provisions hereof may be
amended, waived, discharged or terminated upon the written consent of the
Company and Cohig.
(d) If any provision of this Warrant shall be held to be invalid,
illegal or unenforceable, such provision shall be severed, enforced to the
extent possible, or modified in such a way as to make it enforceable, and the
invalidity, illegality or unenforceability shall not affect the remainder of
this Warrant.
(e) The Company agrees to execute such further agreements,
conveyances, certificates and other documents as may be reasonably requested
by the Holder to effectuate the intent and provisions of this Warrant.
(f) Paragraph headings used in this Warrant are for convenience
only and shall not be taken or construed to define or limit any of the terms
or provisions of this Warrant. Unless otherwise provided, or unless the
context shall otherwise require, the use of the singular shall include the
plural and the use of any gender shall include all genders.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
TRAINING DEVICES, INC..
By:
---------------------------
Ronald C. Ellington, CEO
BATHGATE MCCOLLEY CAPITAL GROUP, LLC
By:
---------------------------
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS
THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
THE SATISFACTION OF THE COMPANY.
Warrant Certificate No. PAW-1999-__
TRAINING DEVICES, INC.
WARRANTS TO PURCHASE
____ SHARES OF COMMON STOCK
INCORPORATED UNDER THE LAWS
OF THE STATE OF Colorado
This certifies that, for value received, , the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from Training Devices, Inc. (the "Company"), at any time during the
period commencing at 9:00 a.m., Colorado time, on ____, and expiring at 5:00
pm, Colorado time, on ____, at the purchase price per Share of $1.00 (the
"Exercise Price"), the number of shares of Common Stock of the Company set
forth above (the "Shares"). The number of shares of Common Stock of the
Company purchasable upon exercise of the Warrants evidenced hereby shall be
subject to adjustment from time to time as set forth in the Warrant Agreement
dated ____, 1999 (the "Warrant Agreement").
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached
hereto duly executed and simultaneous payment of the Warrant Price at the
principal office of the Company. Payment of such price shall be made at the
option of the Warrantholder in cash or by check or by Cashless Exercise
subject to the provisions of Section 3 of the Warrant Agreement (as that term
is defined therein).
The Warrants evidenced hereby represent the right to purchase an
aggregate of up to _____ Shares and are issued under and in accordance with
Warrant Agreement between the Company and Bathgate McColley Capital Group,
LLC, and are subject to the terms and provisions contained in the Warrant
Agreement, to all of which the Warrantholder by acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there
shall be signed and issued to the Warrantholder a new Warrant Certificate in
respect of the Shares as to which the Warrants evidenced hereby shall not
have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of Shares as here evidenced by
the Warrant or Warrants exchanged. No fractional shares of Common Stock will
be issued upon the exercise of rights to purchase hereunder, but the Company
shall pay the cash value of any fraction upon the exercise of one or more
Warrants. These Warrants are transferable at the office of the Company in
the manner and subject to the limitations set forth in the Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a stockholder of the Company.
TRAINING DEVICES, INC.
By:
---------------------------
Dated:
[Seal]
Attest:
Secretary
<PAGE>
THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK REPRESENTED BY THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144
UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
Warrant No. PR-1
***TRAINING DEVICES INCORPORATED***
WARRANT TO PURCHASE SHARES OF COMMON STOCK
WARRANT TO PURCHASE 37,500 SHARES
(SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)
EXERCISE PRICE $4.00 PER SHARE
(SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN)
VOID AFTER 3:00 P.M., MOUNTAIN TIME, ON JANUARY 2, 2001,
THIS CERTIFIES THAT Caribou Bridge Fund, LLC is entitled to purchase
from Training Devices Incorporated, a Colorado corporation (hereinafter
called the "Company") with its principal office located at 96 Inverness Drive
East, #R, Englewood, Colorado 80112, at any time commencing on October 22,
1998, but before 3:00 P.M., Colorado Time, on January 2, 2001 (the
"Termination Date"), at the purchase price of $4.00 per share (the "Exercise
Price"), the number of shares (the "Shares") of the Company's no par value
Common Stock (the "Common Stock") set forth above. The number of Shares
purchasable upon exercise of this Warrant and the Exercise Price per Share
shall be subject to adjustment from time to time as set forth in Section 5
below.
SECTION 1. DEFINITIONS.
The following terms used in this agreement shall have the following
meanings (unless otherwise expressly provided herein):
THE "ACT." The Securities Act of 1933, as amended.
THE "COMMISSION." The Securities and Exchange Commission.
THE "COMPANY." Training Devices Incorporated.
"COMMON STOCK." The Company's Common Stock.
"CURRENT MARKET PRICE." The Current Market Price shall be determined as
follows:
(a) if the security at issue is listed on a national securities
exchange or admitted to unlisted trading privileges on such an exchange
or quoted on either the National Market System or the Small Cap Market
of the automated quotation service operated by Nasdaq, the current value
shall be the last reported sale price of that security on such exchange
or system on the day for which the Current Market Price is to be
determined or, if no such sale is made on such day, the average of the
highest closing bid and lowest asked price for such day on such exchange
or system; or
(b) if the security at issue is not so listed or quoted or
admitted to unlisted trading privileges, the Current Market Value shall
be the average of the last reported highest bid and lowest asked prices
quoted on the Electronic Bulletin Board operated by Nasdaq, or, if not
so quoted, then by the National Quotation Bureau, Inc. on the last
business day prior to the day for which the Current Market Price is to
be determined; or
(c) if the security at issue is not so listed or quoted or admitted
to unlisted trading privileges and bid and asked prices are not
reported, the current market value shall be determined in such
reasonable
<PAGE>
manner as may be prescribed from time to time by the Board of
Directors of the Company, subject to the objection and arbitration
procedure as described in Section 6 below.
"EXERCISE DATE." October 22, 1998.
"EXERCISE PERIOD." The period commencing on the Exercise Date and
ending on the Expiration Date.
"EXERCISE PRICE." $4.00 per Share, as modified in accordance with
Section 5, below.
"EXPIRATION DATE." January 2, 2001.
"HOLDER" or "WARRANTHOLDER." The person to whom this Warrant is
issued, and any valid transferee thereof pursuant to Section (3.1) below.
"NASDAQ." The automated quotation system operated by The Nasdaq Stock
Market, Inc.
"TERMINATION OF BUSINESS." Any sale, lease or exchange of all, or
substantially all, of the Company's assets or business or any dissolution,
liquidation or winding up of the Company.
"WARRANTS." This Warrant and such other Warrants as are issued
concurrently with this Warrant containing the same terms of this Warrant and
any Warrants issued in substitution for or replacement of such warrants,
including those evidenced by a Warrant or Warrants issued upon division,
exchange, substitution or transfer pursuant to this Warrant.
"WARRANT SHARES." The Common Stock purchasable upon exercise of a
Warrant including the Common Stock underlying unexercised portions of a
Warrant.
SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANT.
2.1. EXERCISE OF WARRANT. Subject to the terms of this Agreement, the
Holder shall have the right, at any time prior to 5:00 p.m., Denver Time, on
the Expiration Date, to purchase from the Company up to the number of fully
paid and nonassessable Shares to which the Holder may at the time be entitled
to purchase pursuant to this Warrant, upon surrender to the Company, at its
principal office, of the Warrant to be exercised, together with the purchase
form attached hereto, duly filled in and signed, and upon payment to the
Company of the Exercise Price for the number of Shares in respect of which
such Warrant is then exercised, but in no event for less than 100 Shares
(unless fewer than an aggregate of 100 shares are then purchasable under all
outstanding Warrants held by a Holder).
2.2. PAYMENT OF EXERCISE PRICE. Payment of the aggregate Exercise
Price shall be made in cash or by check, or any combination thereof.
2.3. ISSUANCE OF SHARES. Upon such surrender of the Warrants and
payment of such Exercise Price as aforesaid, the Company shall issue and
cause to be delivered with all reasonable dispatch to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Shares so purchased upon
the exercise of the Warrant, together with cash, as provided in Section 13
hereof, in respect of any fractional Shares otherwise issuable upon such
surrender.
2.5 STATUS OF HOLDER UPON EXERCISE. Upon receipt of this Warrant by
the Company as described in Section 2.1 above, the Holder shall be deemed to
be the holder of record of the Shares issuable upon such exercise,
notwithstanding that the transfer books of the Company may then be closed or
that certificates representing such Shares may not have been prepared or
actually delivered to the Holder.
-2-
<PAGE>
SECTION 3. TRANSFERABILITY OF WARRANT
3.1 LIMITATION ON TRANSFER. Any assignment or transfer of a Warrant
shall be made by the presentation and surrender of the Warrant to the Company
at its principal office or the office of its transfer agent, if any,
accompanied by a duly executed Assignment Form. Upon the presentation and
surrender of these items to the Company, the Company, at its sole expense,
shall execute and deliver to the new Holder or Holders a new Warrant or
Warrants, in the name of the new Holder or Holders as named in the Assignment
Form, and the Warrant presented or surrendered shall at that time be canceled.
3.2 EXCHANGE OF WARRANT. Any Warrant may be exchanged for another
Warrant or Warrants entitling the Warrantholder to purchase a like aggregate
number of Shares as the Warrant or Warrants surrendered then entitled such
Warrantholder to purchase. Any Warrantholder desiring to exchange a Warrant
shall make such request in writing delivered to the Company, and shall
surrender, properly endorsed, with signatures guaranteed, the Warrant to be
so exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant as so requested.
3.3 MUTILATED, LOST, STOLEN, OR DESTROYED WARRANT. In case the Warrant
shall be mutilated, lost, stolen or destroyed, the Company shall, at the
request of the Warrantholder, issue and deliver in exchange and substitution
for and upon cancellation of the mutilated Warrant or Warrants, or in lieu of
and substitution for the Warrant or Warrants lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft
or destruction of such Warrant and a bond of indemnity, if requested, also
satisfactory in form and amount, at the applicant's cost. Applicants for
such substitute Warrant shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may
prescribe.
3.4 FORM OF ELECTION. The form of election to purchase Shares shall
be substantially as set forth in Exhibit A attached hereto. The Warrants shall
be executed on behalf of the Company by its President or by a Vice President
and attested to by its Secretary or an Assistant Secretary. A Warrant bearing
the signature of an individual who was at any time the proper officer of the
Company shall bind the Company, notwithstanding that such individual shall
have ceased to hold such officer prior to the delivery of such Warrant or did
not hold such office on the date of this Agreement. The Warrants shall be
dated as of the date of signature thereof by the Company either upon initial
issuance or upon division, exchange, substitution or transfer.
SECTION 4. REDEMPTION
4.1 RIGHT TO REDEEM. The Company may, at its option, redeem the
Warrants in whole or in part on a pro rata basis for a redemption price of
$.01 per Warrant (the "Redemption Price") on 45 days prior written notice to
the Warrantholders. The right to redeem the Warrants may be exercised by the
Company only in the event (i) the Current Market for the Common Stock has
exceeded 150% of the Exercise Price during a period of at least 20 of the 30
trading days immediately preceding the date of mailing of the notice of
redemption, (ii) the Company has in effect a current registration statement
(or a post-effective amendment to an existing registration statement) with the
Commission registering the Warrant Shares, and (iii) the expiration of the 45
days notice period is within the Exercise Period. In the event the Company
exercises its right to redeem the Warrants, the Expiration Date will be
deemed to be, and the Warrants will be exercisable until the close of
business on, the date fixed for redemption in such notice (the "Redemption
Date"). If any Warrant called for redemption is not exercised by such time,
it will cease to be exercisable and the Warrantholder thereof will be
entitled only to the Redemption Price.
4.2 TERMINATION OF RIGHTS. From and after the Redemption Date, all
rights of the holders of record of redeemed Warrants (except the right to
receive the Redemption Price) shall terminate, but only if (i) no later than
one day prior to the Redemption Date the Company shall have irrevocably
deposited with the paying agent a sufficient amount to pay on the Redemption
Date the Redemption Price for all Warrants called for redemption, and (ii)
the notice of redemption shall have stated the name and address of the Paying
Agent and the intention of the company to deposit such amount with the Paying
Agent no later than one day prior to the Redemption Date.
4.3 PAYMENT OF REDEMPTION PRICE. The Paying Agent shall pay to the
holders of record of redeemed Warrants all amounts received by the Paying
Agent for the redemption of Warrants to which the holders of record of
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such redeemed Warrants who shall have surrendered their Warrants are
entitled. Any amounts deposited by the Company with the Paying Agent to pay
the Redemption Price for all Warrants called for redemption that are not
required for redemption of Warrants may be withdrawn by the Company. Any
amounts deposited by the Company with the Paying Agent to pay the Redemption
Price for all Warrants called for redemption that shall be unclaimed six
months after the Redemption Date may be withdrawn by the Company, and
thereafter the holders of the Warrants called for redemption for which such
funds were deposited shall look solely to the Company for payment. The
Company shall be entitled to the interest, if any, on funds deposited with
the Paying Agent, and the Warrantholders of redeemed Warrants shall have no
right to any such interest.
4.4 FAILURE TO MAKE DEPOSIT. If the Company fails to make a sufficient
deposit with the Paying Agent as provided above, the Warrantholder of any
Warrants called for redemption may at the option of the holder (i) by notice
to the Company declare the notice of redemption a nullity as to such holder,
or (ii) maintain an action against the Company for the Redemption Price. If
the Warrantholder brings such an action, the Company will pay the reasonable
attorney's fees of the Warrantholder. If the Warrantholder fails to bring an
action against the Company for the Redemption Price within 60 days after the
Redemption Date, the Warrantholder shall be deemed to have elected to declare
the notice of redemption to be a nullity as to such holder and such notice
shall be without any force or effect as to such holder.
SECTION 5. ADJUSTMENT OF NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
5.1 ADJUSTMENTS. The number of Shares purchasable upon the exercise
of the Warrants shall be subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend in Common Stock
or make a distribution to its stockholders in Common Stock, (ii)
subdivide its outstanding Common Stock, (iii) combine its outstanding
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by classification of its Common Stock other securities of the
Company, the number of Shares purchasable upon exercise of the Warrants
immediately prior thereto shall be adjusted so that the Warrantholder
shall be entitled to receive the kind and number of Shares or other
securities of the Company which it would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrants been exercised immediately prior to
the happening of such event or any record date with respect thereto. Any
adjustment made pursuant to this subsection 5.1.(a) shall become
effective immediately after the effective date of such event retroactive
to the record date, if any, for such event.
(b) In case the Company shall issue rights, options, warrants, or
convertible securities to all or substantially all holders of its Common
Stock, without any charge to such holders, entitling them to subscribe
for or purchase Common Stock at a price per share which is lower at the
record date mentioned below than the then Current Market Price, the
number of Shares thereafter purchasable upon the exercise of each
Warrant shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of the Warrants by a fraction, of
which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, options,
warrants or convertible securities plus the number of additional shares
of Common Stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, options, warrants, or
convertible securities plus the number of shares which the aggregate
offering price of the total number of shares offered would purchase at
such Current Market Price. Such adjustment shall be made whenever such
rights, options, warrants, or convertible securities are issued, and
shall become effective immediately and retroactively to the record date
for the determination of stockholders entitled to receive such rights,
options, warrants, or convertible securities.
(c) In case the Company shall distribute to all or substantially
all holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions out of earnings) or rights,
options, warrants, or convertible securities containing the right to
subscribe for or purchase Common Stock (excluding those referred to in
subsection 5.1(b) above), then in each case the number of Shares
thereafter
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purchasable upon the exercise of the Warrants shall be determined by
multiplying the number of Shares theretofore purchasable upon exercise
of the Warrants by a fraction, of which the numerator shall be the then
Current Market Price on the date of such distribution, and of which the
denominator shall be such Current Market Price on such date minus the
then fair value (determined as provided in subparagraph (e) below of the
portion of the assets or evidences of indebtedness so distributed or of
such subscription rights, options, warrants, or convertible securities
applicable to one share. Such adjustment shall be made whenever any such
distribution is made and shall become effective on the date of
distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
(d) No adjustment in the number of Shares purchasable pursuant to
the Warrants shall be required unless such adjustment would require an
increase or decrease of at least one percent in the number of Shares
then purchasable upon the exercise of the Warrants or, if the Warrants
are not then exercisable, the number of Shares purchasable upon the
exercise of the Warrants on the first date thereafter that the Warrants
become exercisable; provided, however, that any adjustments which by
reason of this subsection 5.1(d) are not required to be made immediately
shall be carried forward and taken into account in any subsequent
adjustment.
(e) Whenever the number of Shares purchasable upon the exercise of
the Warrant is adjusted, as herein provided, the Exercise Price payable
upon exercise of the Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of
which the numerator shall be the number of Warrant Shares purchasable
upon the exercise of the Warrant immediately prior to such adjustment,
and of which the denominator shall be the number of Warrant Shares so
purchasable immediately thereafter.
(f) Whenever the number of Shares purchasable upon exercise of
the Warrants is adjusted as herein provided, the Company shall cause to
be promptly mailed to the Warrantholder by first class mail, postage
prepaid, notice of such adjustment and a certificate of the chief
financial officer of the Company setting forth the number of Shares
purchasable upon the exercise of the Warrants after such adjustment, a
brief statement of the facts requiring such adjustment and the
computation by which such adjustment was made.
(g) For the purchase of this Section 5.1, the term "Common Stock"
shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value. In the event that at any
time, as a result of an adjustment made pursuant to this Section 5, the
Warrantholder shall become entitled to purchase any securities of the
Company other than Common Stock, (y) if the Warrantholder's right to
purchase is on any other basis than that available to all holders of the
Company's Common Stock, the Company shall obtain an opinion of an
independent investment banking firm valuing such other securities and
(z) thereafter the number of such other securities so purchasable upon
exercise of the Warrants shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Shares contained in the Section 5.
(h) Upon the expiration of any rights, options, warrants, or
conversion privileges, if such shall have not been exercised, the number
of Shares purchasable upon exercise of the Warrants, to the extent the
Warrants have not then been exercised, shall, upon such expiration, be
readjusted and shall thereafter be such as they would have been had
they been originally adjusted (or had the original adjustment not been
required, as the case may be) on the basis of (i) the fact that the only
shares of Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights, options,
warrants, or conversion privileges, and (ii) the fact that such shares
of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the
consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options, warrants, or
conversion privileges whether or not exercised; provided, however, that
no such readjustment shall have the effect of decreasing the number of
Shares purchasable upon exercise of the Warrants by an amount in excess
of the amount of the adjustment initially made in respect of the
issuance, sale, or grant of such rights, options, warrants, or
conversion rights.
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5.2. NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 5.1, no
adjustment in respect of any dividends or distributions out of earnings shall
be made during the term of the Warrants or upon the exercise of the Warrants.
5.3. NO ADJUSTMENT IN CERTAIN CASES. No adjustments shall be made
pursuant to Section 5 hereof in connection with the issuance of the Common
Stock upon exercise of the Warrants. No adjustments shall be made pursuant to
Section 5 hereof in connection with grant or exercise of presently authorized
or outstanding options to purchase, or the issuance of shares of Common Stock
under the Company's director or employee benefit plan.
5.4. PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or
merger of the Company into another corporation, or in case of any sale or
conveyance to another corporation of the property, assets, or business of the
Company as an entirety or substantially as an entirety, the Company or such
successor or purchasing corporation, as the case may be, shall execute with
the Warrantholder an agreement that the Warrantholder shall have the right
thereafter upon payment of the Exercise Price in effect immediately prior to
such action to purchase, upon exercise of the Warrants, the kind and amount
of shares and other securities and property which it would have owned or have
been entitled to receive after the happening of such consolidation, merger,
sale, or conveyance had the Warrants been exercised immediately prior to such
action. In the event of a merger described in Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, in which the Company is the surviving
corporation, the right to purchase Shares under the Warrants shall terminate
on the date of such merger and thereupon the Warrants shall become null and
void, but only if the controlling corporation shall agree to substitute for
the Warrants, its warrants which entitle the holder thereof to purchase upon
their exercise the kind and amount of shares and other securities and
property which it would have owned or been entitled to receive had the
Warrants been exercised immediately prior to such merger. Any such agreements
referred to in this Section 5.4 shall provide for adjustments, which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
Section 5 hereof. The provisions of this Section 5.4 shall similarly apply to
successive consolidations, mergers, sales, or conveyances.
5.5. PAR VALUE OF SHARES OF COMMON STOCK. Before taking any action
which would cause an adjustment effectively reducing the portion of the
Exercise Price allocable to each Share below the par value per share of the
Common Stock issuable upon exercise of the Warrants, the Company will take
any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable Common Stock upon exercise of the Warrants.
5.6. INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a firm of
independent public accountants of recognized national standing (which may be
any such firm regularly employed by the Company) to make any computation
required under this Section 5, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 5.
5.7. STATEMENT ON WARRANTS. Irrespective of any adjustments in the
number of securities issuable upon exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same number of
securities as are stated in the similar Warrants initially issuable pursuant
to this Agreement. However, the Company may, at any time in its sole
discretion (which shall be conclusive), make any change in the form of
Warrant that it may deem appropriate and that does not affect the substance
thereof; and any Warrant thereafter issued, whether upon registration of
transfer of, or in exchange or substitution for, an outstanding Warrant, may
be in the form so changed.
5.8. TREASURY STOCK. For purposes of this Section 5, shares of Common
Stock owned or held at any relevant time by, or for the account of, the
Company, in its treasury or otherwise, shall not be deemed to be outstanding
for purposes of the calculations and adjustments described.
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SECTION 6. NOTICE TO HOLDERS.
If, prior to the expiration of this Warrant either by its terms or by
its exercise in full, any of the following shall occur:
(a) the Company shall declare a dividend or authorize any other
distribution on its Common Stock; or
(b) the Company shall authorize the granting to the shareholders of its
Common Stock of rights to subscribe for or purchase any securities or any
other similar rights; or
(c) any reclassification, reorganization or similar change of the
Common Stock, or any consolidation or merger to which the Company is a party,
or the sale, lease, or exchange of any significant portion of the assets of
the Company; or
(d) the voluntary or involuntary dissolution, liquidation or winding up
of the Company; or
(e) any purchase, retirement or redemption by the Company of its Common
Stock;
then, and in any such case, the Company shall deliver to the Holder or
Holders written notice thereof at least 30 days prior to the earliest
applicable date specified below with respect to which notice is to be given,
which notice shall state the following:
(x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights, or, if a record is not to be taken, the
date as of which the shareholders of Common Stock of record to be entitled to
such dividend, distribution or rights are to be determined;
(y) the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, dissolution, liquidation, winding up
or purchase, retirement or redemption is expected to become effective, and
the date, if any, as of which the Company's shareholders of Common Stock of
record shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reclassification, reorganization,
consolidation, merger, sale, transfer, dissolution, liquidation, winding up,
purchase, retirement or redemption; and
(z) if any matters referred to in the foregoing clauses (x) and (y) are
to be voted upon by shareholders of Common Stock, the date as of which those
shareholders to be entitled to vote are to be determined.
SECTION 7. OFFICERS' CERTIFICATE.
Whenever the Exercise Price or the aggregate number of Warrant Shares
purchasable pursuant to this Warrant shall be adjusted as required by the
provisions of Section 5 above, the Company shall promptly file with its
Secretary or an Assistant Secretary at its principal office, and with its
transfer agent, if any, an officers' certificate executed by the Company's
President and Secretary or Assistant Secretary, describing the adjustment and
setting forth, in reasonable detail, the facts requiring such adjustment and
the basis for and calculation of such adjustment in accordance with the
provisions of this Warrant. Each such officers' certificate shall be made
available to the Holder or Holders of this Warrant for inspection at all
reasonable times, and the Company, after each such adjustment, shall promptly
deliver a copy of the officers' certificate relating to that adjustment to
the Holder or Holders of this Warrant. The officers' certificate described in
this Section 7 shall be deemed to be conclusive as to the correctness of the
adjustment reflected therein if, and only if, no Holder of this Warrant
delivers written notice to the Company of an objection to the adjustment
within 30 days after the officers' certificate is delivered to the Holder or
Holders of this Warrant. The Company will make its books and records
available for inspection and copying during normal business hours by the
Holder so as to permit a determination as to the correctness of the
adjustment. If written notice of an objection is delivered by a Holder to the
Company and the parties cannot reconcile the dispute, the Holder and the
Company shall submit the dispute to arbitration pursuant to the provisions of
Section 20 below. Failure to prepare or provide the officers' certificate
shall not modify the parties' rights hereunder.
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SECTION 8. RESERVATION OF WARRANT SHARES.
There has been reserved, and the Company shall at all times keep
reserved so long as the Warrants remain outstanding, out of its authorized and
unissued Common Stock, such number of shares of Common Stock as shall be
subject to purchase under the Warrants. Every transfer agent for the Common
Stock and other securities of the Company issuable upon the exercise of the
Warrants will be irrevocably authorized and directed at all times to reserve
such number of authorized shares and other securities as shall be requisite
for such purpose. The Company will keep a copy of this Agreement on file with
every transfer agent for the Common Stock and other securities of the Company
issuable upon the exercise of the Warrants. The Company will supply every
such transfer agent with duly executed stock and other certificates, as
appropriate, for such purpose and will provide or otherwise make available
any cash which may be payable as provided in Section 13 hereof.
SECTION 9. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
9.1. RESTRICTIONS ON TRANSFER. The Warrantholder agrees that prior to
making any disposition of the Warrants or the Shares, the Warrantholder shall
give written notice to the Company describing briefly the manner in which any
such proposed disposition is to be made; and no such disposition shall be
made if the Company has notified the Warrantholder that in the opinion of
counsel reasonably satisfactory to the Warrantholder a registration statement
or other notification or post-effective amendment thereto (hereinafter
collectively a "Registration Statement") under the Act is required with
respect to such disposition and no such Registration Statement has been filed
by the Company with, and declared effective, if necessary, by the Commission.
9.2. PIGGY-BACK REGISTRATION RIGHT. This Warrant is subject to the
terms of a Registration Rights Agreement and a Mandatory Lock-Up Agreement,
which are incorporated by reference herein.
9.3. INCLUSION OF INFORMATION. In the event that the Company registers
or qualifies the Warrant Shares pursuant to Section 9.2 above, the Company
shall include in the registration statement or qualification, and the
prospectus included therein, all information and materials necessary or
advisable to comply with the applicable statutes and regulations so as to
permit the public sale of the Warrant Shares or the Warrant Shares underlying
the unexercised portion of this Warrant. As used in Section 9.2, reference to
the Company's securities shall include, but not be limited to, any class or
type of the Company's securities or the securities of any of the Company's
subsidiaries or affiliates.
9.4. CONDITION OF COMPANY'S OBLIGATIONS. As to each registration
statement or offering statement, the Company's obligations contained in this
Section 9 shall be conditioned upon a timely receipt by the Company in
writing of the following:
(a) Information as to the terms of the contemplated public
offering furnished by and on behalf of each Holder or holder intending
to make a public distribution of the Warrant Shares; and
(b) Such other information as the Company may reasonably require
from such Holders or holders, or any underwriter for any of them, for
inclusion in the registration statement or offering statement.
9.5. RECIPROCAL INDEMNIFICATION. In each instance in which pursuant
to this Section 9 the Company shall take any action to register or qualify
the Warrant Shares, prior to the effective date of any registration statement
or offering statement the Company and each Holder or holder of Warrants or
Warrant Shares being registered or qualified shall enter into reciprocal
indemnification agreements, in the form customarily used by reputable
investment bankers with respect to public offerings of securities, containing
substantially the same terms as described in Section 11. These indemnification
agreements also shall contain an agreement by the Holder or shareholder at
issue to indemnify and hold harmless the Company, its officers and directors
from and against any and all losses, claims, damages and liabilities,
including, but not limited to, all expenses reasonably incurred in
investigating, preparing, defending or settling any claim, directly resulting
from any untrue statements of material facts, or omissions to state a
material fact necessary to make a statement not misleading, contained in a
registration statement or offering statement to which this Section 9 applies,
if, and only if, the untrue statement or omission directly resulted from
information provided in writing to the Company by the indemnifying Holder or
shareholder expressly for use in the registration statement or offering
statement at issue.
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9.6. SURVIVAL. The Company's obligations described in this Section 9
shall continue in full force and effect regardless of the exercise,
surrender, cancellation or expiration of this Warrant.
SECTION 10. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any, attributable
to the initial issuance of the Warrants or the securities comprising the
Shares; provided, however, the Company shall not be required to pay any tax
which may be payable in respect of any transfer of the Warrants or the
securities comprising the Shares.
SECTION 11. INDEMNIFICATION AND CONTRIBUTION
11.1. INDEMNIFICATION BY COMPANY. In the event of the filing of a
registration statement with respect to the Warrant Shares pursuant to Section
9 hereof, the Company agrees to indemnify and hold harmless the holder of
Warrant Shares and each person, if any, who controls the holder of Warrant
Shares within the meaning of the Act, against any and all loss, claim, damage
or liability, joint or several (which shall, for all purposes of this
Agreement include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which such holder of Warrant
Shares may become subject, under the Act or otherwise, insofar as such loss,
claim, damage, or liability (or action with respect thereto) arises out of or
is based upon (a) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus, or the Final Prospectus or any
amendment or supplement thereto; or (b) the omission or alleged omission to
state in the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus or the Final Prospectus or any amendment or supplement
thereto a material fact required to be stated therein or necessary to make
the statements therein not misleading; except that the Company shall not be
liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage, or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the holder of such Warrant Shares specifically for use in the
preparation of the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus and the Final Prospectus or any amendment or supplement
thereto. This indemnity will be in addition to any liability which the
Company may otherwise have.
11.2. INDEMNIFICATION BY HOLDERS OF WARRANT SHARES. The holders of
Warrant Shares agree that they, severally, but not jointly, shall indemnify
and hold harmless the Company, each other person referred to in subparts (1),
(2) and (3) of Section 11(a) of the Act in respect of the Registration
Statement and each person, if any, who controls the Company within the
meaning of the Act, against any and all loss, claim, damage or liability,
joint or several (which shall, for all purposes of this Agreement include,
but not be limited to, all costs of defense and investigation and all
attorneys' fees), to which the Company may become subject under the Act or
otherwise, insofar as such loss, claim, damage, liability (or action in
respect thereto) arises out of or are based upon (a) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or the Final
Prospectus or any amendment or supplement thereto; or (b) the omission or
alleged omission to state in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or the Final Prospectus or any amendment
or supplement thereto a material fact required to be stated therein or
necessary to make the statements therein not misleading; except that such
indemnification shall be available in each such case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon information and in
conformity with written information furnished to the Company by the
Warrantholder or the holder of Warrant Shares specifically for use in the
preparation thereof. This indemnity will be in addition to any liability
which such Warrantholder or holder of Warrant Shares may otherwise have.
11.3. RIGHT TO PROVIDE DEFENSE. Promptly after receipt by an indemnified
party under Section 11.1 or 11.2 above of written notice of the commencement
of any action, the indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such section, notify the
indemnifying party in writing of the claim or the commencement of that
action; the failure to notify the indemnifying party shall not relieve it of
any liability which it may have to an indemnified party, except to the extent
that the indemnifying party did not otherwise have knowledge of the
commencement of the action and the indemnifying party's ability to defend
against the action was prejudiced by such failure. Such failure shall not
relieve the indemnifying party from any other liability which it
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may have to the indemnified party. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying
party thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under such section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; except that the holders
of Warrant Shares shall have the right to employ counsel to the holders of
Warrant Shares who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by such persons against the Company
under such section if, in such holders reasonable judgment, it is advisable
for those holders of Warrant Shares to be represented by separate counsel,
and in that event the fees and expenses of such separate counsel shall be
paid by the Company.
11.4. CONTRIBUTION. If the indemnification provided for in Sections
11.1 and 11.2 of this Agreement is unavailable or insufficient to hold
harmless an indemnified party, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages, or liabilities referred to in Sections 11.1 or 11.2
above in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and the holders of Warrant Shares in connection
with the statements or omissions which resulted in such losses, claims,
damages, or liabilities, as well as any other relevant equitable
considerations. Relative fault shall be determined by reference to, among
other things, whether the untrue statement of a material fact or the omission
to state a material fact relates to information supplied by the Company or
the holder of Warrant Shares and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such untrue
statement or omission. For purposes of this Section 11.4, the term "damages"
shall include any counsel fees or other expenses reasonably incurred by the
Company or the holders of Warrant Shares in connection with investigating or
defending any action or claim which is the subject of the contribution
provisions of this Section 11.4. No person adjudged guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it shall promptly
give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise (except as specifically provided in Section 11.4 hereof).
SECTION 12. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933
This Warrant, the Warrant Shares, and all other securities issued or
issuable upon exercise of this Warrant, may not be offered, sold or
transferred, in whole or in part, except in compliance with the Act, and
except in compliance with all applicable state securities laws. The Company
may cause substantially the following legends, or their equivalents, to be
set forth on each certificate representing the Warrant Shares, or any other
security issued or issuable upon exercise of this Warrant, not theretofore
distributed to the public or sold to underwriters, as defined by the Act, for
distribution to the public pursuant to Section 8 above:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR
TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH THE AGREEMENT
PURSUANT TO WHICH THEY WERE ISSUED."
(b) Any legend required by applicable state securities laws.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legends (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Act"), or the securities
represented thereby) shall also bear the above legends unless, in the opinion
of the Company's counsel, the securities represented thereby need no longer
be subject to such restrictions.
-10-
<PAGE>
SECTION 13. FRACTIONAL SHARES
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of all or any part of this Warrant. With respect to
any fraction of a share of any security called for upon any exercise of this
Warrant, the Company shall pay to the Holder an amount in money equal to that
fraction multiplied by the Current Market Price of that share.
SECTION 14. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Agreement or in the Warrants shall be
construed as conferring upon the Warrantholder or its transferees any rights
as a stockholder of the Company, including the right to vote, receive
dividends, consent or receive notices as a stockholder in respect to any
meeting of stockholders for the election of directors of the Company or any
other matter. The Company covenants, however, that for so long as this
Warrant is at least partially unexercised, it will furnish any Holder of this
Warrant with copies of all reports and communications furnished to the
shareholders of the Company. In addition, if at any time prior to the
expiration of the Warrants and prior to their exercise, any one or more of
the following events shall occur:
(a) any action which would require an adjustment pursuant to
Section 5.1 (except subsections 5.1(e) and 5.1(h) or 5.4; or
(b) a dissolution, liquidation, or winding up of the Company
(other than in connection with a consolidation, merger, or sale of its
property, assets, and business as an entirety or substantially as an
entirety) shall be proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 16 hereof, at least 20 days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the determination of
stockholders entitled to vote on such proposed dissolution, liquidation, or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to mail or receive notice or
any defect therein shall not affect the validity of any action taken with
respect thereto.
SECTION 15. CHARGES DUE UPON EXERCISE.
The Company shall pay any and all issue or transfer taxes, including,
but not limited to, all federal or state taxes, that may be payable with
respect to the transfer of this Warrant or the issue or delivery of Warrant
Shares upon the exercise of this Warrant.
SECTION 16. WARRANT SHARES TO BE FULLY PAID
The Company covenants that all Warrant Shares that may be issued and
delivered to a Holder of this Warrant upon the exercise of this Warrant and
payment of the Exercise Price will be, upon such delivery, validly and duly
issued, fully paid and nonassessable.
SECTION 17. NOTICES
Any notice pursuant to this Agreement by the Company or by a
Warrantholder or a holder of Warrant Shares shall be in writing and shall be
deemed to have been duly given if delivered or mailed by certified mail,
return receipt requested:
(i) If to a Warrantholder or a holder of Warrant Shares, addressed to
the address set forth above.
(ii) If to the Company addressed to it at 96 Inverness Drive East, #R,
Englewood, Colorado 80112, Attention: President.
-11-
<PAGE>
Each party may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith
to the other party.
SECTION 18. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section 5.4 are complied with.
SECTION 19. APPLICABLE LAW
This Warrant shall be governed by and construed in accordance with the laws
of the State of Colorado, and courts located in Colorado shall have exclusive
jurisdiction over all disputes arising hereunder.
SECTION 20. ARBITRATION.
The Company and the Holder, and by receipt of this Warrant or any Warrant
Shares, all subsequent Holders or holders of Warrant Shares, agree to submit
all controversies, claims, disputes and matters of difference with respect to
this Warrant, including, without limitation, the application of this Section
20 to arbitration in Denver, Colorado, according to the rules and practices
of the American Arbitration Association from time to time in force; provided,
however, that if such rules and practices conflict with the applicable
procedures of Colorado courts of general jurisdiction or any other provisions
of Colorado law then in force, those Colorado rules and provisions shall
govern. This agreement to arbitrate shall be specifically enforceable.
Arbitration may proceed in the absence of any party if notice of the
proceeding has been given to that party. The parties agree to abide by all
awards rendered in any such proceeding. These awards shall be final and
binding on all parties to the extent and in the manner provided by the rules
of civil procedure enacted in Oregon. All awards may be filed, as a basis of
judgment and of the issuance of execution for its collection, with the clerk
of one or more courts, state or federal, having jurisdiction over either the
party against whom that award is rendered or its property. No party shall be
considered in default hereunder during the pendency of arbitration
proceedings relating to that default.
SECTION 21. ACCEPTANCE OF TERMS; SUCCESSORS.
By its acceptance of this Warrant, the Holder accepts and agrees to comply
with all of the terms and provisions hereof. All the covenants and provisions
of this Warrant by or for the benefit of the Company or the Holder shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 22. MISCELLANEOUS PROVISIONS
(a) Subject to the terms and conditions contained herein, this
Warrant shall be binding on the Company and its successors and shall inure to
the benefit of the original Holder, its successors and assigns and all
holders of Warrant Shares and the exercise of this Warrant in full shall not
terminate the provisions of this Warrant as it relates to holders of Warrant
Shares.
(b) If the Company fails to perform any of its obligations hereunder,
it shall be liable to the Holder for all damages, costs and expenses
resulting from the failure, including, but not limited to, all reasonable
attorney's fees and disbursements.
(c) This Warrant cannot be changed or terminated or any performance
or condition waived in whole or in part except by an agreement in writing
signed by the party against whom enforcement of the change, termination or
waiver is sought; provided, however, that any provisions hereof may be
amended, waived, discharged or terminated only upon the written consent of
the Company and all of the holders of Warrants.
(d) If any provision of this Warrant shall be held to be invalid,
illegal or unenforceable, such provision shall be severed, enforced to the
extent possible, or modified in such a way as to make it enforceable, and the
invalidity, illegality or unenforceability shall not affect the remainder of
this Warrant.
-12-
<PAGE>
(e) The Company agrees to execute such further agreements,
conveyances, certificates and other documents as may be reasonably requested
by the Holder to effectuate the intent and provisions of this Warrant.
(f) Paragraph headings used in this Warrant are for convenience only
and shall not be taken or construed to define or limit any of the terms or
provisions of this Warrant. Unless otherwise provided, or unless the context
shall otherwise require, the use of the singular shall include the plural and
the use of any gender shall include all genders.
Dated January 13, 1998
---------------------------
TRAINING DEVICES INCORPORATED
By: /s/ Robert T. Bruce
-------------------------------------
Robert T. Bruce, CEO
-13-
<PAGE>
SCHEDULE 10.7
The following persons and entities executed Warrants, the form of which is
attached as EXHIBIT 10.7 in the Company's October 1997 private offering:
<TABLE>
<CAPTION>
NAME DATE SHARES WARRANTS
---- ---- ------ --------
<S> <C> <C> <C>
Caribou Bridge Fund LLC 10/14/97 25,000 12,500
Kiawah Capital Partners 10/14/97 8,333 4,167
Delaware Charter TTEE 10/14/97 40,000 20,000
FBO Steven M. Bathgate, KEOGH
Delaware Charter TTEE FBO 10/14/97 6,667 3,333
Lawrence Bathgate IRA
John D. Phillips 10/14/97 3,333 1,667
Kenneth Scott Bernstein 10/16/97 8,333 4,167
James Edgar McDonald, Trustee 10/16/97 13,333 6,667
James Edgar McDonald Revocable
Living Trust
Virginia Stevens McDonald, Trustee 10/16/97 13,333 6,667
Virginia Stevens McDonald Revocable
Trust
Eugene C. McColley 10/18/97 8,333 4,167
Hanifen Imhoff TTEE 10/14/97 3,333 1,667
FBO Dudley Bailey IRA
James M. Fleming 10/17/97 3,333 1,667
Edward C. Larkin 10/21/97 2,500 1,667
John V. Atanasoff 10/22/97 3,333 1,667
</TABLE>
Schedule 10-7 Page 1
<PAGE>
<TABLE>
<CAPTION>
NAME DATE SHARES WARRANTS
---- ---- ------ --------
<S> <C> <C> <C>
Robert C. Nice 10/22/97 2,500 1,250
Paul E. Mendell 10/27/97 833 417
John Jenkins 10/28/97 1,667 833
Barbara P. McLean 10/29/97 1,667 833
The Webb Family Trust, L. M. Webb 10/31/97 8,333 4,167
and/or M.A. Webb, Trustees
McDonald & Co. Sec. 10/31/97 5,000 2,500
FBO Barry G. Frederickson IRA
Jeffrey E. Sigman 10/31/97 1,667 833
Hanifen Imhoff 10/31/97 3,333 1,667
FBO Fred Duboc IRA
Wayne M. Hamersly 11/3/97 5,000 2,500
Kathleen M. Malo TTEE 11/6/97 3,333 1,667
FBO Kathleen M. Malo Trust
Debra A. Korbelik Trust 11/6/97 5,000 2,500
Steven C. Owsley 11/6/97 3,333 1,667
Bloomquist Family Partnership 11/6/97 833 417
Edward C. Larkin 11/10/97 833 0
</TABLE>
Schedule 10-7 Page 2
<PAGE>
<TABLE>
<CAPTION>
NAME DATE SHARES WARRANTS
---- ---- ------ --------
<S> <C> <C> <C>
Brenman Bromberg & Tenanbaum, 11/10/97 3,333 1,667
P.C. 401(k) P/S Plan FBO Albert
Brenman
Brenman Bromberg & Tenanbaum, 11/10/97 1,667 833
P.C. 401(k) P/S Plan
FBO A. Thomas Tenanbaum
Robert M. Nieder 11/10/97 5,000 2,500
J. Scott Liolos 11/10/97 1,667 833
Randy & Rori Sasald 11/10/97 1,667 833
Joseph A. Lavigne 11/13/97 1,667 833
Paul Baryames 11/14/97 3,333 1,667
Edmond O'Donnell 11/18/97 3,333 1,667
Gary E. Keogh 11/19/97 1,667 833
James M. Gerben 11/21/97 3,333 1,667
Gorge Investments LLC 11/26/97 3,333 1,667
Michael Ng 12/10/97 3,333 1,667
Stanley G. Neujahr 12/22/97 1,667 833
Michael J. Gorman 12/23/97 833 417
</TABLE>
Schedule 10-7 Page 3
<PAGE>
<TABLE>
<CAPTION>
NAME DATE SHARES WARRANTS
---- ---- ------ --------
<S> <C> <C> <C>
Southwest Securities 12/23/97 3,333 1,667
FBO Anthony Silverman IRA
Richard T. Huebner 12/30/97 6,667 3,333
George A. Johnson 12/30/97 8,333 4,167
Skyline Real Estate Management 1/9/98 1,667 833
Defined Benefit pension Plan ------- -------
TOTAL 238,333 119,167
</TABLE>
Schedule 10-7 Page 4
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS
THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
THE SATISFACTION OF THE COMPANY.
Warrant Certificate No. PAW-B3
TRAINING DEVICES INCORPORATED
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
WARRANTS TO PURCHASE 3,000 SHARES OF COMMON STOCK
Vicki D.E. Barone, the registered holder hereof or assigns (the
"Warrantholder"), is entitled to purchase from Training Devices Incorporated
(the "Company"), at any time during the period commencing at 9:00 a.m.,
Colorado time, on December 31, 1997, and expiring at 5:00 p.m., Colorado
time, on January 2, 2003, at the purchase price per Share of $2.00 (the
"Exercise Price"), the number of shares of Common Stock of the Company set
forth above (the "Shares"). The number of shares of Common Stock of the
Company purchasable upon exercise of the Warrants evidenced hereby shall be
subject to adjustment from time to time as set forth in the Warrant Agreement
dated December 31, 1997, between the Company and Bathgate McColley Capital
Group, LLC (the "Warrant Agreement").
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached
hereto duly executed and simultaneous payment of the Warrant Price at the
principal office of the Company. Payment of such price shall be made at the
option of the Warrantholder in cash or by check or by Cashless Exercise
subject to the provisions of Section 3 of the Warrant Agreement (as that term
is defined therein).
The Warrants evidenced hereby are issued under and in accordance with the
Warrant Agreement, and are subject to the terms and provisions contained in
the Warrant Agreement, to all of which the Warrantholder by acceptance hereof
consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in
respect of the Shares as to which the Warrants evidenced hereby shall not
have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of Shares as here evidenced by
the Warrant or Warrants exchanged. No fractional shares of Common Stock will
be issued upon the exercise of rights to purchase hereunder, but the Company
shall pay the cash value of any fraction upon the exercise of one or more
Warrants. These Warrants are transferable at the office of the Company in the
manner and subject to the limitations set forth in the Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Company.
Dated: December 31, 1997 TRAINING DEVICES INCORPORATED
[Seal]
Attest:
Leonard J. Hawkins By: Robert T. Bruce
- ----------------------------- ---------------------------
Secretary
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of__________1997, by and among Training Devices Incorporated,
a Colorado corporation (the "Company"), and the Persons listed on the
attached Schedule A to this Agreement (the "Purchaser").
This Agreement is made pursuant to the Confidential Private Placement
Memorandum dated October 3, 1997 (the "Memorandum") and related Subscription
Documents covering the issuance of Units consisting of two shares of Common
Stock and one Redeemable Common Stock Purchase Warrant of the Company.
The parties hereby agree as follows:
1. DEFINITIONS.
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control
with such Person. For the purposes of this definition only, "control," when
used with respect to any Person, means the possession, direct or indirect of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract
or otherwise; and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state
of Colorado generally are authorized or required by law or other governmental
actions to close.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, no par value per share.
"EFFECTIVE DATE" means the date on which the Registration Statement is
declared effective.
"EFFECTIVE PERIOD" means the period beginning on the Effective Date and
ending on the earlier of (i) the date all of the Registered Securities have
been sold, (ii) one year after the exercise of the last Unit Warrant, or
(iii) one year after the expiration of the Unit Warrants.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HOLDER" or "HOLDERS" means the holder or Holders, as the case may be,
from time to time of Registrable Securities.
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, Limited liability
company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PRIVATE PLACEMENT" means the offering of securities of the Company made
pursuant to the Memorandum through Bathgate McColley Capital Group, LLC, as
the Placement Agent.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation of partial proceeding, such
as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and an other amendments and
supplements to the
1
<PAGE>
Prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such
Prospectus.
"REGISTRABLE SECURITIES" means the Common Stock issuable upon exercise
of the Unit Warrants.
"REGISTRATION STATEMENT" means the registration statement contemplated
by Section 2 of this Agreement, including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"UNDERWRITTEN OFFERING" means an offering in connection with which
securities of the Company are sold to an underwriter for reoffering to the
public pursuant to an effective Registration Statement.
"UNIT WARRANTS" means the warrants to purchase shares of the Company's
Common Stock which are issued as part of the Units in the Private Placement.
2. PIGGYBACK REGISTRATION RIGHTS. The Company will cause to be
registered, on the next Registration Statement filed by the Company, all of
the Registrable Securities and to use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after its filing. The Registration Statement shall be
on Form SB-2, Form S-1, Form S-3, or such other form as is appropriate in
order to register securities with the Commission pursuant to Section 5 of the
Securities Act. The Company covenants to maintain the Registration Statement
continually effective under the Securities Act for the Effective Period. An
offering of Registrable Securities pursuant to the Registration Statement may
be effected in conjunction with an Underwritten Offering. No Holders may
participate in any Underwritten Offering hereunder unless such Person (i)
agrees to comply with the terms of the Lock-Up Agreement described in
paragraph 4.3 of this Agreement, and (ii) completes and executes all
documents reasonably requested by the underwriter.
3. REGISTRATION PROCEDURES. In connection with the Registration Statement,
if and when it is filed hereunder, the Company shall:
3.1 Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary
to keep the Registration Statement continuously effective for the Effective
Period.
3.2 Cause the related Prospectus to be amended or supplemented by any
required Prospectus amendment or supplement, and cause such amendment or
supplement to be filed pursuant to Rule 424 (or any similar provisions then
in force) promulgated under the Securities Act.
3.3 Respond as promptly as practicable to any comments received from the
Commission with respect to the Registration Statement or any amendment
thereto.
3.4 Notify the Holders of Registrable Securities to be sold as to (i)
when a Prospectus or any Prospectus supplement or post-effective amendment to
the Registration Statement is proposed to be filed and, with respect to the
Registration Statement or any post-effective amendment, when the same has
become effective; (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for
that purpose; (iii) if at any time any of the representations and warranties
of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects; (iv) the receipt by the Company 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; and (v) of the occurrence of
any event that makes any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein
by reference untrue in any material respect or that requires any revisions to
the Registration Statement, Prospectus or other documents so that, in the
case of the Registration Statement or the Prospectus, as the case may be, it
will not contain any untrue statement of
2
<PAGE>
a material fact or omit to state any material fact required to be stated
therein or necessary to make statements therein, in light of the
circumstances under which they were, not misleading.
3.5 Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.
3.6 Furnish to each Holder and any managing underwriter, without
charge, at least one copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all
exhibits to the extent required by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.
3.7 Promptly deliver to each Holder and any underwriters, without
charge as many copies of the Prospectus or Prospectuses (including each form
of prospectus) and each amendment or supplement thereto as such persons may
reasonably request. The Company hereby consents to the use of each
Prospectus and each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
3.8 Prior to any public offering of Registrable Securities, use its
best effort to register or qualify or cooperate with the selling Holders, any
underwriters and their respective counsel in connection with the registration
or qualification (or exemption from such registration or qualification) of
such Registrable Securities for offer and sale under the securities or Blue
Sky laws of such jurisdictions with the United States as any Holder or
underwriter reasonably requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effective Period
and to do any and all other acts or things necessary or advisable to enable
the disposition in such jurisdictions of the Registrable Securities covered
by the Registration Statement; provided, however that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject
or subject the Company to any material tax in any such jurisdiction where it
is not then so subject.
3.9 Cooperate with the holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall be free of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such managing underwriters
or Holders may request at least two Business Days prior to any sale of
Registrable Securities.
3.10 As promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document
so that, as thereafter delivered, neither the Registration Statement nor
such Prospectus will contain an untrue statement of 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 under which they were made,
not misleading.
3.11 Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on each securities exchange or
market, if any, on which similar securities issued by the Company are then
listed.
3.12 Entered into such agreements (including an underwriting agreement
in form, scope and substance as is customary in underwritten offerings) and
take all such other actions in connection therewith (including those
reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not
an underwriting agreement is entered into, (i) make such representations and
warranties to such underwriters as are customarily made by issuers to
underwriters in underwritten public offerings, and confirm the same if and
when requested; (ii) obtain and deliver copies thereof to the managing
underwriters, if any, of opinions of counsel to the Company and updates
thereof addressed to each such underwriter, in form, scope and substance
reasonably
3
<PAGE>
satisfactory to any such managing underwriters covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by the underwriters; (iii)
immediately prior to the effectiveness of the Registration Statement, and in
the case of an underwritten offering, at the time of delivery of any
Registrable Securities sold pursuant thereto, obtain and deliver copies to
the managing underwriters, if any, of "cold comfort" letters and updates
thereof from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of
any subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data is, or is required to be,
included in the Registration Statement), addressed to each of the
underwriters, if any, in form and substance as are customary in connection
with underwritten offerings; and (iv) deliver such documents and certificates
as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold and any managing underwriters to evidence
the continued validity of the representations and warranties made above and
to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered by the Company.
3.13 Make all financial and other records, pertinent corporate
documents, and properties of the Company and its subsidiaries available for
inspection by any underwriter participation in any disposition of Registrable
Securities, and any attorney or accountant retained by such underwriters, at
the offices where normally kept, during reasonable business hours, and cause
the officers, directors, agents, and employees of the Company and its
subsidiaries to supply all information in each case requested by any such
representatives, underwriter, attorney or accountant in connection with the
Registration Statement; provided however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential
by such Persons, unless (i) disclosure of such information is required by
court or administrative order or is necessary to respond to inquires of
regulatory authorities; (ii) such information becomes generally available to
the public other than as a result of a disclosure or failure to safeguard by
such Person; or (iv) such information becomes available to such Person from a
source other than the Company and such source is not bound by a
confidentiality agreement.
3.14 Comply with all applicable rules and regulations of the Commission.
3.15 Provide a CUSIP number for all Registrable Securities as soon as
practicable but prior to the effective date of the Registration Statement.
3.16 The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration
Statement and the Company may exclude from such registration the Registrable
Securities of any such Holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request.
3.17 If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (i) the inclusion therein of language, in
form and substance reasonably satisfactory to such Holder, to the effect that
the ownership by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such ownership does not imply that such
Holder will assist in meeting any future financial requirements of the
Company, or (ii) if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force,
the deletion of the reference to such Holder in any amendment or supplement
to the Registration Statement filed or prepared subsequent to the time that
such reference ceases to be required.
4. PURCHASER COVENANTS
4.1 Each Purchaser covenants and agrees that (i) he will not offer or
sell any Registrable Securities under the Registration Statement until he has
received copies of the Prospectus as then amended or supplemented as
contemplated in this Agreement and notice from the Company that such
Registration statement and any post-effective amendments thereto have become
effective as contemplated in this Agreement, and (ii) the Purchaser and its
officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in
connection with sales of Registrable Securities pursuant to the Registration
Statement.
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4.2 Each Purchaser agrees by its acquisition of such Registrable
Securities that upon receipt of a notice from the Company of the occurrence
of any event of the kind which renders the current Prospectus misleading,
such Purchaser will forthwith discontinue disposition of such Registrable
Securities until such Purchaser's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement, or until it is advised in
writing by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemented filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
4.3 Each Purchaser agrees not to sell or otherwise to transfer or
dispose of any Registrable Securities during the period not to exceed two
hundred seventy (270) following the effective date of the Registration
Statement, or such lesser time as requested by the managing underwriter of
the Underwritten Offering, provided that all of the officers and directors
enter into similar agreements. Such agreement shall be confirmed in writing
in a form satisfactory to the Company and such underwriter. The Company may
impose stop-transfer instructions with respect to the Common Stock subject to
the foregoing restriction until the end of such period.
5. REGISTRATION EXPENSES. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company, whether or not the Registration Statement becomes effective and
whether or not all Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall not include any fees or expenses incurred by the Holders, but
shall include, without limitation, (i) all registration and filing fees (A)
with respect to filings required to be made with the National Association of
Securities Dealers, Inc. and (B) in compliance with state securities or Blue
Sky laws for the underwriters or Holders in connection with Blue Sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as the managing underwriters, if any, or Holders of a
majority of Registrable Securities may designate; (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
Holders of a majority of the Registrable Securities included in the
Registration Statement); (iii) messenger, telephone and delivery expenses;
(iv) fees and disbursements of counsel for the Company but not for the
Holders, subject to the provisions of this Paragraph 5; (v) fees and
disbursements of all independent certified public accountants for the Company
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance); (vi)
Securities Act liability insurance, if the Company so desires such insurance;
and (vii) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, and the fees and
expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange or on the NASDAQ System.
6. RULE 144. After the Effective Date, the Company shall file the reports
required to be filed by it under the Securities Act and the Exchange Act in a
timely manner and if at any time the Company is not required to file such
reports, they will, upon the request of any Holder, make publicly available
other information so long as necessary to permit sales of its securities
pursuant to Rule 144. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent
required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within limitation of
the exemptions provided by Rule 144.
7. REMEDIES. In the event of a breach by the Company or by a Holder of any
of their obligations under this Agreement, each Holder or the Company, as the
case may be, in addition to being entitled to exercise all rights granted by
law and under this agreement, including recovery of damages, will be entitled
to specific performance of its rights under this Agreement. The Company and
each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of
any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
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8. NO INCONSISTENT AGREEMENTS. The Company has not, as of the date of this
Agreement, not shall the Company on or after the date of this Agreement,
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof.
9. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the Schedule
hereto, contains the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters.
10. AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
HOlders of at least a majority of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence.
Registrable Securities that are owned directly or indirectly by the Company
or an Affiliate of the Company are not deemed outstanding. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and
that does not directly or indirectly affect the rights of other Holders may
be given by Holders of at least a majority of the Registrable Securities to
which such waiver or consent relates; provided, however, that to provisions
of this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.
11. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with
correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered
on a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
address for such communications shall be:
If to the Company:
Training Devices Incorporated
96 Inverness Drive East, #R
Englewood, Colorado 80112
Attention: President
With copies to:
Alan Peryam, Esq.
1120 Lincoln Street, Suite 1000
Denver, Colorado 80110
If to the Purchaser: To the address of such Purchaser that appears in the
stock transfer books of the Company.
12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and
be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as it such facsimile signature were the original
thereof.
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14. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. This
Agreement shall be governed by and construed in accordance with the laws of
the State of Colorado, without regard to principles of conflicts of law. The
Company hereby irrevocably submits to the jurisdiction of any state or
federal court sitting in the County of Arapahoe, State of Colorado
(collectively, the "Courts") in respect of any proceeding arising out of or
in relation to this Agreement (a "Proceeding"), and irrevocably accepts for
itself and in respect of its property, generally and unconditionally,
jurisdiction of the Courts. The Company irrevocably waives to the fullest
extent it may effectively do so under applicable law any objection that it
may now or hereafter have to the laying of the venue of any such proceeding
brought in any Court and any claim that any such Proceeding brought in any
Court has been brought in an inconvenient forum. Nothing herein shall affect
the right of any Holder to serve process in any manner permitted by law or to
commence legal proceedings or otherwise proceed against the Company in any
other jurisdiction.
15. CUMULATIVE REMEDIES. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
16. SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may hereafter be declared
invalid, illegal, void or unenforceable.
17. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
18. SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its
Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TRAINING DEVICES INCORPORATED
By: --------------------------
Bruce Betschart, President
PURCHASER:
See Attached List
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SCHEDULE 10.9
The following entities executed the Registration Rights Agreement in
connection with the October 1997 private offering, the form of which is
attached as EXHIBIT 10.9:
See SCHEDULE 10.7 for a list of parties.
Schedule 10-9 Page 1
<PAGE>
PLACEMENT AGENT AGREEMENT
October 8, 1997
Board of Directors
Training Devices Incorporated
96 Inverness Drive East, #R
Englewood, Colorado 80112
Gentlemen:
Bathgate McColley Capital Group, LLC. (the "Placement Agent"), hereby
confirms its agreement with you (the "Company") as follows:
SECTION 1
DESCRIPTION OF SECURITIES
The Company proposes to offer and sell to qualified investors up to
400,000 units of the Company's securities on terms as set forth herein.
Each unit ("Unit" or "Units") shall consist of two shares ("Shares") of
the Company's no par value common stock ("Common Stock") and one Redeemable
Common Stock Purchase Warrant ("Warrant" or "Warrants"). One Warrant will
entitle the Holder to purchase one share of Common Stock at an exercise price
(the "Exercise Price") of $4.00 per share. As used in this Agreement, the
term "Memorandum" refers to a Private Placement Memorandum dated October 8,
1997. The Units, Common Stock and Warrants shall be as further described in
the Memorandum and shall be sold on the terms and conditions as described
herein and in the Memorandum.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Placement Agent to enter into this Agreement, the
Company hereby represents and warrants to and agrees with the Placement Agent
as follows:
2.01. PRIVATE PLACEMENT MEMORANDUM. The Memorandum with respect to the
Units and all exhibits thereto, copies of which have heretofore been
delivered by the Company to the Placement Agent, has been carefully prepared
by the Company in conformity with Regulation D ("Regulation D") promulgated
pursuant to the Securities Act of 1933, as amended (the "Act"), and with
comparable provisions of the securities laws of and other states as may be
reasonably requested by the Placement Agent. The Memorandum does not include
any untrue statement of a material fact or omit to a 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, however, the Company does not make any representations or warranties
as to information contained in or omitted from the Memorandum in reliance
upon written information furnished on behalf of the Placement Agent
specifically for use therein. Any additional written information authorized
by the Company to be provided to prospective purchasers 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 under which they were made, not misleading.
2.02. FINANCIAL STATEMENTS. The financial statements of the Company,
together with related Schedules and Notes as set forth in the Memorandum,
present fairly the financial position and the results of operations of the
Company at the represented dates and for the represented periods to which
they apply; such financial statements have been prepared in accordance with
generally accepted accounting principles which have been consistently applied
throughout the periods concerned except as otherwise stated therein.
2.03. NO MATERIAL ADVERSE CHANGE. Except as may be reflected in or
contemplated by the Memorandum, subsequent to the dates as of which
information is given in the Memorandum, and prior to the Closing
<PAGE>
Date (as defined hereinafter), (i) there shall not be any material adverse
change in the business, properties, options to lease, leases, financial
condition, management, or otherwise of the Company or in the Company's
business taken as a whole, (ii) there shall not have been any material
transaction entered into by the Company other than transactions in the
ordinary course of business; (iii) the Company shall not have incurred any
material obligations, contingent or otherwise, which are not disclosed in the
Memorandum; (iv) there shall not have been nor will there be any change in
the capital stock or adverse change in the short-term or long-term debt
(except current payments) of the Company; and (v) the Company has not and
will not have paid or declared any dividends or other distributions.
2.04. NO DEFAULTS. The Company is not in default in the performance
of any obligation, agreement or condition contained in any debenture, note or
other evidence of indebtedness or any indenture or loan agreement of the
Company, other than as set forth in the Memorandum. The execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated, and compliance with the terms of this Agreement will not
conflict with or result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, the articles of incorporation
or bylaws of the Company, or any note, indenture, mortgage, deed of trust, or
other agreement or instrument to which the Company is a party or by which it
or any of its property is bound, or any existing law, order, rule,
regulation, writ, injunction, or decree or any government, governmental
instrumentality, agency or body, arbitrator, tribunal or court, domestic or
foreign, having jurisdiction over the Company or its property. The consent,
approval, authorization, or order of any court or governmental
instrumentality, agency or body is not required for the consummation of the
transactions herein contemplated except such as may be required under the Act
or under the securities laws of any state or jurisdiction.
2.05. ORGANIZATION AND STANDING. The Company is, and at the Closing
Date will be, duly organized and validly existing in good standing as a
corporation under the laws of its state of incorporation and with full power
and authority to own its property and conduct its business, present and
proposed, as described in the Memorandum; the Company has full power and
authority to enter into this Agreement and to issue the securities comprising
the Units, and the Company is duly qualified and in good standing as a
foreign corporation in all jurisdictions in which the character of the
property owned or leased or the nature of the business transacted by it makes
such qualification necessary. The Company had paid all fees required by the
jurisdiction of organization and any jurisdiction in which it is qualified as
a foreign corporation.
2.06. CAPITALIZATION. Prior to the Closing Date, the capitalization
of the Company shall consist of a total of no more than 2,888,000 shares of
Common Stock of the Company issued and outstanding, not including shares
issuable upon the exercise of outstanding options, warrants or purchase
rights or upon the conversion of outstanding convertible securities.
2.07. LEGALITY OF UNITS. The securities comprising the Units have
been duly and validly authorized and, when issued or sold and delivered
against payment therefor as provided in this Agreement, will be validly
issued, fully paid and nonassessable. The securities comprising the Units
will conform in all material respects to all statements with regard thereto
in the Memorandum. A sufficient number of shares of Common Stock of the
Company has been reserved for issuance upon exercise of the Warrants.
2.08. PRIOR SALES. No securities of the Company have been sold by the
Company or by, or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company at any
time prior to the date hereof, except as set out in the Memorandum. No prior
securities sales by the Company or any affiliate are required to be
integrated with the proposed sale of the Units such that the availability of
Regulation D or any other claimed exemption from the registration
requirements of the Act would be made unavailable to the offer and sale of the
Units.
2.09. LITIGATION. There is and at the Closing Date there will be no
action, suit or proceeding before any court or governmental agency, authority
or body pending or to the knowledge of the Company threatened which might
result in judgments against the Company, or its officers, directors,
employees or agents which the Company is obligated to indemnify, not
adequately covered by insurance and which collectively might result in any
material adverse change in the condition (financial or otherwise), the
business or the prospects of the Company or would materially affect the
properties or assets of the Company.
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2.10. FINDER. No person has acted as a finder in connection with the
transactions contemplated herein, and the Company will indemnify the Placement
Agent with respect to any claim for finder's fees in connection herewith. The
Company further represents that it has no management or financial consulting or
advisory agreement with anyone except as set forth in the Memorandum. The
Company additionally represents that no officer, director, or 5% or greater
shareholder of the Company is, directly or indirectly, associated with a
National Association of Securities Dealers, Inc. member broker-dealer, other
than such persons as the Company has advised the Placement Agent in writing are
so associated.
2.11. CONTRACTS. Each contract to which the Company is a party and to
which reference is made in the Memorandum has been duly and validly executed, is
in full force and effect in all material respects in accordance with their
respective terms, and none of such contracts has been assigned by the Company;
and the Company knows of no present situation or condition or fact which would
prevent compliance with the terms of such contracts, as amended to date. Except
for amendments or modifications of such contracts in the ordinary course of
business, the Company has no intention of exercising any right which it may have
to cancel any of its obligations under any of such contracts, and has no
knowledge that any other party to any of such contracts has any intention not to
render full performance under such contracts.
2.12. TAX RETURNS. The Company has filed all federal, state and
municipal tax returns which are required to be filed, and has paid all taxes
shown on such returns and on all assessments received by it to the extent such
taxes have become due. All other taxes with respect to which the Company is
obligated have been paid or adequate accruals have been set up to cover any such
unpaid taxes, including all federal and state withholding and FICA payments.
2.13. PROPERTY. Except as otherwise set forth in the Memorandum, the
Company has good title, free and clear of all liens, encumbrances and defects,
except liens for current taxes not due and payable, to all property and assets
which are described in the Memorandum as being owned by the Company, subject
only to such exceptions as are not material and do not adversely affect the
present or prospective business of the Company. All of the claims, options to
lease, leases and subleases material to the business of the Company under which
the Company holds or uses any real or personal property, including those
described or referred to in the Memorandum, are in full force and effect, and
the Company is not in default in respect of any of the terms or provisions of
any such claims, options to lease, leases or subleases, and no claim of any sort
has been asserted by anyone adverse to the Company's rights under any such
claims, options to lease, leases or subleases or affecting or questioning the
Company's rights to the continued possession of the claimed, optioned, leased or
subleased property covered by such claim, options to lease, lease or sublease.
2.14. AUTHORITY. The execution and delivery by the Company of this
Agreement has been duly authorized, and this Agreement is the valid, binding and
legally enforceable obligation of the Company.
2.15. USE OF PROCEEDS. The Company will apply the proceeds from the
sale of the Units to the purposes set forth in the Memorandum. The Company will
also establish procedures to ensure proper application and stewardship of such
proceeds.
2.16. NO LIMITATIONS ON PAYMENT OF DIVIDENDS. Except as otherwise set
forth in the Memorandum, there are no limitations, either contractual or
otherwise, nor will the Company enter into any agreement with any other party,
which prevents or limits the Company's ability to declare or pay dividends on
its Common Stock.
SECTION 3
ISSUE, SALE AND DELIVERY OF THE UNITS
3.01. PLACEMENT AGENT APPOINTMENT. The Company hereby appoints the
Placement Agent as its exclusive agent until October 31, 1997, which period may
be extended for additional periods until December 31, 1997, by mutual consent of
the Company and the Placement Agent (the "Sales Termination Date"), to solicit
purchasers for up to 150,000 Units on a "best efforts, all-or-none" basis and to
solicit purchasers for an additional 250,000 Units on a "best efforts" basis (or
330,000 additional Units pursuant to Section 3.04 if the Offering is
over-subscribed); and the Placement Agent, on the basis of the representations
and warranties herein contained, but
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<PAGE>
subject to the terms and conditions herein set forth, accepts such appointment
and agrees to use its best efforts to find purchasers for the Units at the price
of $4.00 per Unit, provided that the Company reserves the right to reject in
good faith any prospective investor ("Investor") and no commission shall be
payable to the Placement Agent in respect of any proposed sale to any rejected
Investor. No other person will be or has been authorized to solicit purchasers
for the Units, except those persons selected by the Placement Agent. Each
Investor must subscribe for at least 5,000 Units ($20,000), and must certify to
the Company that such investor is an "Accredited Investor" as defined in Rule
501(a) of Regulation D or otherwise satisfies all requirements imposed by the
Company and Placement Agent in sales to a limited number of non-accredited
Investors. Notwithstanding the above, the Company and the Placement Agent may
mutually agree to accept a subscription for fewer than 5,000 Units.
3.02. ESCROW ACCOUNT. It is hereby agreed between the Company and the
Placement Agent that unless 150,000 Units ("Escrow Units") are sold and paid for
by Investors by the Sales Termination Date, this Agreement shall automatically
be terminated and the entire proceeds received from the sale of the Units shall
be returned to the Investors, without deduction therefrom or interest thereon.
During the period of the offering, the proceeds from the sale of at least the
first 150,000 ($600,000) Units shall be promptly deposited in an escrow account
("Escrow Account") entitled "Bathgate McColley-Training Devices Incorporated
Escrow Account" with MegaBank of Arapahoe (the "Escrow Agent"). The agreement
establishing the Escrow Account ("Escrow Agreement") shall be in form and
content satisfactory to counsel for the Placement Agent and the Company. The
proceeds from any sale of Units after the First Closing (hereinafter defined)
shall be deposited to a separate interest-bearing account requiring the
signatures of the Company and the Placement Agent to withdraw funds. Additional
Closings will be held no less frequently than weekly. If the Escrow Account is
not used for such purpose, the Company promptly shall pay the commission
provided in Section 3.05 and the expense reimbursement provided in Section 3.07
to the Placement Agent.
3.03. SUBSCRIPTION AGREEMENT. Each Investor desiring to purchase Units
will be required to complete and execute a Subscription Agreement and, if
applicable, all other offering documents. The Placement Agent shall have the
right to review such documents for each Investor and to reject the tender of any
Investor which it deems not acceptable. All documents concerning any Investor
the Placement Agent has not rejected will be promptly forwarded to the Company
at the address set forth below. The Company, upon receipt of the documents,
will determine within three (3) business days whether it wishes to accept the
Investor. Payment for the Units subscribed for in the Subscription Agreements
which have been accepted by the Company is to be delivered to the Company on the
Closing Date (as hereinafter defined).
3.04. SUBSCRIPTION ACCEPTANCE. The acceptance of subscriptions for
Units tendered by Investors will be conditional upon (i) the tendering of
Subscriptions for at least 150,000 Units ("Minimum Subscriptions") by the Sales
Termination Date, and (ii) the receipt, on the Closing Date, of the net proceeds
from subscribers for the Minimum Subscriptions ("Minimum Payments") less
commissions and non-accountable expense allowances due the Placement Agent as
provided hereinafter. If subscriptions are received for more than 400,000
Units, the Company may accept one subscription over another and/or allocate
available Units among subscribers as it deems appropriate. In addition, if the
Offering is over-subscribed, the Company, in its sole discretion, may accept
subscriptions for an additional 80,000 Units.
3.05. COMPENSATION OF PLACEMENT AGENT. In consideration for the
Placement Agent's execution of this Agreement, and for the performance of its
obligations hereunder, the Company agrees to pay the Placement Agent a
commission of eight percent (8%) of the gross proceeds received from the sale of
the Units ($.32 per Unit); provided, that on any sale to an investor directed by
the Company to the Placement Agent, the commission will be five percent (5%);
and provided further that, in the event Minimum Subscriptions are not received
or Minimum Payments are not made and the offering is terminated, the Placement
Agent shall not receive any commission. Any commissions payable to the
Placement Agent under this paragraph shall be payable on the Closing Date or as
otherwise provided herein.
3.06. PAYMENT. Payment for Units sold shall be made by the Escrow
Agent to the Company at such place as may be agreed on among the Company and the
Placement Agent, at such a time and on such a date, as shall be fixed by
agreement between the parties, which in no case shall be later than eight (8)
days after the Sales Termination Date. The delivery of the Units against
payment therefore is defined as the "Closing" and the time and
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<PAGE>
date thereof are defined as the "Closing Date." The first Closing Date will be
held when the Minimum Payments are received ("First Closing"). It is
anticipated that there may be additional Closings as additional funds are
received, and the final Closing will be referred to as the "Final Closing."
The Final Closing could also be the First Closing in the event that no Units
are sold after the First Closing. As soon as practicable after each Closing
Date, the Company shall deliver by mail to each Investor a certificate for the
securities underlying the Units that have been purchased and which contains a
legend conforming to the requirements of Rule 502(d)(3) under the Act.
3.07. NON-ACCOUNTABLE EXPENSE ALLOWANCE. The Company shall pay the
Placement Agent a non-accountable expense allowance of two percent (2%) of the
proceeds from the sale of Units, payable at each Closing: provided that no
expense allowance shall be paid for sales to investors directed to the
Placement Agent by the Company.
3.08. FUTURE CORPORATE FINANCING TRANSACTIONS. The Company grants to
the Placement Agent right of first refusal for a period of four (4) months
after the First Closing to act as managing underwriter for any public
offerings or placement agent for any private offerings of its securities
contemplated by the Company or any of its subsidiaries. The right shall
continue in effect during the entire four (4) month period despite the
exercise of the right or the refusal to exercise the right during the period.
The Placement Agent shall have thirty (30) days within which to determine
whether to exercise the right.
In addition, if the Placement Agent determines not to exercise the right,
upon the request of the Placement Agent, the Company agrees that the Placement
Agent will be designated as a co-manager of any public offering of its
securities and will receive at least 20% of the management fee for acting in
such capacity. The Placement Agent may waive this right of first refusal upon
the payment by the Company to the Placement Agent of a fee equal to 0.75% of the
gross proceeds of the proposed public offering.
3.09. OBLIGATIONS OF PLACEMENT AGENT. The Company agrees that the
obligations of the Placement Agent under this Agreement: (i) shall not preclude
the Placement Agent from contemporaneously participating in the offering or
underwriting of securities of other issuers; (ii) shall not impose any
obligation on the Placement Agent to require its registered representatives to
offer or to sell the Units, (iii) shall require the Placement Agent to make an
effort to find purchasers for the Units only to the extent the Placement Agent
is motivated to do so by the compensation and other provisions of this
Agreement, (iv) shall not otherwise limit or prevent the Placement Agent from
carrying on its customary business as a securities broker-dealer, and (v) shall
not require the Placement Agent to engage in any conduct which is violative of
any law or industry standard of conduct applicable to the Placement Agent.
3.10. REPRESENTATIONS AND WARRANTIES. The parties hereto each represent
that as of each Closing Date the representations and warranties herein contained
and the statements contained in all the certificates heretofore or
simultaneously delivered by any party to another, pursuant to this Agreement,
shall in all material respects be true and correct.
3.11. FORM D. The Placement Agent agrees that it will timely supply the
Company from time to time with all information required from the Placement Agent
for the completion of Form D to be filed with the Securities and Exchange
Commission and such additional information as the Company may reasonably request
to be supplied to the securities authorities of such states in which the Units
have been qualified for sale or are exempt from qualification or registration.
A copy of all such filings shall be delivered to the Placement Agent and
counsel for the Placement Agent promptly prior to their being filed.
SECTION 4
OFFERING OF THE UNITS ON BEHALF OF THE COMPANY
4.01. AGENT. In offering the Units for sale, the Placement Agent
shall offer the Units solely as an agent for the Company, and such offer
shall be made upon the terms and subject to the conditions set forth herein
and in the Memorandum. The Placement Agent shall commence making such offers
as an agent for the Company as soon after the date of the Memorandum (the
"Offering Date") as it in its sole discretion may deem advisable; provided,
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however, that if the Placement Agent does not commence such offering within ten
(10) business days after the Offering Date, it shall promptly advise the
Company.
4.02. SELECTED DEALERS. The Placement Agent may offer and sell the
Units for the account of the Company through registered broker-dealers selected
by it ("Selected Dealers") and pursuant to a form of Selected Dealer Agreement
between the Placement Agent and the Selected Dealers, pursuant to which the
Placement Agent may allow such concession (out of its commissions) as it may
determine. Such Agreement shall provide that the Selected Dealers are acting
as agents of the Company. On such sale or allotment by the Placement Agent of
any of the Units to Selected Dealers, the Placement Agent shall require the
Selected Dealer selling any such Units to agree to offer and sell the same on
the terms and conditions of offering set forth in the Memorandum and in this
Agreement.
SECTION 5
MEMORANDUM
5.01. DELIVERY AND FORM OF MEMORANDUM. The Company will procure, at its
expense, as many copies of the Memorandum as the Placement Agent may reasonably
require for the purposes contemplated by this Agreement and shall deliver said
copies of the Memorandum within two (2) business days after execution of this
Agreement at addresses, and in the quantity at each address, as specified by
the Placement Agent. Each Memorandum shall be of a size and format as
determined by the Placement Agent and shall be suitable for mailing and other
distribution.
5.02. AMENDMENT OF MEMORANDUM. If during the offering any event occurs
or any event known to the Company relating to or affecting the Company shall
occur as a result of which the Memorandum as then amended or supplemented would
include an untrue statement of a material fact, or omits to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary at any time
after the Offering Date to amend or supplement the Memorandum to comply with
the Act, the Company will immediately notify the Placement Agent thereof and
the Company will prepare such further amendment to the Memorandum or
supplemental or amended Memorandum or Memoranda as may be required and furnish
and deliver to the Placement Agent, all at the cost of the Company, a
reasonable number of copies of the supplemental or amended Memorandum which as
so amended or supplemented will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
Memorandum not misleading in the light of the circumstances existing at the
time it is delivered.
5.03. USE OF MEMORANDUM. The Company authorizes the Placement Agent and
the Selected Dealers, if any, in connection with the offer and sale of the
Units and all dealers to whom any of the Units may be sold by the Placement
Agent or by any Selected Dealer, to use the Memorandum as from time to time
amended or supplemented, in connection with the offering and sale of the Units
and in accordance with the provisions of the Act, the Rules and Regulations
thereunder and applicable state securities laws.
SECTION 6
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Placement Agent that:
6.01. NOTIFICATION OF CHANGES. After the date hereof, the Company will
not at any time, whether before or after the date of the Memorandum, make any
amendment or supplement to the Memorandum of which amendment or supplement the
Placement Agent shall not have previously been advised and a copy of which
shall not have previously been furnished to the Placement Agent a reasonable
time period prior to the proposed date of such amendment or supplement, or
which the Placement Agent or counsel for the Placement Agent shall have
reasonably objected to in writing solely on the grounds that it is not in
compliance with the Act or the Rules and Regulations or with other federal or
state laws.
6.02. PROCEEDING. The Company will promptly advise the Placement Agent,
and will confirm such advice in writing, upon the happening of any event which,
in the judgment of the Company, makes any material statement in the Memorandum
untrue or which requires the making of any changes in the Memorandum in order to
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make the statements therein not misleading, and upon the refusal of any state
securities administrator or similar official to qualify, or the suspension of
the qualification of the Units for offering or sale in any jurisdiction where
the Units are not exempt from qualification or registration, or of the
institution of any proceedings for the suspension of any exemption or for any
other purposes. The Company will use every reasonable effort to prevent any
such refusal to qualify or any such suspension and to obtain as soon as
possible the lifting of any such order, the reversal of any such refusal, and
the termination of any such suspension.
6.03. BLUE SKY MEMORANDUM. As a condition of closing, the Company will
qualify the Units, or such part thereof as requested by the Placement Agent,
for offer and sale and will take whatever action necessary in connection with
filing or maintaining any appropriate exemption from such qualification or
registration under the applicable laws of and such other states as may be
selected by the Placement Agent and agreed to by the Company, and continue
such qualifications and exemption in effect so long as required for the
purposes of the offer and sale of the Units. The Company will cause a Blue
Sky Memorandum to be prepared by counsel to the Company to be delivered to
the Placement Agent on the date of this Agreement and the Closing Dates. The
Blue Sky Memorandum shall set forth those states or jurisdictions wherein the
Units have been registered or otherwise qualified for sale or shall specify
the exemption from registration that may be relied on for the offer and sale
of the Units. The Blue Sky Memorandum will be promptly amended as necessary.
The Company agrees that the Placement Agent and Selected Dealers, if any, may
rely on the Blue Sky Memorandum in connection with the offer and sale of the
Units.
6.04. AGREEMENT TO PROVIDE INFORMATION. The Company, at its own
expense, will prepare and give and will continue to give such financial
statements and other information to and as may be required by the Commission
or the governmental authorities of states in which the Units may be
registered, qualified or exempt from qualification or registration.
6.05. COSTS OF OFFERING. The Company will pay, whether or not the
transactions contemplated hereunder are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of its
obligations under this Agreement including all expenses incident to the
authorization and issuance of the Units, any taxes incident to the initial
sale of the Units hereunder, the fees and expenses of the Company's counsel
and accountants, the costs and expenses incident to the preparation and
printing of the Memorandum and any amendments or supplements thereto, the
cost of preparing and printing all exhibits to the Memorandum, the Blue Sky
Memorandum, the cost of furnishing to the Placement Agent copies of the
Memorandum as herein provided, and the cost of any filing with the Commission
or pursuant to state securities laws, including all filing fees.
6.06. USE OF PROCEEDS. The Company will apply the proceeds from the
sale of the Units to the purposes set forth in the Memorandum.
6.07. DUE DILIGENCE. Prior to the Final Closing, the Company will
cooperate with the Placement Agent in such investigation as the Placement
Agent may make or cause to be made of the properties, business, management
and operations of the Company in connection with the offering of the Units,
and the Company will make available to the Placement Agent in connection
therewith such information in its possession as the Placement Agent may
reasonably request.
6.08. DOCUMENTATION. Prior to the Closing Date, the Company will
deliver to the Placement Agent true and correct copies of the articles and
bylaws of the Company and of the minutes of all meetings of the directors and
shareholders of the Company held since inception; true and correct copies of
all material contracts to which the Company is a party; and such other
documents and information as is reasonably requested by the Placement Agent.
To the extent such documents had previously been provided, only amendments or
updates need be furnished.
6.09. MANAGEMENT COOPERATION. The Company shall provide the Placement
Agent, at any time, an opportunity to meet with and question management of
the Company and authorize management of the Company to speak at such meetings
as the Placement Agent reasonably requests.
6.10. PERIODIC REPORTS. The Company will provide to the Placement
Agent for not less than three (3) years following the Closing Date, quarterly
and annual financial statements, copies of all correspondence to shareholders
and copies of all press releases or news items concerning the Company.
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6.11. COMPLIANCE WITH CONDITIONS PRECEDENT. The Company will use all
reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Placement Agent specified in this
Agreement.
6.12. REPORTS. The Company agrees to file with the Commission, and
states where required, all reports on Form D in accordance with the
provisions of Regulation D promulgated under the Act and to promptly provide
copies of such reports to the Placement Agent and its counsel.
SECTION 7
INDEMNIFICATION
7.01. INDEMNIFICATION BY COMPANY. The Company agrees to indemnify,
defend and hold harmless the Placement Agent, its agents, managers, members,
representatives, guarantors, sureties and each person who controls the
Placement Agent within the meaning of either Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934 ("Indemnified Persons") from and
against any and all losses, claims, damages, liabilities or expenses, joint
or several, (including reasonable legal or other expenses incurred by each
such person in connection with defending or investigating any such claims or
liabilities, whether or not resulting in any liability to such Indemnified
Persons) which they or any of them may incur under the Act, or any state
securities law and the Rules and Regulations or the rules and regulations
under any state securities laws or any other statute or at common law or
otherwise and to reimburse such Indemnified Persons for any legal or other
expense (including the cost of any investigation and preparation) incurred by
any of them in connection with any litigation, whether or not resulting in
any liability, but only insofar as such losses, claims, damages, liabilities
and expenses arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Memorandum or any
amendment or supplement thereto or any authorized sales literature or any
application or other document filed with the Commission or in any state or
other jurisdiction in order to qualify the Units under the securities laws
thereof, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, all as of the date of the Memorandum or such amendment or
supplement, as the case may be, or any untrue statement or alleged untrue
statement of a material fact contained in the Memorandum (as amended or
supplemented) or other document, or the failure to comply with the security
registration requirement of the Act or any applicable state law; provided,
however, that the indemnity agreement contained in this Section 7.01 shall
not apply to amounts paid in settlement of any such litigation if such
settlements are effected without the consent of the Company, nor shall it
apply to any Indemnified Persons in respect of any such losses, claims,
damages, liabilities or actions arising out of or based upon any such untrue
statement or alleged untrue statement, or any such omission or alleged
omission, if such statement or omission was made in reliance upon information
furnished in writing to the Company by such Indemnified Persons specifically
for use in connection with the preparation of the Memorandum or any such
amendment or supplement thereto. This indemnity agreement is in addition to
any other liability which the Company may otherwise have to the Indemnified
Persons.
7.02. NOTIFICATION TO COMPANY. The Indemnified Persons agree to notify
the Company promptly of the commencement of any litigation or proceeding
against the Indemnified Persons, of which it may be advised, in connection
with the offer and sale of any of the Units of the Company, and to furnish to
the Company at its request copies of all pleadings therein and permit the
Company to be an observer therein and apprise it of all the developments
therein. In case of commencement of any action in which indemnity may be
sought from the Company on account of the indemnity agreement contained in
Section 7.01, the Indemnified Persons within ten (10) days after the receipt
of written notice of the commencement of any action against the Indemnified
Persons, shall notify the Company in writing of the commencement thereof. The
omission of the Indemnified Persons to so notify the Company of any such
action shall relieve the Company from any liability which it may have to the
Indemnified Persons on account of the indemnity agreement contained in
Section 7.01 or otherwise. In case any such action shall be brought against
the Indemnified Persons of which the Indemnified Persons shall have notified
the Company of the commencement thereof, the Company shall be entitled to
participate in (and to the extent that it shall wish, to direct) the defense
thereto at its own expense, but such defense shall be conducted by counsel of
recognized standing and reasonably satisfactory to the Indemnified Persons in
such litigation. After notice that the Company elects to direct the defense,
the Company will not be liable for any legal or other expenses incurred by
the Indemnified Persons
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without the prior written consent of the Company. The Company shall not be
liable for amounts paid in settlement of any litigation if such settlement
was effected without its consent.
7.03. INDEMNIFICATION BY PLACEMENT AGENT. The Placement Agent agrees
to indemnify and hold harmless the Company, its agents, officers, directors,
representatives, guarantors, sureties and each person who controls the
Company within the meaning of either Section 15 of the Act or Section 20 of
the Securities Exchange Act of 1934 from and against any and all losses,
claims, damages, liabilities or expenses, joint or several, (including
reasonable legal or other expenses incurred by each such person in connection
with defending or investigating any such claims or liabilities, whether or
not resulting in any liability to such person) which they or any of them may
incur under the Act, or any state securities law and the Rules and
Regulations or the rules and regulations under any state securities laws or
any other statute or at common law or otherwise and to reimburse persons
indemnified as above for any legal or other expense (including the cost of
any investigation and preparation) incurred by any of them in connection with
any litigation, whether or not resulting in any liability, but only insofar
as such losses, claims, damages, liabilities and litigation arise out of or
are based upon any statement in or omission from the Memorandum or any
amendment or supplement thereto, or any application or other document filed
with the Commission or in any state or other jurisdiction in order to qualify
the Units under the securities laws thereof, or any information furnished
pursuant to Section 3.10 hereof, if such statements or omissions were made in
reliance upon information furnished in writing to the Company by the
Placement Agent or on its behalf specifically for use in connection with the
preparation of the Memorandum or amendment or supplement thereto or
application or document filed. This indemnity agreement is in addition to any
other liability which the Placement Agent may otherwise have to the Company
and other indemnified persons.
7.04. NOTIFICATION TO PLACEMENT AGENT. The Company and other
Indemnified Persons agree to notify the Placement Agent promptly of
commencement of any litigation or proceedings against the Placement Agent or
other Indemnified Persons, in connection with the offer and sale of any of
the Units and to furnish to the Placement Agent, at its request, copies of
all pleadings therein and permit the Placement Agent to be an observer
therein and apprise the Placement Agent of all developments therein, all at
the Company's expense. In case of commencement of any action in which
indemnity may be sought from the Placement Agent on account of the indemnity
agreement contained in Section 7.03, the Company or other Indemnified Persons
shall notify the Placement Agent of the commencement thereof in writing
within ten (10) days after the receipt of written notice of the commencement
of any action against the Company or against any other person indemnified,
shall notify the Placement Agent in writing of such notification. The
omission of the Company or other Indemnified Persons to so notify the
Placement Agent of any such action shall relieve the Placement Agent from any
liability which it may have to the Company, its agents, officers, directors,
representatives, guarantors, sureties or any person controlling it on account
of the indemnity agreement contained in Section 7.03 or otherwise. In case
any such action shall be brought against the Company or any other person
indemnified of which the Company shall have notified the Placement Agent of
the commencement thereof, the Placement Agent shall be entitled to
participate in (and to the extent that it shall wish, to direct) the defense
thereto at its own expense, but such defense shall be conducted by counsel of
recognized standing and reasonably satisfactory to the Company or other
persons indemnified in such litigation. After notice that the Placement Agent
elects to direct the defense, the Placement Agent will not be liable for any
legal or other expenses incurred by the indemnified party without the prior
written consent of the Placement Agent. The Placement Agent shall not be
liable for amounts paid in settlement of any litigation if such settlement
was effected without its consent.
7.05. INDEMNIFICATION OF SELECTED DEALERS. The Company agrees to
indemnify Selected Dealers, if any, and its agents, officers, directors,
representatives, guarantors and sureties on substantially the same terms and
conditions as it indemnifies the Placement Agent and Indemnified Persons
pursuant to Section 7.01 provided that each such Selected Dealer agrees in
writing with the Placement Agent to indemnify the Company and its agents,
officers, directors, representatives, guarantors and sureties on
substantially the same terms and conditions as the Placement Agent
indemnifies the Company in Section 7.03. The Company hereby authorizes the
Placement Agent to enter into agreements with Selected Dealers providing for
such indemnity by the Company.
7.06. CONTRIBUTION. If the indemnification provided for in Section
7.01, 7.03 and 7.05 is unavailable to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under either such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
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liabilities: (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and by the Placement Agent
or Selected Dealer on the other from the offering and sale of the Units, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Company on the one hand and of the Placement Agent or Selected Dealer
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Placement Agent or Selected Dealer on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the
total commissions received by the Placement Agent or Selected Dealer, as in
each case set forth in the Memorandum. The relative fault of the Company and
of the Placement Agent or Selected Dealer shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Company or by the Placement Agent or Selected Dealer and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Placement Agent agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 7, the
Placement Agent shall not be required to contribute any amount in excess of
the amount by which the total price at which the Units sold by it and
distributed exceeds the amount of any damages which such Placement Agent
otherwise has been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution hereunder from any person who was not guilty of such
fraudulent misrepresentation.
7.07. LIMITATION OF LEGAL EXPENSES. Notwithstanding anything herein
to the contrary, the indemnification for legal expenses included in Sections
7.01, 7.03 And 7.05 shall be limited to the legal expenses of one law firm,
except in the event of a bona fide conflict of interest, in which event such
legal expenses shall be limited to the legal expenses of two law firms.
SECTION 8
EFFECTIVENESS OF AGREEMENT
3.01. This Agreement shall become effective upon execution by all
parties hereto.
SECTION 9
CONDITIONS OF THE PLACEMENT AGENT'S OBLIGATIONS
The Placement Agent's obligations to act as agent of the Company
hereunder shall be subject to the accuracy of the representations and
warranties on the part of the Company herein contained, to the performance by
the Company of all its agreements herein contained, to the fulfillment of or
compliance by the Company with all covenants and conditions hereof, and to
the following additional conditions:
9.01. NO MATERIAL CHANGES. Except as contemplated herein or as set
forth in the Memorandum, during the period subsequent to the date of the last
balance sheet included in the Memorandum the Company: (a) shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the last balance sheet included in the Memorandum,
and (b) except in the ordinary course of its business, the Company shall not
have incurred any material liabilities, claims or obligations (direct or
contingent) or disposed of any material portion of its assets, or entered
into any material transaction or suffered or experienced any materially
adverse change in its condition, financial or otherwise. The capitalization
and short term debt of the Company shall be substantially the same as at the
date of the latest balance sheet included in the Memorandum, without
considering the
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proceeds from the sale of the Units, other than as may be set forth in the
Memorandum, and except as the financial statements of the Company reflect the
result of continued losses from operations consistent with prior periods.
9.02. AUTHORIZATION. The authorization for the issuance of the
securities comprising the Units and the use of the Memorandum and all
corporate proceedings and other legal matters incident thereto and to this
Agreement shall be reasonably satisfactory in all respects to counsel to the
Placement Agent.
9.03. OFFICERS' CERTIFICATE. The Company shall furnish to the Placement
Agent a certificate signed by the President and Chief Financial Officer of
the Company, dated as of each Closing Date, to the effect that:
(a) The representations and warranties of the Company in this
Agreement are true and correct in all material respects at and as of the
date of the certificate, and the Company has complied in all material
respects with all the agreements and has satisfied in all material
respects all the conditions on its part to be performed or satisfied at
or prior to the date of the certificate.
(b) Each has carefully examined the Memorandum and any amendments
and supplements thereto, and to the best of their knowledge the
Memorandum and any amendments and supplements thereto contain all
statements required to be stated therein, and all statements contained
therein are true and correct, and the Memorandum nor any amendment or
supplement thereto includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and, during the
Offering, the Memorandum will be amended or supplemented to include all
information necessary to be included in the Memorandum so that it does
not become inaccurate or misleading.
(c) No order prohibiting the offer or sale of the Units has been
issued and, to the best of the knowledge of the respective signers, no
proceeding for that purpose has been initiated or is threatened by the
Commission or any applicable state.
(d) Except as set forth in the Memorandum, since the respective
dates of the periods for which information is given in the Memorandum
and prior to the date of the certificate, (i) there has not been any
materially adverse change, financial or otherwise, in the affairs or
condition of the Company, and (ii) the Company has not incurred any
material liabilities, direct or contingent, or entered into any material
transactions, otherwise than in the ordinary course of business.
(e) Subsequent to the date of the Memorandum, no dividends or
distribution whatever have been declared and/or paid on or with respect
to the Common Stock of the Company.
9.04. STATE QUALIFICATION OR EXEMPTION. The Company shall make the
required filings to obtain the preemption from registration or qualification
in those states in which Units are sold.
9.05. SATISFACTORY FORM OF DOCUMENTS. All opinions, letters,
certificates and evidence mentioned above or elsewhere in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they
are in form and substance satisfactory to counsel to the Placement Agent,
whose approval shall not be unreasonably withheld.
9.06. ADVERSE EVENTS. Between the date hereof and each Closing Date,
the Company shall not have sustained any loss on account of fire, explosion,
flood, accident, calamity or any other cause, of such character as materially
adversely affects its business or property considered as an entity, whether
or not such loss is covered by insurance.
9.07. LITIGATION. Between the date hereof and each Closing Date, there
shall be no litigation instituted or threatened against the Company and there
shall be no proceeding instituted or threatened against the Company before or
by any federal or state commission, regulatory body or administrative agency
or other governmental body, domestic or foreign, wherein an unfavorable
ruling, decision or finding would materially adversely affect the business,
franchises, licenses, operations or financial condition or income of the
Company.
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9.08. CERTIFICATES. Any certificate signed by an officer of the Company
and delivered to the Placement Agent shall be deemed a representation and
warranty by the Company to the Placement Agent as to the statements made
therein.
SECTION 10
TERMINATION
10.01. FAILURE TO COMPLY WITH AGREEMENT. This Agreement may be terminated
by either party hereto by notice to the other party in the event that such
party shall have failed or been unable to comply with any of the terms,
conditions or provisions of this Agreement required by the Company or the
Placement Agent to be performed, complied with or fulfilled by it within the
respective times herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by the
non-defaulting party in writing.
10.02. GOVERNMENT RESTRICTIONS. This Agreement may be terminated by
either party by notice to the other party at any time if, in the judgment of
either party, payment for and delivery of the Units are rendered impractible
or inadvisable because: (i) additional material governmental restrictions not
in force and effect on the date hereof shall have been imposed upon the
trading in securities generally, or minimum or maximum prices shall have been
generally established on the New York Stock Exchange, the Chicago Board of
Trade or the Commodity Futures Trading Commission, or trading in securities
generally on such Exchange, Board, or Commission shall have been suspended,
or a general moratorium shall have been established by federal or state
authorities; or (ii) a war or other national calamity shall have occurred; or
(iii) the condition of any matter affecting the Company or any other
circumstance is such that it would be undesirable, impracticable or
inadvisable in the judgement of the Placement Agent to proceed with this
Agreement or with the sale of the Units.
10.03. LIABILITY ON TERMINATION. Any termination of this Agreement
pursuant to this Section 10 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages on the part of any party thereto); except that the Company and the
Placement Agent shall be obligated to pay, respectively, all losses, claims,
damages or liabilities, joint or several, under Section 7.01 in the case of
the Company, Section 7.03 in the case of the Placement Agent and Section 7.06
as to all parties.
SECTION 11
PLACEMENT AGENT'S REPRESENTATIONS AND WARRANTIES
The Placement Agent represents and warrants to and agrees with the
Company that:
11.01. REGISTRATION. The Placement Agent is registered as a broker-dealer
with the Securities and Exchange Commission, and is a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD"). The
Placement Agent is registered or otherwise qualified to sell the Units in
each state in which the Placement Agent sells such Units or is exempt from such
registration or qualification.
11.02. ABILITY TO ACT AS AGENT. There is not now pending or, to the
knowledge of the Placement Agent, threatened against the Placement Agent any
action or proceeding of which the Placement Agent has been advised, either in
any court of competent jurisdiction, before the NASD, the Securities and
Exchange Commission or any state securities commission concerning the
Placement Agent's activities as a broker or dealer, nor has the Placement
Agent been named as a "cause" in any action or proceeding, any of which may
be expected to have a material adverse effect upon the Placement Agent's
ability to act as agent to the Company as contemplated herein.
11.03. TERMINATE AGREEMENT. In the event any action or proceeding of the
type referred to in Section 11.02 above (except for actions referred to in
the Memorandum) shall be instituted or, to the knowledge of the Placement
Agent, threatened against the Placement Agent at any time prior to the
effective date hereunder, or in the event there shall be filed by or against
the Placement Agent in any court pursuant to any federal, state, local or
municipal statute, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of its assets
or if the Placement Agent makes an assignment for the benefit of creditors,
the Company shall have the right on three (3) days' written notice to the
Placement Agent to terminate this Agreement without any liability to the
Placement Agent of any kind.
-12-
<PAGE>
SECTION 12
PLACEMENT AGENT'S WARRANTS
12.01. WARRANTS. If at least 150,000 Units are sold, the Company shall
sell to the Placement Agent, for a total of $100, warrants to purchase Units
("Placement Agent's Warrants") on the basis of one warrant for each ten (10)
Units sold in the Offering: provided that no Placement Agent's Warrants will
be issue for Units sold to investors introduced to the Placement Agent by the
Company. Each Placement Agent's Warrant will entitle the holder to purchase
one share of Common Stock at $2.00 per share. The Placement Agent's Warrants
will be exercisable for a period of five (5) years after their issuance: and
if the Placement Agent's Warrants are not exercised during this term, they
shall, by their terms, automatically expire. The Company shall set aside and
at all times have available a sufficient number of shares of its Common Stock
to be issued upon the exercise of the Placement Agent's Warrants. The
Placement Agent's Warrants shall contain a "Cashless Exercise" provision.
12.02. REGISTRATION RIGHTS. The Company understands and agrees that
if, at any time during the seven-year period commencing the Closing Date, it
should file a Registration Statement with the Commission pursuant to the Act,
for a public offering of securities, either for the account of the Company or
for the account of any other person, the Company at its own expense, will
offer to holders of Placement Agent's Warrants or shares of common stock
previously issued upon the exercise thereof, the opportunity to register or
qualify for public offering the shares of common stock underlying the
Placement Agent's Warrants or the shares so issued. This paragraph is not
applicable to a Registration Statement filed with the Securities and Exchange
Commission on Forms S-1 or S-8 or any other inappropriate forms; nor does it
apply to the Company's Initial Public Offering.
In addition to the rights above provided, the Company will cooperate
with the then holder(s) of the Placement Agent's Warrants and common stock
issued upon the exercise of the Placement Agent's Warrants, no more often
than once in any twelve (12) month period in preparing and signing any
Registration Statement other than the Registration Statement discussed above
required in order to sell or transfer the aforesaid Placement Agent's
Warrants and underlying shares of common stock and shall supply all
information required therefore, but such additional Registration Statement
shall be at the then holder(s) cost and expense.
SECTION 13
NOTICE
Except as otherwise expressly provided in this Agreement:
13.01 NOTICE TO COMPANY. Whenever notice is required by the
provisions of this Agreement to be given to the Company, such notice shall be
in writing addressed to the Company as provided below:
Training Devices Incorporated
96 Inverness Drive East, #R
Englewood, Colorado 80112
Attn: President
Alan Peryam, Esq.
1120 Lincoln Street, Suite 1000
Denver, Colorado 80203
13.02 NOTICE TO PLACEMENT AGENT. Whenever notice is required by
the provisions of this Agreement to be given to the Placement Agent, such
notice shall be given in writing addressed to the Placement Agent as follows:
Bathgate McColley Capital Group, LLC
5350 S. Roslyn Street, Suite 380
Englewood, Colorado 80111
Attn: Eugene C. McColley
-13-
Placement Agent Agreement
Training Devices Incorporated
<PAGE>
SECTION 14
MISCELLANEOUS
14.01. BENEFITS. This Agreement is made solely for the benefit of the
Placement Agent, the Company, their respective agents, officers, directors,
managers, members, representatives, guarantors, sureties and any controlling
person referred to in Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successor" or the term "successors and assigns" as used
in this Agreement shall not include any purchasers, as such, of any of the
Units.
14.02. SURVIVAL. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company or
the Company's officers, as set forth in or made pursuant to this Agreement
and the indemnity agreements of the Company and the Placement Agent contained
in Section 7 hereof shall survive and remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company or
the Placement Agent or any affiliated persons thereof or any controlling
person of the Company or of the Placement Agent, (ii) delivery of or payment
for the Units and (iii) the Closing Date, and any successor of the Company,
the Placement Agent and Selected Dealers, or any controlling person, or other
person indemnified by section 7, as the case may be, shall be entitled to the
benefits hereof.
14.03. GOVERNING LAW. The validity, interpretation and construction of
this Agreement and of each part hereof will be governed by the laws of the
State of Colorado. The parties agree that any dispute which arises between
them relating to this Agreement or otherwise shall be submitted for
resolution in conformity with the Securities Arbitration Rules of the
American Arbitration Association. The parties agree that the situs of an
arbitration hearing before the arbitrators shall be in Denver, Colorado, and
each party shall request such situs.
14.04. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will constitute an original.
Please confirm that the foregoing correctly sets forth the Agreement
between you and the Placement Agent.
Very truly yours,
BATHGATE MCCOLLEY CAPITAL GROUP, LLC
By /s/ Eugene C. McColley
-------------------------------------
Eugene C. McColley
We hereby confirma as of the date hereof that the above letter sets
forth the Agreement between the Placement Agent and us.
TRAINING DEVICES INCORPORATED
14 Oct 97 By /s/ Bruce Betschart, President
- ---------- -------------------------------------
Date Bruce Betschart, President
-14-
Placement Agent Agreement
Training Devices Incorporated
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made effective as
of July 30, 1997, by and among Training Devices Incorporated, a Colorado
corporation having its principal place of business at 96 Inverness Drive East,
#R, Englewood, Colorado 80112 (the "Company"), and each of the individuals and
entities listed on Exhibit A to this Agreement (the "Investors").
RECITALS
A. Each investor listed in Exhibit A has subscribed for securities of
the Company consisting of Secured Convertible Promissory Notes ("Notes")
pursuant to a non-public offering of such securities by the Company.
B. The Notes are convertible into Common Stock of the Company. As
partial consideration for purchase of the Notes by the Investors, the Company
has offered to provide the Investors with certain registration rights as set
forth herein.
In consideration of the foregoing and the promises and covenants
contained herein, the parties agree as follows:
SECTION 1
DEFINITIONS
As used in this Agreement the following terms shall have the following
meanings:
1.1 "AFFILIATE" shall mean any person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with a specified person.
1.2 "COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
1.3 "CONVERSION SHARES" shall mean the shares of Common Stock of the
Company, no par value per share, issued or issuable upon conversion of the
Notes.
1.4 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.5 "HOLDER" OR "HOLDERS" shall mean any Investor owning or having the
right to acquire Conversion Shares or any permitted transferee thereof in
accordance with Section 2.7 hereof.
1.6 "INVESTOR(S)" shall mean the individuals and entities listed in
Exhibit A to this Agreement.
<PAGE>
1.7 The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
1.8 "REGISTRATION EXPENSES" shall mean all expenses incurred in
complying with registrations, filings or qualification under Section 2.1 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursement of counsel for the
Company, blue sky fees and expenses, the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company and Selling Expenses).
1.9 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
1.10 "SELLING EXPENSES" shall mean all underwriting documents and
selling commissions applicable to the sale and all fees and disbursements of
special counsel for any Holder (except as provided in Section 1.8).
SECTION 2
REGISTRATION RIGHTS
2.1 COMPANY REGISTRATION. If at any time or from time to time, the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders exercising their
respective demand registration rights, other than (i) a registration on Form S-8
(or a similar or successor form) relating solely to employee stock option, stock
purchase or other benefit plans, or (ii) a registration on Form S-4 (or similar
or successor form) relating solely to a transaction pursuant to Rule 145, as
promulgated by the Commission, the Company will:
(a) promptly give to each Holder written notice thereof;
and
(b) include in such registration (and any related
qualification under blue sky laws or other compliance), all the Conversion
Shares specified in a written request or requests, made within thirty (30) days
after mailing of written notice by the Company, by any Holder or Holders. The
Company shall register the Conversion Shares "for the shelf", that is, for
future sale, not as part of the underwriting.
2.2 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 2.1 shall be borne by the Company and all Selling Expenses relating to
securities registered by the Holders shall be borne by the Holders of such
securities pro rata on the basis of the number of securities so registered.
2.3 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 2,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification or compliance and as to the completion thereof.
At its expense the Company will:
-2-
<PAGE>
(a) Keep such registration, qualification or compliance
effective until the Holder or Holders have completed the distribution described
in the registration statement relating thereto; and
(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
2.4 INDEMNIFICATION.
(a) The Company will indemnify and hold harmless, and does
hereby undertake to indemnify and hold harmless, each Holder, each of its
officer, directors and partners, and each person controlling such Holder within
the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 2, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect thereof
to which they may become subject), including settlement of any litigation,
commenced or threatened, to which they may become subject under the Securities
Act, the Exchange Act, or other federal or state law, arising out of or based on
any alleged untrue statement or a material fact contained in any registration
statement, prospectus, offering circular or other document or amendments
thereto, or based on any alleged omission to state therein a material fact
required of the Company in connection with any such registration, qualification
or compliance. Further, the Company will reimburse each such Holder, each of its
officers, directors and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal or any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action; provided, however, that the Company will not be liable in any such case
to the extend that any such claim, loss, damage, liability or expense arises out
of or is based on any untrue statement or omission or alleged untrue statement
or omission made in reliance upon and in conformity with written information
furnished to the Company by an instrument executed by such Holder or
underwriter.
(b) Each Holder will, if Conversion Shares held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify and hold harmless the Company, each of
its directors and officers, agents and employees, each underwriter, if any, of
the Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of Section 15 of
the Securities Act, and each other such Holder, each of its officers, directors
and partners and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof to which they may become subject),
including settlement of any litigation under the Securities Act, the Exchange
Act, or other federal or state law arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or
amendments thereto, or any omission (or alleged omission) to state therein 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,
or any violation by the Holder of any federal, state or common law rule or
regulation
-3-
<PAGE>
applicable to such Holder and relating to action or inaction required of such
Holder in connection with any such registration, qualification or compliance.
Further, each Holder will reimburse the Company, such other Holders, such
directors, officers, persons, underwriters or control persons of the Company,
such other Holders or the underwriters, for any legal or any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, in each case (other than a
violation of law, rule or regulation) to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument executed by such Holder.
Notwithstanding the foregoing, the obligations of such Holders hereunder shall
be limited to an amount equal to the proceeds to each such Holder of Conversion
Shares from the sale of such Conversion Shares as contemplated herein.
(c) Each party entitled to indemnification under this Section
2.6 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
deliver written notice to the Indemnifying Party of commencement thereof. The
Indemnifying Party, at its sole option, may participate in or assume the defense
of any such claim or any litigation resulting therefrom with counsel reasonably
satisfactory to the Indemnified Party and the Indemnified Party may participate
in such defense at such party's expense. The failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligation under this Section 2.6 except to the extend that such failure to give
notice shall materially adversely affect the Indemnifying Party in the defense
of any such litigation. No Indemnifying Party, in the defense of any such claim
or litigation shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term a release from all liability in respect to such claim or
litigation by the claimant or plaintiff to such Indemnified Party.
2.5 INFORMATION BY HOLDER. Each Holder of Conversion Shares included in
any registration shall furnish to the Company such information regarding such
Holder and the distribution proposed by such Holder as the Company may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 2.
2.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of shares of Common Stock which are restricted securities to the public
without registration, the Company agrees:
(a) To register its Common Stock under Section 12(g) of the
Exchange Act as soon as practicable, but in any event not later than ninety (90)
days after the close of the Company's first fiscal year following the effective
date of the first registration statement filed by the Company relating to a
public offering other than to employees of the Company under an employee option
plan or employee stock purchase plan;
(b) To make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date
-4-
<PAGE>
of the first registration under the Securities Act filed by the Company for an
offering of its securities to the general public:
(c) To use its diligent efforts to file with the Commission in
a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act at all times after it has become subject
to such reporting requirements; and
The Company further shall furnish forthwith upon request a
written statement as to its compliance with the reporting requirements of said
Rule 144 (at any time after ninety (90) days after the effective day of the
first registration statement filed by the Company for an offering of its
securities to the general public). The Company shall provide forthwith upon
written request a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as Purchaser may
reasonably request in availing itself of any rule or regulation of the
Commission allowing Purchaser to sell any such securities without registration.
2.7 ASSIGNMENT OF REGISTRATION RIGHTS. The rights granted each Investor
under this Agreement may not be assigned except: (i) to a purchaser of more than
5,000 Conversion Shares (as appropriately adjusted for stock dividends, stock
splits, stock combinations, recapitalizations, consolidations and the like);
(ii) to a successor entity to an Investor pursuant to a reorganization or
recapitalization of an Investor, (iii) to an Affiliate of an Investor, or (iv)
to the partners of an Investor or to the estate or heirs of such a partner or to
a trust for the benefit of such a partner, his or her spouse or descendants;
provided, that the Company receives notice within twenty (20) days following
such assignment.
2.8 TERMINATION OF REGISTRATION RIGHTS. The rights granted pursuant to
this Agreement shall terminate as to each Investor (and permitted transferee
under Section 2.7 above) upon the occurrence of any of the following:
(a) Following the Company's first registered offering to
the public, at such time as all Conversion Shares
held by such Investor or permitted transferee can be
sold pursuant to Rule 144 (or its successor
provision);
(b) At such time as all Conversion Shares held by such
Holder can be sold under Rule 144(k) (or its
successor provision); or
(c) Three (3) years from the date of the Company's first
registered offering to the public.
SECTION 3
MISCELLANEOUS
3.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of Colorado.
3.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Investor and the closing
of the transactions contemplated hereby.
-5-
<PAGE>
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein and
subject to compliance with the provisions herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties thereto.
3.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereto. This
Agreement may only be amended or waived by a writing signed by all parties to
this Agreement; provided, however, that Holders of a majority of the Conversion
Shares then held by the Holders (or into which Holders of Notes may convert in
accordance with the terms of the Notes) or any permitted transferee thereof,
acting together, may waive or amend (either generally or in a particular
instance and either retroactively or prospectively), on behalf of all Investors,
Holders and permitted transferees, any provisions hereof affecting Investors, so
long as the effect thereof will be that all such Investors, Holders and
permitted transferees will be treated equally.
3.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to an Investor, at such Investor's address set forth on Exhibit
A, or at such other address as Investor shall have furnished to the Company in
writing, or (b) if to any other Holder, at such address as such Holder shall
have furnished the Company in writing, or, until any such Holder so furnishes an
address to the Company, then to and at the address of the last Holder who has so
furnished an address to the Company, or (c) if to the Company, one copy should
be sent to the attention of the President. If notice is provided by mail, notice
shall be deemed to be given upon proper deposit in the mail (and if outside the
United States, sent by airmail).
3.6 DELAY OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any Holder upon any breach or default of the Company
under this agreement, shall impair any such right, power or remedy of such
Holder nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
Holder of any breach or default under this Agreement or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing or as provided in Section 3.4 of this Agreement. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
3.7 EXPENSES. Except as provided in Section 2, the Company and each
Investor shall bear its own expenses and legal fees incurred on its behalf with
respect to this Agreement and the transactions contemplated hereby.
3.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one instrument, and each of
which may be executed by less than all of the parties to this Agreement.
-6-
<PAGE>
3.9 SEVERABILITY. In the event that any provisions of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
3.10 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
TRAINING DEVICES INCORPORATED
Attest:
By:
- ------------------------------------ ------------------------------
Secretary President
CARIBOU BRIDGE FUND, LLC
BY: CARIBOU CAPITAL, LLC
By:
------------------------------
KIAWAH CAPITAL PARTNERS STEVEN M. BATHGATE, KEOUGH
By:
--------------------------------- ---------------------------------
General Partner
EUGENE C. MCCOLLEY, IRA
- ------------------------------------
-7-
<PAGE>
EXHIBIT A
INVESTORS
Caribou Bridge Fund, LLC
Kiawah Capital Partners
Steven M. Bathgate Delaware Charter Keough
Eugene C. McColley Delaware Charter IRA
-8-
<PAGE>
PLACEMENT AGENT AGREEMENT
Board of Directors
Training Devices Incorporated
96 Inverness Drive East, #R
Englewood, Colorado 80112
Gentlemen:
Bathgate McColley Capital Group, LLC (the "Placement Agent"), hereby
confirms its agreement with you (the "Company") as follows:
SECTION 1
DESCRIPTION OF SECURITIES
The Company proposes to offer and sell to qualified investors up to
400,000 Shares ("Shares") of the Company's Common Stock ("Common Stock") on
terms as set forth herein. As used in this Agreement, the term "Memorandum"
refers to a Private Placement Memorandum dated January 6, 1997. The Common
Stock shall be as further described in the Memorandum and shall be sold on
the terms and conditions as described herein and in the Memorandum.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Placement Agent to enter into this Agreement, the
Company hereby represents and warrants to and agrees with the Placement Agent
as follows:
2.01 PRIVATE PLACEMENT MEMORANDUM. The Memorandum with respect to the
Shares and all exhibits thereto, copies of which have heretofore been
delivered by the Company to the Placement Agent, has been carefully prepared
by the Company in conformity with Regulation D ("Regulation D") promulgated
pursuant to the Securities Act of 1933, as amended (the "Act"), and with
comparable provisions of the securities laws of and other states as may be
reasonably requested by the Placement Agent. The Memorandum does not include
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 under which they were made, not misleading;
provided, however, the Company does not make any representations or
warranties as to information contained in or omitted from the Memorandum in
reliance upon written information furnished on behalf of the Placement Agent
specifically for use therein. Any additional written information authorized
by the Company to be provided to prospective purchasers 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 under which they were made, not misleading.
2.02 FINANCIAL STATEMENTS. Schmidt & Associates, which has compiled
the financial statements in the Memorandum, are independent certified public
accountants. The financial statements of the Company, together with related
Schedules and Notes as set forth in the Memorandum, present fairly the
financial position and the results of operations of the Company at the
represented dates and for the represented periods to which they apply; such
financial statements have been prepared in accordance with generally accepted
accounting principles which have been consistently applied throughout the
periods concerned except as otherwise stated therein.
2.03 NO MATERIAL ADVERSE CHANGE. Except as may be reflected in or
contemplated by the Memorandum, subsequent to the dates as of which
information is given in the Memorandum, and prior to the Closing Date (as
defined hereinafter), (i) there shall not be any material adverse change in
the
<PAGE>
business, properties, options to lease, leases, financial condition,
management, or otherwise of the Company or in the Company's business taken as
a whole, (ii) there shall not have been any material transaction entered into
by the Company other than transactions in the ordinary course of business;
(iii) the Company shall not have incurred any material obligations,
contingent or otherwise, which are not disclosed in the Memorandum; (iv)
there shall not have been nor will there be any change in the capital stock
or adverse change in the short-term or long-term debt (except current
payments) of the Company; and (v) the Company has not and will not have paid
or declared any dividends or other distributions.
2.04 NO DEFAULTS. The Company is not in default in the performance of
any obligation, agreement or condition contained in any debenture, note or
other evidence of indebtedness or any indenture or loan agreement of the
Company, other than as set forth in the Memorandum. The execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated, and compliance with the terms of this Agreement will not
conflict with or result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, the articles of incorporation
or bylaws of the Company, or any note, indenture, mortgage, deed of trust, or
other agreement or instrument to which the Company is a party or by which it
or any of its property is bound, or any existing law, order, rule,
regulation, writ, injunction, or decree or any government, governmental
instrumentality, agency or body, arbitrator, tribunal or court, domestic or
foreign, having jurisdiction over the Company or its property. The consent,
approval, authorization, or order of any court or governmental
instrumentality, agency or body is not required for the consummation of the
transactions herein contemplated except such as may be required under the Act
or under the securities laws of any state or jurisdiction.
2.05 ORGANIZATION AND STANDING. The Company is, and at the Closing
Date will be, duly organized and validly existing in good standing as a
corporation under the laws of its state of incorporation and with full power
and authority to own its property and conduct its business, present and
proposed, as described in the Memorandum; the Company has full power and
authority to enter into this Agreement and to issue the securities comprising
the Units, and the Company is duly qualified and in good standing as a
foreign corporation in all jurisdictions in which the character of the
property owned or leased or the nature of the business transacted by it makes
such qualification necessary. The Company has paid all fees required by the
jurisdiction of organization and any jurisdiction in which it is qualified as
a foreign corporation.
2.06. CAPITALIZATION. Prior to the Closing Date, the capitalization of
the Company shall consist of a total of no more than 1,400,000 shares of
Common Stock of the Company and 10,000 shares of Series A Preferred Stock
issued and outstanding; 80,000 shares of Common Stock reserved for issuance
upon exercise of a $100,000 convertible note; 200,000 shares of Common Stock
reserved for issuance upon conversion of the Series A Preferred Stock; and
375,000 shares of Common Stock reserved for issuance upon exercise of options
that have been granted or may be granted under the Company's incentive stock
option plan. No other shares will have been issued or will be subject to
issuance upon the exercise of outstanding options, warrants or purchase
rights or upon the conversion of outstanding convertible securities.
2.07. LEGALITY OF SHARES. The Shares have been duly and validly
authorized and, when issued or sold and delivered against payment therefor as
provided in this Agreement, will be validly issued, fully paid and
nonassessable. The Shares will conform in all material respects to all
statements with regard thereto in the Memorandum. A sufficient number of
shares of Common Stock of the Company has been reserved for issuance upon
exercise of the Placement Agent's Warrants.
2.08 PRIOR SALES. No securities of the Company have been sold by the
Company or by, or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company at any
time prior to the date hereof, except as set out in the Memorandum. No prior
securities sales by the Company or any affiliate are required to be
integrated with the proposed sale of
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Training Devices Incorporated
<PAGE>
the Shares such that the availability of Regulation D or any other claimed
exemption from the registration requirements of the Act would be made
unavailable to the offer and sale of the Shares.
2.09. LITIGATION. There is and at the Closing Date there will be no
action, suit or proceeding before any court or governmental agency, authority
or body pending or to the knowledge of the Company threatened which might
result in judgments against the Company, or its officers, directors,
employees or agents which the Company is obligated to indemnify, not
adequately covered by insurance and which collectively might result in any
material adverse change in the condition (financial or otherwise), the
business or the prospects of the Company or would materially affect the
properties or assets of the Company.
2.10. FINDER. No person has acted as a finder in connection with the
transactions contemplated herein, and the Company will indemnify the
Placement Agent with respect to any claim for finder's fees in connection
herewith. The Company further represents that it has no management or
financial consulting or advisory agreement with anyone except as set forth in
the Memorandum. The Company additionally represents that no officer,
director, or 5% or greater shareholder of the Company is, directly or
indirectly, associated with a National Association of Securities Dealers,
Inc. member broker-dealer, other than such persons as the Company has advised
the Placement Agent in writing are so associated.
2.11. CONTRACTS. Each contract to which the Company is a party and to
which reference is made in the Memorandum has been duly and validly executed,
is in full force and effect in all material respects in accordance with their
respective terms, and none of such contracts has been assigned by the
Company; and the Company knows of no present situation or condition or fact
which would prevent compliance with the terms of such contracts, as amended
to date. Except for amendments or modifications of such contracts in the
ordinary course of business, the Company has no intention of exercising any
right which it may have to cancel any of its obligations under any of such
contracts, and has no knowledge that any other party to any such contracts
has any intention not to render full performance under such contracts.
2.12. TAX RETURNS. The Company has filed all federal, state and
municipal tax returns which are required to be filed, and has paid all taxes
shown on such returns and on all assessments received by it to the extent
such taxes have become due. All other taxes with respect to which the
Company is obligated have been paid or adequate accruals have been set up to
cover any such unpaid taxes, including all federal and state withholding and
FICA payments.
2.13. PROPERTY. Except as otherwise set forth in the Memorandum, the
Company has good title, free and clear of all liens, encumbrances and
defects, except liens for current taxes not due and payable, to all property
and assets which are described in the Memorandum as being owned by the
Company, subject only to such exceptions as are not material and do not
adversely affect the present or prospective business of the Company. All of
the claims, options to lease, leases and subleases material to the business
of the Company under which the Company holds or uses any real or personal
property, including those described or referred to in the Memorandum, are in
full force and effect, and the Company is not in default in respect of any
of the terms or provisions of any such claims, options to lease, leases or
subleases, and no claim of any sort has been asserted by anyone adverse to
the Company's rights under any such claims, options to lease, leases or
subleases or affecting or questioning the Company's rights to the continued
possession of the claimed, optioned, leased or subleased property covered by
such claim, options to lease, lease or sublease.
2.14. AUTHORITY. The execution and delivery by the Company of this
Agreement has been duly authorized, and this Agreement is the valid, binding
and legally enforceable obligation of the Company.
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<PAGE>
2.15. USE OF PROCEEDS. The Company will apply the proceeds from the
sale of the Shares to the purposes set forth in the Memorandum. The Company
will also establish procedures to ensure proper application and stewardship
of such proceeds.
2.16. NO LIMITATIONS ON PAYMENT OF DIVIDENDS. Except as otherwise set
forth in the Memorandum, there are no limitations, either contractual or
otherwise, nor will the Company enter into any agreement with any other
party, which prevents or limits the Company's ability to declare or pay
dividends on its Common Stock.
SECTION 3
ISSUE, SALE AND DELIVERY OF THE SHARES
3.01. PLACEMENT AGENT APPOINTMENT. The Company hereby appoints the
Placement Agent as its exclusive agent until February 28, 1997, which period
may be extended on one or more occasions until April 30, 1997, by mutual
consent of the Company and the Placement Agent (the "Sales Termination
Date"), to solicit purchasers for up to 400,000 Shares on a "best efforts"
basis; and the Placement Agent, on the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein
set forth, accepts such appointment and agrees to use its best efforts to
find purchasers for the Shares at the price of $1.25 per Share, provided that
the Company reserves the right to reject in good faith any prospective
investor ("Investor") and no commission shall be payable to the Placement
Agent in respect of any proposed sale to any rejected Investor. The Company
may accept subscriptions for an additional 80,000 Shares if the offering is
over-subscribed. No other person will be or has been authorized to solicit
purchasers for the Shares, except those persons selected by the Placement
Agent. Each Investor must subscribe for at least 20,000 Shares ($25,000),
and must certify to the Company that such investor is an "Accredited
Investor" as defined in Rule 501(a) of Regulation D or otherwise satisfies
all requirements imposed by the Company and Placement Agent in sales to a
limited number of non-accredited Investors. Notwithstanding the above, the
Company and the Placement Agent may mutually agree to accept a subscription
for fewer than 20,000 Shares.
3.02. SUBSCRIPTION AGREEMENT. Each Investor desiring to purchase
Shares will be required to complete and execute a Subscription Agreement and,
if applicable, all other offering documents. The Placement Agent shall have
the right to review such documents for each Investor and to reject the tender
of any Investor which it deems not acceptable. All documents concerning any
Investor the Placement Agent has not rejected will be promptly forwarded to
the Company at the address set forth below. The Company, upon receipt of the
documents, will determine within three (3) business days whether it wishes to
accept the Investor. Payment for the Shares subscribed for in the
Subscription Agreements which have been accepted by the Company is to be
delivered to the Company on the Closing Date (as hereinafter defined).
3.03. COMPENSATION OF PLACEMENT AGENT. In consideration for the
Placement Agent's execution of this Agreement, and for the performance of its
obligations hereunder, the Company agrees to pay the Placement Agent a
commission of six percent (6%) of the gross proceeds received from the sale
of the Shares ($.075 per Share). Any commissions payable to the Placement
Agent under this paragraph shall be payable within three days after
acceptance of a subscription by the Company.
3.04. PAYMENT. Payment for Shares sold shall be made to the Company.
As soon as practicable after acceptance of a subscription, the Company shall
deliver by mail to each Investor a certificate for the securities underlying
the Shares that have been purchased and which contains a legend conforming to
the requirements of Rule 502(d)(3) under the Act.
3.05. FUTURE CORPORATE FINANCING TRANSACTIONS. The Company grants to
the Placement Agent right of first refusal for a period of two years after
the First Closing to act as managing underwriter for any public offerings or
placement agent for any private offerings of its securities contemplated by
the Company or any of its subsidiaries. The right shall continue in effect
during the entire two year period
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<PAGE>
despite the exercise of the right or the refusal to exercise the right during
the period. The Placement Agent shall have thirty (30) days within which to
determine whether to exercise the right.
In addition, if the Placement Agent determines not to exercise the
right, upon the request of the Placement Agent, the Company agrees that the
Placement Agent will be designated as a co-manager of any public offering of
its securities and will receive at least 20% of the management fee for acting
in such capacity. The Placement Agent may waive this right of first refusal
upon the payment by the Company to the Placement Agent of a fee equal to 1%
of the gross proceeds of the proposed public offering.
3.06. OBLIGATIONS OF PLACEMENT AGENT. The Company agrees that the
obligations of the Placement Agent under this Agreement: (i) shall not
preclude the Placement Agent from contemporaneously participating in the
offering or underwriting of securities of other issuers; (ii) shall not
impose any obligation on the Placement Agent to require its registered
representatives to offer or to sell the Shares, (iii) shall require the
Placement Agent to make an effort to find purchasers for the Shares only to
the extent the Placement Agent is motivated to do so by the compensation and
other provisions of this Agreement, (iv) shall not otherwise limit or prevent
the Placement Agent from carrying on its customary business as a securities
broker-dealer, and (v) shall not require the Placement Agent to engage in any
conduct which is violative of any law or industry standard of conduct
applicable to the Placement Agent.
3.07. REPRESENTATIONS AND WARRANTIES. The parties hereto each
represent that as of each Closing Date the representations and warranties
herein contained and the statements contained in all the certificates
heretofore or simultaneously delivered by any party to another, pursuant to
this Agreement, shall in all material respects be true and correct.
3.08. FORM D. The Placement Agent agrees that it will timely supply
the Company from time to time with all information required from the
Placement Agent for the completion of Form D to be filed with the Securities
and Exchange Commission and such additional information as the Company may
reasonably request to be supplied to the securities authorities of such
states in which the Shares have been qualified for sale or are exempt from
qualification or registration. A copy of all such filings shall be delivered
to the Placement Agent and counsel for the Placement Agent promptly prior to
their being filed.
SECTION 4
OFFERING OF THE SHARES ON BEHALF OF THE COMPANY
4.01. AGENT. In offering the Shares for sale, the Placement Agent
shall offer the Shares solely as an agent for the Company, and such offer
shall be made upon the terms and subject to the conditions set forth herein
and in the Memorandum. The Placement Agent shall commence making such offers
as an agent for the Company as soon after the date of the Memorandum (the
"Offering Date") as it in its sole discretion may deem advisable; provided,
however, that if the Placement Agent does not commence such offering within
ten (10) business days after the Offering Date, it shall promptly advise the
Company.
4.02. SELECTED DEALERS. The Placement Agent may offer and sell the
Shares for the account of the Company through registered broker-dealers
selected by it ("Selected Dealers") and pursuant to a form of Selected Dealer
Agreement between the Placement Agent and the Selected Dealers, pursuant to
which the Placement Agent may allow such concession (out of its commissions)
as it may determine. Such Agreement shall provide that the Selected Dealers
are acting as agents of the Company. On such sale or allotment by the
Placement Agent of any of the Shares to Selected Dealers, the Placement Agent
shall require the Selected Dealer selling any such Shares to agree to offer
and sell the same on the terms and conditions of offering set forth in the
Memorandum and in this Agreement.
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Training Devices Incorporated
<PAGE>
SECTION 5
MEMORANDUM
5.01. DELIVERY AND FORM OF MEMORANDUM. The Company will procure, at
its expense, as many copies of the Memorandum as the Placement Agent may
reasonably require for the purposes contemplated by this Agreement and shall
deliver said copies of the Memorandum within two (2) business days after
execution of this Agreement at addresses, and in the quantity at each
address, as specified by the Placement Agent. Each Memorandum shall be of a
size and format as determined by the Placement Agent and shall be suitable
for mailing and other distribution.
5.02. AMENDMENT OF MEMORANDUM. If during the offering any event occurs
or any event known to the Company relating to or affecting the Company shall
occur as a result of which the Memorandum as then amended or supplemented
would include an untrue statement of a material fact, or omits to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time after the Offering Date to amend or supplement the
Memorandum to comply with the Act, the Company will immediately notify the
Placement Agent thereof and the Company will prepare such further amendment
to the Memorandum or supplemental or amended Memorandum or Memoranda as may
be required and furnish and deliver to the Placement Agent, all at the cost
of the Company, a reasonable number of copies of the supplemental or amended
Memorandum which as so amended or supplemented will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the Memorandum not misleading in the light of the circumstances
existing at the time it is delivered.
5.03. USE OF MEMORANDUM. The Company authorizes the Placement Agent
and the Selected Dealers, if any, in connection with the offer and sale of
the Shares and all dealers to whom any of the Shares may be sold by the
Placement Agent or by any Selected Dealer, to use the Memorandum as from time
to time amended or supplemented, in connection with the offering and sale of
the Shares and in accordance with the provisions of the Act, the Rules and
Regulations thereunder and applicable state securities laws.
SECTION 6
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Placement Agent that:
6.01. NOTIFICATION OF CHANGES. After the date hereof, the Company will
not at any time, whether before or after the date of the Memorandum, make any
amendment or supplement to the Memorandum of which amendment or supplement
the Placement Agent shall not have previously been advised and a copy of
which shall not have previously been furnished to the Placement Agent a
reasonable time period prior to the proposed date of such amendment or
supplement, or which the Placement Agent or counsel for the Placement Agent
shall have reasonably objected to in writing solely on the grounds that it is
not in compliance with the Act or the Rules and Regulations or with other
federal or state laws.
6.02. PROCEEDING. The Company will promptly advise the Placement
Agent, and will confirm such advice in writing, upon the happening of any
event which, in the judgment of the Company, makes any material statement in
the Memorandum untrue or which requires the making of any changes in the
Memorandum in order to make the statements therein not misleading, and upon
the refusal of any state securities administrator or similar official to
qualify, or the suspension of the qualification of the Shares for offering or
sale in any jurisdiction where the Shares are not exempt from qualification
or registration, or of the institution of any proceedings for the suspension
of any exemption or for any other purposes. The Company will use every
reasonable effort to prevent any such refusal to qualify or any such
suspension and to obtain as soon as possible the lifting of any such order,
the reversal of any such refusal, and the termination of any such suspension.
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Placement Agent Agreement
Training Devices Incorporated
<PAGE>
6.03. BLUE SKY MEMORANDUM. As a condition of closing, the Company will
provide notice of the Offering under the applicable laws of such states as
may be selected by the Placement Agent and agreed to by the Company.
6.04. AGREEMENT TO PROVIDE INFORMATION. The Company, at its own
expense, will prepare and give and will continue to give such financial
statements and other information to and as may be required by the Commission
or the governmental authorities of states in which the Shares are sold.
6.05. COSTS OF OFFERING. The Company will pay, whether or not the
transactions contemplated hereunder are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of its
obligations under this Agreement, including all expenses incident to the
authorization and issuance of the Shares, any taxes incident to the initial
sale of the Shares hereunder, the fees and expenses of the Company's counsel
and accountants, the costs and expenses incident to the preparation and
printing of the Memorandum and any amendments or supplements thereto, the
cost of preparing and printing all exhibits to the Memorandum, the Blue Sky
Memorandum, the cost of furnishing to the Placement Agent copies of the
Memorandum as herein provided, and the cost of any filing with the Commission
or pursuant to state securities laws, including all filing fees.
6.06. USE OF PROCEEDS. The Company will apply the proceeds from the
sale of the Shares to the purposes set forth in the Memorandum.
6.07. DUE DILIGENCE. Prior to the Final Closing, the Company will
cooperate with the Placement Agent in such investigation as the Placement
Agent may make or cause to be made of the properties, business, management
and operations of the Company in connection with the offering of the Shares,
and the Company will make available to the Placement Agent in connection
therewith such information in its possession as the Placement Agent may
reasonably request.
6.08. DOCUMENTATION. Prior to the Closing Date, the Company will
deliver to the Placement Agent true and correct copies of the articles and
bylaws of the Company and of the minutes of all meetings of the directors and
shareholders of the Company held since inception; true and correct copies of
all material contracts to which the Company is a party; and such other
documents and information as is reasonably requested by the Placement Agent.
To the extent such documents had previously been provided, only amendments or
updates need to be furnished.
6.09. MANAGEMENT COOPERATION. The Company shall provide the Placement
Agent, at any time, an opportunity to meet with and question management of
the Company and authorize management of the Company to speak at such meetings
as the Placement Agent reasonably requests.
6.10. PERIODIC REPORTS. The Company will provide to the Placement
Agent for not less than three (3) years following the Closing Date, quarterly
and annual financial statements, copies of all correspondence to shareholders
and copies of all press releases or news items concerning the Company.
6.11. COMPLIANCE WITH CONDITIONS PRECEDENT. The Company will use all
reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Placement Agent specified in this
Agreement.
6.12. REPORTS. The Company agrees to file with the Commission, and
states where required, all reports on Form D in accordance with the
provisions of Regulation D promulgated under the Act and to promptly provide
copies of such reports to the Placement Agent and its counsel.
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Placement Agent Agreement
Training Devices Incorporated
<PAGE>
SECTION 7
INDEMNIFICATION
7.01. INDEMNIFICATION BY COMPANY. The Company agrees to indemnify,
defend and hold harmless the Placement Agent, its agents, managers, members,
representatives, guarantors, sureties and each person who controls the
Placement Agent within the meaning of either Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934 ("Indemnified Persons") from and
against any and all losses, claims, damages, liabilities or expenses, joint
or several (including reasonable legal or other expenses incurred by each
such person in connection with defending or investigating any such claims or
liabilities, whether or not resulting in any liability to such Indemnified
Persons), which they or any of them may incur under the Act, or any state
securities law and the Rules and Regulations or the rules and regulations
under any state securities laws or any other statute or at common law or
otherwise and to reimburse such Indemnified Persons for any legal or other
expense (including the cost of any investigation and preparation) incurred by
any of them in connection with any litigation, whether or not resulting in
any liability, but only insofar as such losses, claims, damages, liabilities
and expenses arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Memorandum or any
amendment or supplement thereto or any authorized sales literature or any
application or other document filed with the Commission or in any state or
other jurisdiction in order to qualify the Shares under the securities laws
thereof, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, all as of the date of the Memorandum or such amendment or
supplement, as the case may be, or any untrue statement or alleged untrue
statement of a material fact contained in the Memorandum (as amended or
supplemented) or other document, or the failure to comply with the security
registration requirement of the Act or any applicable state law; provided,
however, that the indemnity agreement contained in this Section 7.01 shall
not apply to amounts paid in settlement of any such litigation if such
settlements are effected without the consent of the Company, nor shall it
apply to any Indemnified Persons in respect of any such losses, claims,
damages, liabilities or actions arising out of or based upon any such untrue
statement or alleged untrue statement, or any such omission or alleged
omission, if such statement or omission was made in reliance upon information
furnished in writing to the Company by such Indemnified Persons specifically
for use in connection with the preparation of the Memorandum or any such
amendment or supplement thereto. This indemnity agreement is in addition to
any other liability which the Company may otherwise have to the Indemnified
Persons.
7.02. NOTIFICATION TO COMPANY. The Indemnified Persons agree to notify
the Company promptly of the commencement of any litigation or proceeding
against the Indemnified Persons, of which it may be advised, in connection
with the offer and sale of any of the Shares of the Company, and to furnish
to the Company at its request copies of all pleadings therein and permit the
Company to be an observer therein and apprise it of all the developments
therein. In case of commencement of any action in which indemnity may be
sought from the Company on account of the indemnity agreement contained in
Section 7.01, the Indemnified Persons within ten (10) days after the receipt
of written notice of the commencement of any action against the Indemnified
Persons, shall notify the Company in writing of the commencement thereof. The
omission of the Indemnified Persons to so notify the Company of any such
action shall relieve the Company from any liability which it may have to the
Indemnified Persons on account of the indemnity agreement contained in
Section 7.01 or otherwise. In case any such action shall be brought against
the Indemnified Persons of which the Indemnified Persons shall have notified
the Company of the commencement thereof, the Company shall be entitled to
participate in (and to the extent that it shall wish, to direct) the defense
thereto at its own expense but such defense shall be conducted by counsel of
recognized standing and reasonably satisfactory to the Indemnified Persons in
such litigation. After notice that the Company elects to direct the defense,
the Company will not be liable for any legal or other expenses incurred by
the Indemnified Persons without
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Placement Agent Agreement
Training Devices Incorporated
<PAGE>
the prior written consent of the Company. The Company shall not be liable for
amounts paid in settlement of any litigation if such settlement was effected
without its consent.
7.03. INDEMNIFICATION BY PLACEMENT AGENT. The Placement Agent agrees
to indemnify and hold harmless the Company, its agents, officers, directors,
representatives, guarantors, sureties and each person who controls the
Company within the meaning of either Section 15 of the Act or Section 20 of
the Securities Exchange Act of 1934 from and against any and all losses,
claims, damages, liabilities or expenses, joint or several, (including
reasonable legal or other expenses incurred by each such person in connection
with defending or investigating any such claims or liabilities, whether or
not resulting in any liability to such person) which they or any of them may
incur under the Act, or any state securities law and the Rules and
Regulations or the rules and regulations under any state securities laws or
any other statute or at common law or otherwise and to reimburse persons
indemnified as above for any legal or other expense (including the cost of any
investigation and preparation) incurred by any of them in connection with any
litigation, whether or not resulting in any liability, but only insofar as
such losses, claims, damages, liabilities and litigation arise out of or are
based upon any statement in or omission from the Memorandum or any amendment
or supplement thereto, or any application or other document filed with the
Commission or in any state or other jurisdiction in order to qualify the
Shares under the securities laws thereof, or any information furnished
pursuant to Section 3.10 hereof, if such statements or omissions were made
in reliance upon information furnished in writing to the Company by the
Placement Agent or on its behalf specifically for use in connection with the
preparation of the Memorandum or amendment or supplement thereto or
application or document filed. This indemnity agreement is in addition to any
other liability which the Placement Agent may otherwise have to the Company
and other indemnified persons.
7.04. NOTIFICATION TO PLACEMENT AGENT. The Company and other
Indemnified Persons agree to notify the Placement Agent promptly of
commencement of any litigation or proceedings against the Placement Agent or
other Indemnified Persons, in connection with the offer and sale of any of the
Shares and to furnish to the Placement Agent, at its request, copies of all
pleadings therein and permit the Placement Agent to be an observer therein
and apprise the Placement Agent of all developments therein, all at the
Company's expense. In case of commencement of any action in which indemnity
may be sought from the Placement Agent on account of the indemnity agreement
contained in Section 7.03, the Company or other Indemnified Persons shall
notify the Placement Agent of the commencement thereof in writing within ten
(10) days after the receipt of written notice of the commencement of any
action against the Company or against any other person indemnified, shall
notify the Placement Agent in writing of such notification. The omission of
the Company or other Indemnified Persons to so notify the Placement Agent of
any such action shall relieve the Placement Agent from any liability which it
may have to the Company, its agents, officers, directors, representatives,
guarantors, sureties or any person controlling it, on account of the
indemnity agreement contained in Section 7.03 or otherwise. In case any such
action shall be brought against the Company or any other person indemnified
of which the Company shall have notified the Placement Agent of the
commencement thereof, the Placement Agent shall be entitled to participate in
(and to the extent that it shall wish, to direct) the defense thereto at its
own expense, but such defense shall be conducted by counsel of recognized
standing and reasonably satisfactory to the Company or other persons
indemnified in such litigation. After notice that the Placement Agent elects
to direct the defense, the Placement Agent will not be liable for any legal
or other expense incurred by the indemnified party without the prior written
consent of the Placement Agent. The Placement Agent shall not be liable for
amounts paid in settlement of any litigation if such settlement was effected
without its consent.
7.05 INDEMNIFICATION OF SELECTED DEALERS. The Company agrees to
indemnify Selected Dealers, if any, and its agents, officers, directors,
representatives, guarantors and sureties on substantially the same terms and
conditions as it indemnifies the Placement Agent and Indemnified Persons
pursuant to Section 7.01 provided that each such Selected Dealer agrees in
writing with the Placement Agent to indemnify the Company and its agents,
officers, directors, representatives, guarantors and sureties on
substantially the same terms and conditions as the Placement Agent
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Training Devices Incorporated
<PAGE>
indemnifies the Company in Section 7.03. The Company hereby authorizes the
Placement Agent to enter into agreements with Selected Dealers providing for
such indemnity by the Company.
7.06. CONTRIBUTION. If the indemnification provided for in Sections
7.01, 7.03 and 7.05 is unavailable to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under either such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities: (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and by the Placement Agent
or Selected Dealer on the other from the offering and sale of the Shares, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Company on the one hand and of the Placement Agent or Selected Dealer
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Placement Agent or Selected Dealer on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bears to the total
commissions received by the Placement Agent or Selected Dealer, as in each
case set forth in the Memorandum. The relative fault of the Company and of
the Placement Agent or Selected Dealer shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the Company or by the Placement Agent or Selected
Dealer and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Placement Agent agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, the Placement Agent shall not be required to contribute any amount
in excess of the amount by which the total price at which the Shares sold by
it and distributed exceeds the amount of any damages which such Placement
Agent otherwise has been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution hereunder from any person who was not
guilty of such fraudulent misrepresentation.
7.07. LIMITATION OF LEGAL EXPENSES. Notwithstanding anything herein to
the contrary, the indemnification for legal expenses included in Sections 7.01,
7.03 and 7.04 shall be limited to the legal expenses of one law firm, except
in the event of a bona fide conflict of interest, in which event such legal
expenses shall be limited to the legal expenses of two law firms.
SECTION 8
EFFECTIVENESS OF AGREEMENT
This Agreement shall become effective upon execution by all parties
hereto.
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Placement Agent Agreement
Training Devices Incorporated
<PAGE>
SECTION 9
CONDITIONS OF THE PLACEMENT AGENT'S OBLIGATIONS
The Placement Agent's obligations to act as agent of the Company
hereunder shall be subject to the accuracy of the representations and
warranties on the part of the Company herein contained, to the performance by
the Company of all its agreements herein contained, to the fulfillment of or
compliance by the Company with all covenants and conditions hereof, and to
the following additional conditions:
9.01. NO MATERIAL CHANGES. Except as contemplated herein or as set forth
in the Memorandum, during the period subsequent to the date of the last
balance sheet included in the Memorandum the Company: (a) shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the last balance sheet included in the Memorandum,
and (b) except in the ordinary course of its business, the Company shall not
have incurred any material liabilities, claims or obligations (direct or
contingent) or disposed of any material portion of its assets, or entered
into any material transaction or suffered or experienced any materially
adverse change in its condition, financial or otherwise. The capitalization
and short term debt of the Company shall be substantially the same as at the
date of the latest balance sheet included in the Memorandum, without
considering the proceeds from the sale of the Shares, other than as may be
set forth in the Memorandum, and except as the financial statements of the
Company reflect the result of continued losses from operations consistent
with prior periods.
9.02. AUTHORIZATION. The authorization for the issuance of the
securities comprising the Shares and the use of the Memorandum and all
corporate proceedings and other legal matters incident thereto and to this
Agreement shall be reasonably satisfactory in all respects to counsel to the
Placement Agent.
9.03. SATISFACTORY FORM OF DOCUMENTS. All opinions, letters,
certificates and evidence mentioned above or elsewhere in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they
are in form and substance satisfactory to counsel to the Placement Agent,
whose approval shall not be unreasonably withheld.
9.04. CERTIFICATES. Any certificate signed by an officer of the Company
and delivered to the Placement Agent shall be deemed a representation and
warranty by the Company to the Placement Agent as to the statements made
therein.
SECTION 10
TERMINATION
10.01. FAILURE TO COMPLY WITH AGREEMENT. This Agreement may be
terminated by either party hereto by notice to the other party in the event
that such party shall have failed or been unable to comply with any of the
terms, conditions or provisions of this Agreement required by the Company or
the Placement Agent to be performed, complied with or fulfilled by it within
the respective times herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by the
non-defaulting party in writing.
10.02. GOVERNMENT RESTRICTIONS. This Agreement may be terminated by
either party by notice to the other party at any time if, in the judgment of
either party, payment for and delivery of the Shares are rendered
impracticable or inadvisable because: (i) additional material governmental
restrictions not in force and effect on the date hereof shall have been
imposed upon the trading in securities generally, or minimum or maximum
prices shall have been generally established on the New York Stock Exchange,
the Chicago Board of Trade or the Commodity Futures Trading Commission, or
trading in securities generally on such Exchange, Board, or Commission shall
have been suspended, or a
-11-
Placement Agent Agreement
Training Devices Incorporated
<PAGE>
general moratorium shall have been established by federal or state
authorities; or (ii) a war or other national calamity shall have occurred; or
(iii) the condition of any matter affecting the Company or any other
circumstance is such that it would be undesirable, impracticable or
inadvisable in the judgment of the Placement Agent to proceed with this
Agreement or with the sale of the Shares.
10.03. LIABILITY ON TERMINATION. Any termination of this Agreement
pursuant to this Section 10 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages on the part of any party thereto); except that the Company and the
Placement Agent shall be obligated to pay, respectively, all losses, claims,
damages or liabilities, joint or several, under Section 7.01 in the case of
the Company, Section 7.03 in the case of the Placement Agent and Section 7.06
as to all parties.
SECTION 11
PLACEMENT AGENT'S REPRESENTATIONS AND WARRANTIES
The Placement Agent represents and warrants to and agrees with the
Company that:
11.01. REGISTRATION. The Placement Agent is registered as a
broker-dealer with the Securities and Exchange Commission, and is a member in
good standing of the National Association of Securities Dealers, Inc.
("NASD"). The Placement Agent is registered or otherwise qualified to sell
the Shares in each state in which the Placement Agent sells such Shares or is
exempt from such registration or qualification.
11.02. ABILITY TO ACT AS AGENT. There is not now pending or, to the
knowledge of the Placement Agent, threatened against the Placement Agent any
action or proceeding of which the Placement Agent has been advised, either in
any court of competent jurisdiction, before the NASD, the Securities and
Exchange Commission or any state securities commission concerning the
Placement Agent's activities as a broker or dealer, nor has the Placement
Agent been named as a "cause" in any action or proceeding, any of which may
be expected to have a material adverse effect upon the Placement Agent's
ability to act as agent to the Company as contemplated herein.
11.03. TERMINATION OF AGREEMENT. In the event any action or proceeding
of the type referred to in Section 11.02 above (except for actions referred
to in the Memorandum) shall be instituted or, to the knowledge of the
Placement Agent, threatened against the Placement Agent at any time prior to
the effective date hereunder, or in the event there shall be filed by or
against the Placement Agent in any court pursuant to any federal, state,
local or municipal statute, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of its assets
or if the Placement Agent makes an assignment for the benefit of creditors,
the Company shall have the right on three (3) days written notice to the
Placement Agent to terminate this Agreement without any liability to the
Placement Agent of any kind.
SECTION 12
PLACEMENT AGENT'S WARRANTS
12.01. WARRANTS. The Company shall sell to the Placement Agent, for a
total of $100, warrants to purchase Shares ("Placement Agent's Warrants") on
the basis of one (1) warrant for each ten (10) Shares sold in the Offering.
Each Placement Agent's Warrant will entitle the holder to purchase one share
at the exercise price of $1.25 per Share. The Placement Agent's Warrants will
be exercisable for a period of five (5) years after their issuance; and if
the Placement Agent's Warrants are not exercised during this term, they
shall, by their terms, automatically expire. The Company shall set aside and
at all times have available a sufficient number of shares of its Common Stock
to be issued upon the exercise of the Placement Agent's Warrants. The
Warrants shall contain a "cashless exercise" provision.
-12-
Placement Agent Agreement
Training Devices Incorporated
<PAGE>
12.02. REGISTRATION RIGHTS. The Company understands and agrees that if,
at any time during the seven-year period commencing the date the Placement
Agent's Warrants are issued, it should file a Registration Statement with the
Commission pursuant to the Act, for a public offering of securities, either
for the account of the Company or for the account of any other person, the
Company at its own expense, will offer to holders of Placement Agent's
Warrants or shares of common stock previously issued upon the exercise
thereof, the opportunity to register or qualify for public offering the
Placement Agent's Warrants and shares of common stock underlying the
Placement Agent's Warrants or the shares so issued. This paragraph is not
applicable to a Registration Statement filed with the Securities and Exchange
Commission on Forms S-4 or S-8 or any other inappropriate forms; nor does it
apply to the public offering.
In addition to the rights above provided, the Company will cooperate with
the then holder(s) of the Placement Agent's Warrants and common stock issued
upon the exercise of the Placement Agent's Warrants, no more often than once
in any twelve (12) month period, in preparing and signing any Registration
Statement other than the Registration Statement discussed above, required in
order to sell or transfer the aforesaid Placement Agent's Warrants and
underlying shares of common stock and shall supply all information required
therefore, but such additional Registration Statement shall be at the then
holder(s) cost and expense.
SECTION 13
NOTICE
Except as otherwise expressly provided in this Agreement:
13.01. NOTICE TO COMPANY. Whenever notice is required by the provisions
of this Agreement to be given to the Company, such notice shall be in writing
addressed to the Company as provided below:
Training Devices Incorporated
Bruce Betschart, President
96 Inverness Drive East, #R
Englewood, Colorado 80112
with a copy to:
Alan W. Peryam, Esq.
1610 Wynkoop Street, Suite 200
Denver, Colorado 80202-1135
13.02. NOTICE TO PLACEMENT AGENT. Whenever notice is required by the
provisions of this Agreement to be given to the Placement Agent, such notice
shall be given in writing addressed to the Placement Agent as follows:
Bathgate McColley Capital Group, LLC
5350 S. Roslyn Street, Suite 380
Englewood, Colorado 80111
SECTION 14
MISCELLANEOUS
14.01. BENEFITS. This Agreement is made solely for the benefit of the
Placement Agent, the Company, their respective agents, officers, directors,
managers, members, representatives, guarantors, sureties and any controlling
person referred to in Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successor" or the term "successors and assigns" as used
in this Agreement shall not include any purchasers, as such, of any of the
Shares.
-13-
Placement Agent Agreement
Training Devices Incorporated
<PAGE>
14.02. SURVIVAL. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company or
the Company's officers, as set forth in or made pursuant to this Agreement
and the indemnity agreements of the Company and the Placement Agent contained
in Section 7 hereof shall survive and remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company or
the Placement Agent or any affiliated persons thereof or any controlling
person of the Company or of the Placement Agent, and (ii) delivery of or
payment for the Shares. Any successor of the Company, the Placement Agent and
Selected Dealers, or any controlling person, or other person indemnified by
Section 7, as the case may be, shall be entitled to the benefits hereof.
14.03. GOVERNING LAW. The validity, interpretation and construction of
this Agreement and of each part hereof will be governed by the laws of the
State of Colorado. The parties agree that any dispute which arises between
them relating to this Agreement or otherwise shall be submitted for
resolution in conformity with the Securities Arbitration Rules of the
American Arbitration Association. The parties agree that the situs of an
arbitration hearing before the arbitrators shall be in Denver, Colorado, and
each party shall request such situs.
14.04. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will constitute an original.
Please confirm that the foregoing correctly sets forth the Agreement
between you and the Placement Agent.
Very truly yours,
BATHGATE MCCOLLEY CAPITAL GROUP, LLC
1/7/97 By /s/ Eugene C. McColley
- ------------------ ---------------------------------
Date Eugene C. McColley
We hereby confirm as of the date hereof that the above letter sets forth
the Agreement between the Placement Agent and us.
TRAINING DEVICES INCORPORATED
1/7/97 By /s/ Bruce Betschart
- ------------------ ----------------------------------
Date Bruce Betschart, President
-14-
Placement Agent Agreement
Training Devices Incorporated
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS
THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
THE SATISFACTION OF THE COMPANY.
Warrant Certificate No. PAW-2
TRAINING DEVICES INCORPORATED
WARRANTS TO PURCHASE 16,000 SHARES OF COMMON STOCK
INCORPORATED UNDER THE LAWS
OF THE STATE OF COLORADO
This certifies that, for value received, Steven M. Bathgate, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from Training Devices Incorporated (the "Company"), at any time
during the period commencing at 9:00 a.m., Colorado time, on February 20,
1997, and expiring at 5:00 p.m., Colorado time, on February 19, 2002, at the
purchase price per Share of $1.25 (the "Exercise Price"), the number of
shares of Common Stock of the Company set forth above (the "Shares"). The
number of shares of Common Stock of the Company purchasable upon exercise of
the Warrants evidenced hereby shall be subject to adjustment from time to
time as set forth in the Warrant Agreement dated February 20, 1997 (the
"Warrant Agreement").
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached
hereto duly executed and simultaneous payment of the Warrant Price at the
principal office of the Company. Payment of such price shall be made at the
option of the Warrantholder in cash or by check or by Cashless Exercise
subject to the provisions of Section 3 of the Warrant Agreement (as that term
is defined therein).
The Warrants evidenced hereby are issued under and in accordance with
Warrant Agreement between the Company and Bathgate McColley Capital Group,
LLC, and are subject to the terms and provisions contained in the Warrant
Agreement, to all of which the Warrantholder by acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in
respect of the Shares as to which the Warrants evidenced hereby shall not
have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of Shares as here evidenced by
the Warrant or Warrants exchanged. No fractional shares of Common Stock will
be issued upon the exercise of rights to purchase hereunder, but the Company
shall pay the cash value of any fraction upon the exercise of one or more
Warrants. These Warrants are transferable at the office of the Company in the
manner and subject to the limitations set forth in the Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Company.
Dated: February 20, 1997 TRAINING DEVICES INCORPORATED
[Seal]
Attest:
Leonard J. Hawkins By: Bruce S. Betschart
- ----------------------------- ---------------------------
Secretary
<PAGE>
CONVERTIBLE PROMISSORY NOTE DATED DECEMBER 5, 1996
EXTENSION & CORRECTION OF TERMS
$100,000.00 Denver, Colorado
Effective January 2, 1998
FOR VALUE RECEIVED, on December 5, 1996, Training Devices Incorporated
("Maker") hereby promises to pay to the order of Bruce S. Betschart, his
successors or assigns ("Holder") the sum of one hundred thousand dollars and
no cents ($100,000.00) with interest thereon from the date hereof at the
corrected annual rate equal to ten percent (10%) on the outstanding balance
until paid in full. Interest shall be compounded annually. Principal and
interest shall be due and payable by the Maker at Denver, Colorado or at such
other place as the Holder may designate from time to time in writing, in
lawful money of the United States of America. The termination date is hereby
extended from January 2, 1998 to January 2, 2001 by mutual agreement.
All payments received hereunder shall be first applied to payment of
interest due hereunder, then to the payment of any sums payable hereunder and
finally to the unpaid principal balance then remaining unpaid. The principal
balance, accrued and unpaid interest and any other sums payable hereunder,
may be prepaid in whole or in part without premium or penalty by the Maker
only after furnishing to the Holder thirty (30) days prior written notice of
intent to prepay.
At any time prior to payment of this Note and accrued interest, the
Holder may, at Holder's written election, convert all or any portion of the
principal amount of this Note plus accrued interest (in increments no less
than $25,000) into common stock of the Maker. Upon any such conversion by the
Holder, the Maker shall, upon receipt from the Holder of written notice of
conversion and delivery by the Holder of this Note, issue to the Holder or
Holder's assigns, one share of Maker's common stock for each $1.25 of
principal and interest due under this Note which is being converted into
common stock. If less than all of the principal amount and accrued interest
due on this Note is being converted into common stock of the Maker, the
amount which is converted into common stock, together with accrued interest
converted, if any, shall be noted on this Note, together with the number of
shares issued upon such conversion and thereafter this Note shall represent
the obligation of the Company to the Holder to pay the principal amount of
the Note and accrued interest less the portion hereof which has been
converted. Upon any recapitalization or restructuring or other adjustment of
the Company's capital structure in which the number of shares of common stock
is adjusted, increased or decreased, or otherwise modified, then the number
of shares into which the principal amount and accrued interest of this Note
may be converted shall likewise be changed so that this Note and accrued
interest is thereafter convertible into the number of shares of common stock
or other securities of the Maker which the Holder would have received had the
Holder converted the entire principal amount and accrued interest under this
Note into common stock of the Maker immediately prior to such
recapitalization, restructuring or other adjustment.
Upon any conversion of any portion of this Note into common stock of the
Maker, the Holder, or any successor or assignee, shall sign and deliver to
the Maker such reasonable investment representations concerning the Maker's
common stock to be issued upon conversion
<PAGE>
as shall be required by Maker to comply with applicable law. Shares issued
upon conversion of this Note may be subject to reasonable restrictions
imposed by the Maker to assure compliance with applicable law.
This Note is unsecured.
If this Notes is not paid when due, Holder may bring suit for collection
in a court of competent jurisdiction in Arapahoe County, Colorado and in
connection therewith shall be entitled to reasonable attorney fees and costs
of suit.
This Note shall be deemed to have been executed and delivered in
Arapahoe County, State of Colorado and its terms and provisions shall be
governed by the laws of the state of Colorado.
MAKER:
TRAINING DEVICES INCORPORATED
By /s/ Ronald C. Ellington 7/22/99
--------------------------- -------------
Authorized Officer Date
-2-
<PAGE>
CONVERTIBLE PROMISSORY NOTE
$20,000
DENVER, COLORADO
MAY 8, 1997
FOR VALUE RECEIVED, Training Devices Incorporated ("Maker") hereby
promises to pay to the order of Leonard J. Hawkins ("Holder"), his successors
or assigns, the sum of Twenty Thousand Dollars and no cents ($20,000.00) with
interest thereon from the date hereof at the annual rate equal to ten percent
(10%) on the outstanding balance until paid in full. Interest shall be
compounded annually. Principal and interest shall be due and payable by the
Maker at Denver, Colorado or at such other place as the Holder may designate
from time to time in writing, in lawful money of the United States of America
on January 2, 2001.
All payments received hereunder shall be first applied to payment of
interest due hereunder, then to the payment of any sums payable hereunder and
finally to the unpaid principal balance then remaining unpaid. The principal
balance, accrued and unpaid interest and any other sums payable hereunder,
may be prepaid in whole or in part without premium or penalty by the Maker
only after furnishing to the Holder thirty (30) days prior written notice of
intent to prepay.
At any time prior to payment of this Note and accrued interest, the
Holder may, at Holder's written election, convert all or any portion of the
principal amount of this Note plus accrued interest (in increments no less
than $20,000) into common stock of the Maker. Upon any such conversion by the
Holder, the Maker shall, upon receipt from the Holder of written notice of
conversion and delivery by the Holder of this note, issue to the Holder or
Holder's assigns, one share of Makers common stock for $1.25 of principal and
interest due under this Note which is being converted into common stock. If
less than all of the principal amount and accrued interest due on this Note
is being converted into common stock of the Maker, the amount which is
converted into common stock, together with accrued interest converted, if
any, shall be noted on this Note, together with the number of shares issued
upon such conversion and shall be noted on this Note, together with the
number of shares issued upon such conversion and thereafter this Note shall
represent the obligation of the Company to the Holder to pay the principal
amount of the Note and accrued interest less the portion hereof which has
been converted. Upon any recapitalization or restructuring or other
adjustment of the Company's capital structure in which the number of shares
of common stock is adjusted, increased or decreased, or otherwise modified,
then the number of shares into which the principal amount and accrued interest
of this Note may be converted shall likewise be changed so that this Note and
accrued interest is thereafter convertible into the number of shares of
common stock or other securities of the Maker which the Holder would have
received had the Holder converted the entire principal amount and accrued
interest under this Note into common stock of the Maker immediately prior to
such recapitalization, restructuring or other adjustment.
<PAGE>
Upon any conversion of any portion of this Note into common stock of the
Maker, the Holder, or any successor or assignee, shall sign and deliver to
the Maker such reasonable investment representations concerning the Maker's
common stock to be issued upon conversion as shall be required by Maker to
comply with applicable law. Shares issued upon conversion of this Note may be
subject to reasonable restrictions imposed by the Maker to assure compliance
with applicable law.
This Note is unsecured.
If this Note is not paid when due, Holder may bring suit for collection
in a court of competent jurisdiction in Arapahoe County, Colorado and in
connection therewith shall be entitled to reasonable attorney fees and costs
of suit.
This Note shall be deemed to have been executed and delivered in
Arapahoe County, State of Colorado and its terms and provisions shall be
governed by the laws of the state of Colorado.
MAKER:
TRAINING DEVICES INCORPORATED
BY /s/ Ronald C. Ellington
--------------------------
AUTHORIZED OFFICER
<PAGE>
[LOGO]
April 13, 1998
Mr. Robert T. Bruce
Training Devices, Inc.
7367 South Revere Parkway, Suite 2C
Denver, CO 80112
Re: Centennial Distribution
7367 S. Revere Parkway
Englewood, Colorado
Dear Mr. Bruce:
This letter shall constitute notice of the transfer of the above referenced
premises and assignment of the lease and Security Deposit for the premises by
Spiral, Inc. ("Former Landlord") to First Industrial, LP ("Successor
Landlord"). The rental shall be paid to the Successor Landlord at
First Industrial, LP
PO Box 70257
Chicago, Illinois 60673-0550
or sent, if sent by overnight courier, to:
The First National Bank of Chicago
525 W. Monroe
7th Floor Mailroom
Chicago, Illinois 60673-0550
Attn: First Industrial, LP, Lockbox #70257
Your local First Industrial property management office is located at the
following address:
Jane Montgomery
First Industrial Realty Trust
5350 S. Roslyn Street, Suite 240
Englewood, CO 80111
7100 W. Erie Street
Chandler, Arizona 85226
(602) 940-0441 1-800-848-8116
Facsimile: (602) 940-1522
<PAGE>
Mr. Robert T. Bruce
Training Devices, Inc.
April 13, 1998
Page 2
However, all formal notices under the lease should be directed to the
Successor Landlord at:
First Industrial, LP
311 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attn: Chief Operating Officer
Please do not hesitate to contact your local First Industrial property
management office with any questions you may have. The effective date of this
notice is the date of this letter.
Sincerely,
Spiral, Inc.
an Arizona Corporation
/s/ Reginald D. Fowler
Reginald D. Fowler
President/CEO
<PAGE>
AMENDMENT #1
THIS AMENDMENT, DATED DECEMBER 24, 1997, TO THE LEASE AGREEMENT BETWEEN
SPIRAL, INC. ("LANDLORD") AND TRAINING DEVICES, INC. ("TENANT"), DATED
DECEMBER 1, 1997, SETS FORTH THE FOLLOWING REVISION TO SECTION 2., PREMISES.
2. PREMISES:
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord for the term, at the rental, and upon all of the conditions set
forth herein, that certain real property (The "Premises") situated at:
LOCATION: Centennial Distribution Center (the "Center" or
"Property")
7367 South Revere Parkway
Englewood, Colorado
TOTAL PROJECT SIZE: 103,257 square feet within two buildings
Building 1 - 42,087 square feet
Building 2 - 61,170 square feet
UNIT SIZE: Approximately 14,000 square feet in Building 2
(South Building). The exact measurement subject to
the final space plan. The Premises will be known as
7367 South Revere Parkway, Suite 2C, Denver,
Colorado 80112
ALL OTHER TERMS AND CONDITIONS OF THE EXISTING LEASE SHALL REMAIN IN
FULL FORCE AND EFFECT, EXCEPT AS MAY BE MODIFIED BY ANY FUTURE AMENDMENTS OR
ADDENDUMS.
LANDLORD: Spiral, Inc.
Date: 1-14-99 By: /s/ Reggie Fowler
---------------------------- -----------------------------------
Printed Name: Reggie Fowler
-------------------------
Title: President/C.E.O.
--------------------------------
NOTICE ADDRESS:
7100 W. Erie St.
Phoenix, AZ 85226
Telephone: 602-940-0441
Facsimile: 602-940-1522
1
Amendment 1
Lease Agreement
Spiral, Inc./Training Devices, Inc.
<PAGE>
TENANT: Training Devices, Inc., U.S.A.
Date: 7 Jan '98 By: /s/ Robert T. Bruce
-------------------------------- -----------------------------------
Printed Name: Robert T. Bruce
-------------------------
Title: C.E.O.
---------------------------------
NOTICE ADDRESS:
Telephone: (303) 792-3792
Facsimile (303) 792-3793
2
Amendment 1
Lease Agreement
Spiral, Inc./Training Devices, Inc.
<PAGE>
[LOGO]
- ------------------------------------------------------------------------------
LEASE AGREEMENT
between
Spiral, Inc. ("Landlord")
-------------------------
and
Training Devices, Inc. ("Tenant")
---------------------------------
- ------------------------------------------------------------------------------
Table of Contents
<TABLE>
<CAPTION>
SECTION DESCRIPTION
<S> <C>
1. PARTIES...................................................................2
2. PREMISES:.................................................................2
3. TERM......................................................................2
4. RENT, TENANT FINISH ALLOWANCE, SECURITY DEPOSIT AND FURTHER SECURITY......3
6. TAXES.....................................................................7
7. USE: COMPLIANCE WITH LAWS.................................................7
8. MAINTENANCE; REPAIRS AND ALTERATIONS; SURRENDER...........................9
9. INSURANCE; INDEMNIFICATION...............................................10
10. DAMAGE OR DESTRUCTION - REPAIRS AND RESTORATION..........................12
11. ASSIGNMENT AND SUBLETTING................................................13
12. DEFAULTS; REMEDIES.......................................................13
13. CONDEMNATION.............................................................16
14. ESTOPPEL CERTIFICATES....................................................16
15. ATTORNMENT AGREEMENT.....................................................16
16. GENERAL PROVISIONS.......................................................17
17. QUIET ENJOYMENT..........................................................18
18. SURVIVAL.................................................................18
</TABLE>
1
<PAGE>
[LOGO]
- ------------------------------------------------------------------------------
LEASE AGREEMENT
1. PARTIES.
This Lease, dated for reference purposes only, December 1, 1997, is made
by and between:
Training Devices, Inc. ("Tenant" or "Lessee"), a Colorado corporation
and
Spiral, Inc. ("Landlord"), an Arizona corporation
7100 W. Erie St.
Phoenix, AZ 85226
2. PREMISES:
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord for the term, at the rental, and upon all of the conditions set
forth herein, that certain real property (The "Premises") situated at:
LOCATION: Centennial Distribution Center (the "Center" or
"Property")
7367 South Revere Parkway
Englewood, Colorado
TOTAL PROJECT SIZE: 103,257 square feet within two buildings
Building 1 - 42,087 square feet
Building 2 - 61,170 square feet
UNIT SIZE: Approximately 14,040 square feet in Building 2
(South Building). The exact measurement subject to
the final space plan.
3. TERM.
3.1. Initial Term. The initial term of this Lease shall be for five (5)
years commencing on March 1, 1998, and ending on February 28, 2003, unless
sooner terminated or extended pursuant to any provision thereof.
3.2. If it is not then in default under the terms and conditions of this
Lease, Tenant, upon notice given to Landlord not more than 200 days and not
less than 180 days prior to the end of the lease term, shall have the right
to extend the lease term for an additional five (5) years on the same terms
and conditions as are contained in this Lease, except for the option to renew
and except that the Base Rent shall be revised to the "Adjusted Market Rent".
If the parties cannot agree on the Adjusted Market Rent, then the Adjusted
Market Rent shall be
2
<PAGE>
determined as follows: Within five (5) days of delivery of Tenant's notice of
intention to exercise the right to renew, each party shall choose a
commercial real estate broker who shall, within ten (10) days, give an
opinion as to an appropriate Base Rent rate for the extension term, taking
into account the market for the Premise and similar premises, the savings to
Landlord by entering into a renewal of the lease term as opposed to finding a
new tenant and entering into a lease with a new tenant (including
consideration of such matters as physical modifications and other concessions
likely to be negotiated by a new tenant). If the lease rates quoted by the
two brokers are within ten percent (10%) of one another, the new lease rate
shall be the average of the two. If they are further apart, then the two
brokers shall immediately appoint a third, who shall also render an opinion
within ten days of being appointed, giving consideration to the above
factors, and the new lease rate shall be the average of the three. Any fees
charged by a broker rendering one of the foregoing opinions shall be paid by
the party appointing said broker, except that if the use of the third broker
is required, the fees of the third broker shall be shared by the parties on a
50/50 basis.
4. RENT, TENANT FINISH ALLOWANCE, SECURITY DEPOSIT AND FURTHER SECURITY
4.1 As Base Rent Tenant shall pay to Landlord annual base rent
for the Premises, payable in equal monthly payments as stated below, in
advance, on the first day of each month of the term. Rent for any period
during the term hereof which is for less than one full calendar month shall
be a pro rata portion of the monthly installment. Rent shall be payable to
Landlord at the address stated herein or to such other persons or at such
other places as Landlord may designate in writing.
<TABLE>
<CAPTION>
Monthly Payment Year Annual Amount Cost/sf
---------------------------------------------------------------
<S> <C> <C> <C>
$7,020.00 1 $84,240.00 $6.00
$7,137.00 2 $86,644.00 $6.10
$7,254.00 3 $87,048.00 $6.20
$7,371.00 4 $88,452.00 $6.30
$7,488.00 5 $89,856.00 $6.40
</TABLE>
4.1.B. ADDITIONAL RENT
All other sums which Tenant is obligated to pay under the
terms of this Lease shall be deemed to be "Additional Rent". Additional Rent
includes, without limitation, Tenant's pro rata share of Operating Costs as
provided in this Section, all utilities serving the Premises as set forth in
Section 5, and taxes as described in Section 6.
(i) OPERATING COSTS DEFINED. "Operating Costs" shall mean
all costs and expenses of any kind or nature which are necessary, and are
customarily incurred in operating and maintaining the Center in the manner of
similar distribution centers, or which arise out of Landlord's obligation to
maintain and repair under this Lease, or other leases, or which are, as
determined by Landlord, reasonable and appropriate for the best interests of
the Center. Operating Costs shall be divided into two categories: (a) "Roads
Operating Costs" and (b) "All Other Operating Costs".
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"Roads Operating Costs" shall include all costs and expenses relating to
the maintenance and repair of the roads and driveways serving the buildings
located in the Center, including, without limitation, traffic regulation,
cleaning, snow and ice removal, striping, road signage, any insurance,
security of lighting charges which pertain solely to the roads or driveways,
and repair of the road and driveway surfaces, curbs and gutters. Tenants in
Building One will bear twenty-five percent (25%) of the total Roads Operating
Costs and Tenants of Building Two will bear seventy-five percent (75%) of the
total Roads Operating Costs.
"All Other Operating Costs" are those which are not included in Roads
Operating Costs, including, without limitation, all taxes and assessments
imposed against the Center, all insurance premiums for insurance required by
this Lease or other leases in the Center or which Landlord deems reasonable
and prudent to carry (including without limitation insurance premiums for
liability insurance for personal injury, death, and property damage; costs of
workmen's compensation insurance covering personnel and fidelity bonds for
personnel; costs of insurance against liability for defamation and claims of
false arrest occurring in and about the Common Areas; costs of insurance
against loss of rents), all costs and expenses of operating, maintaining,
repairing, replacing, lighting, cleaning, painting, striping, and policing
all Common areas and all improvements thereto (including costs of uniforms,
equipment, and all employment taxes) other than those costs which are
included in Roads Operating Costs; costs of utilities for the Common Areas;
costs of all supplies; costs for removal of snow, ice, and debris from
sidewalks and Common Areas other than roads and driveways; monitoring of fire
and security systems for Common Areas; costs and expenses for repair or
replacement of parking area paving, curbs, walkways, landscaping, drainage,
and lighting facilities for the Common Areas; costs and expenses of planting,
replanting, and replacing flowers and shrubbery and planters; all costs of
labor, including wages and other payments including disability insurance,
payroll taxes, welfare, and all legal fees and other costs or expenses
incurred in resolving any labor disputes; cost and expense for the rental of
music program services and loudspeaker systems, including furnishing
electricity therefor; sprinkler maintenance costs; administrative costs equal
to fifteen percent (15%) of the total cost of operating and maintaining the
Center. Tenants in Building One will bear forty percent (40%) of the total
All Other Operating Costs and Tenants in Building Two will bear sixty percent
(60%) of the total All Other Operating Costs.
Operating Costs shall not include: costs of work performed exclusively
for any other tenant in the Center other than work of a kind and scope which
Landlord would be obligated to provide to all tenants; leasing commissions and
other expenses attributable solely to leasing of space in the Center; costs
of repairs or rebuilding necessitated by condemnation; costs of capital
improvements; or depreciation on the Center, except as expressly provided
above, or any such costs, the payment of which is the obligation of any third
parties.
(ii) TENANT'S PRO RATA SHARE OF ROADS OPERATING COSTS. During each
Lease Year during the Lease Term and any extension thereof, including the
first Lease Year, Tenant will pay Landlord as Additional Rent its pro rata
share of Roads Operating Costs as hereafter provided. Tenant's pro rata
share of Roads Operating Costs shall be computed by multiplying seventy-five
percent (75%) of the total amount of such costs, by a fraction, the numerator
of which shall be the number of rentable square feet of floor area in the
Premises and the
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denominator of which shall be the total number of square feet of rentable
floor area in Building Two.
Tenant's prorata share of All Other Operating Costs shall be computed
by multiplying sixty percent (60%) of the total amount of such costs, by a
fraction, the numerator of which shall be the number of rentable square feet
of floor area in the Premises and the denominator of which shall be the total
number of square feet of rentable floor area in Building Two.
Landlord estimates that Tenant's pro rata share of Operating Costs (the
total of Tenant's pro rata share of both Roads Operating Costs and All Other
Operating Costs) for the first lease year will be approximately $1.77 per
square foot.
(iii) PLACE AND MANNER OF PAYMENT OF TENANT'S PRO RATA SHARE OF
OPERATING COSTS. Commencing with the first full month of the Lease term, and
each month thereafter during the term, Tenant shall pay on-twelfth (1/12) of
its estimated pro rata share of Operating Costs (based upon the actual
Operating Costs for the previous year, if any, or if none, based on
Landlord's estimate thereof), in advance in equal monthly installments. As
soon as practicable following the end of each lease year during the term,
including the first lease year, Landlord shall notify Tenant of the actual
amount of Tenant's pro rata share and the difference between it and the
estimated amount actually paid by Tenant during the lease year just
completed, if any, and the estimated pro rata share for the current lease
year. If, at the end of the lease year Tenant's actual pro rata share
exceeds, or is less than, the estimated amount paid by Tenant during the
lease year just completed, Tenant shall pay to Landlord within thirty (30)
days following Landlord's notice to Tenant, or Landlord shall pay to Tenant,
as the case may be, such amounts as are necessary to correct the discrepancy.
Tenant's estimated pro rata share shall be paid at the same time and place as
the Base Rent; provided, however, that Tenant's first payment of its
estimated pro rata share after receipt of notice from Landlord setting forth
such amount shall also include one twelfth (1/12) of such amount for each
month of the current lease year which has elapsed prior to the making of such
first payment. For convenience, Tenant may include payment of its estimated
pro rata share and any other charges, if any, payable under the terms of this
Lease and the Base Rent in one check, provided all said charges and said rent
are separately itemized in an accompanying document. If Tenant's lease year
is not concurrent with the calendar year, Landlord may, at any time during
the term, or any extensions thereof, make all adjustment provided for in this
Section on a calendar year basis with an appropriate proration for the lease
year in which such conversion is made and in which the term ends and in that
case, all references in this Section to "lease year" shall thereafter be
deemed to refer to "calendar year".
(iv) COMMON AREAS. Landlord hereby grants to Tenant the right to use
the Common Areas, as hereinafter defined, subject to the conditions
hereinafter stated and those set forth in any easements or restrictions of
record. The conditions of Tenant's use of such Common Areas are as follows:
(a) The Common Areas shall be used by Tenant, its agents,
employees, customers, and invitees, in common with agents, employees,
customers, and invitees of Landlord and the other owners, occupants, and
tenants from time to time in the Center.
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(b) Tenant's right to use the Common Areas shall terminate upon
the expiration or termination of this Lease.
(c) Tenant shall make no use of the Common Areas which shall
interfere in any way with the use of the Common Areas by others.
(d) Subject to the provisions hereof, Landlord shall have the
right from time to time to construct other temporary and permanent buildings
or improvements in the Common Areas or elsewhere in the Center, to change the
location or character of, to make alterations of or additions to the Common
Areas, to repair and reconstruct the Common Areas, and to do any such other
acts in and to the Common Areas as Landlord may deem desirable to improve the
convenience thereof.
(e) Use of all parking areas or other Common Areas shall be
subject to the rules and regulations from time to time promulgated by
Landlord.
(f) The minimum parking ratio is 1.6 spaces per 1000 square feet.
This means the Tenant will be allowed 21 unreserved parking spaces in the
front portion of the project and can use the truck court area immediately
behind the premises for additional parking, provided the additional parking
does not interrupt truck loading and access with other tenants in the
building.
The "Common Areas" as used herein shall mean and refer to all of the
following to the extent they are located in the Center: roadways and
driveways; parking areas; sidewalks; canopies; mall; streets; passenger
vehicle roadways; truck roadways; loading platforms; stairs; yard areas;
public and common washrooms; lounges and shelters; and any other facilities
available for common use by all tenants and occupants of space in the Center
and their employees, agents, customers, licensees, and invitees, as they may
from time to time exist. Landlord reserves the right, from time to time, to
take actions necessary or reasonable to prevent the acquisition of public
rights in such areas, or to discourage noncustomer parking. Subject to the
provisions of Section 4.1.B., the Common Areas shall be maintained and
operated in good, clean, and orderly condition. The manner in which Common
Areas shall be maintained and operated and the expenditures therefor shall be
at the sole discretion of Landlord.
4.2 TENANT FINISH.
Landlord shall provide improvements within the Premises per
mutually agreeable space plan and shall contribute up to $5.00 per square
foot ($70,200.00) to the cost of completion thereof. Included in the Tenant
Finish allowance are architectural and engineering costs associated with the
transaction. The space and plan for improvements, upgrades and construction
shall be finalized and approved by the Landlord and the Tenant prior to
commencement of construction and Tenant and Landlord shall approve all
estimated expenditures in excess of the Landlord's Tenant Finish allowance.
The completion of all such improvements within the Premises shall be
acceptable by the Tenant and Landlord (based on the final agreed-to
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space plan and other plans) prior to commencement of the lease. Should
Improvements cost more than $70,200.00, Tenant shall pay the excess prior to
taking occupancy of the Premises.
4.3 SECURITY DEPOSIT
1. Tenant shall deposit with Landlord upon execution
hereof $7,488.00 as security for Tenant's faithful performance of Tenant's
obligations hereunder. If Tenant fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Landlord may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Landlord may become obligated by reason of Tenant's
default, or to compensate Landlord for any loss or damage which Landlord may
suffer thereby. If Landlord so uses or applies all or any portion of said
deposit, Tenant shall within ten (10) days after written demand therefor
deposit cash with Landlord in an amount sufficient to restore said deposit to
the full amount then required of Tenant. Landlord shall not be required to
keep said security deposit separate from its general accounts. If Tenant
performs all of Tenant's obligations hereunder, said deposit, or so much
thereof as has not thereto fore been applied by Landlord, shall be returned,
without payment of interest or other increment for its use, to Tenant (or, at
Landlord's option, to the last assignee, if any, of Tenant's interest
hereunder) at the expiration of the term hereof, and after Tenant has vacated
the Premises. No trust relationship is created herein between Landlord and
Tenant with respect to said security deposit.
5. UTILITIES.
Tenant shall pay for all water, gas, heat, light, power, telephone
and other utilities and services supplied to the Premises, together with any
taxes thereon. If any such services are not separately metered to Tenant,
Tenant shall pay a reasonable proportion to be determined jointly by Landlord
and Tenant of all charges jointly metered with other premises.
6. TAXES.
Except as otherwise provided herein, Tenant shall pay, as a part of
Operating Costs, its pro rata share of real estate taxes and assessments
levied and assessed upon the Center which accrue during the Lease term. All
taxes on machinery, equipment and other property owned by Tenant in or on the
Premises, as well as all business taxes and licenses, shall be paid by Tenant
when due.
7. USE: COMPLIANCE WITH LAWS.
7.1 USE. The Premises shall be used and occupied by Tenant for
office, warehouse, distributions, light manufacturing and assembly, and for
any other lawful purposes which are approved in writing by Landlord.
7.2 LANDLORDS COMPLIANCE WITH LAWS: Environmental. As of the
Commencement Date, Landlord represents and warrants that the Premises
complies with all applicable statutes, ordinances, rules, regulations, orders
and requirements, and that the condition, character, construction, and
location of Landlord's building and improvements are in full compliance with
all building and zoning classification applicable, and that there are no
restrictions,
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ordinances, statutes, or regulations that prevent, limit, or restrict the use
of the leased Premises by Tenant for the purposes herein intended, and if
not, agrees to be responsible for bringing the Premises into compliance. If
Tenant's use of the Premises for the aforesaid purposes is prevented or
curtailed because of noncompliance of the Premises, building and/or
improvements with zoning ordinances or other governmental regulations,
including without limitation, fire, building and safety codes, or if for any
other reason beyond the control of Tenant, Tenant may attempt to achieve
compliance so that use, or continued full and uncurtailed use, of the
Premises can be maintained, all at the cost and expense of Landlord, or if
this is not practical or feasible, or if Landlord does not authorize or
permit Tenant to attempt to achieve such compliance, Tenant may terminate
this Lease Agreement. Landlord further warrants that as of the Commencement
Date, the Premises are free of any hazardous conditions subject to applicable
laws, ordinances, orders, rules, regulations or requirements, and agrees to
indemnify and hold Tenant harmless for any such deficiencies and shall
further hold harmless and indemnify Tenant from any environmental liability
arising from the condition of the Premises as it existed prior to the
Commencement Date of this Lease or latent defect including, but not limited
to:
(i) indemnification for all costs, if any incurred by Tenant in
curing, correcting, cleaning up or otherwise eliminating any environmental
contamination of the property;
(ii) indemnification for any and all liability of Tenant under the
Comprehensive Environmental Response, Compensation and Liability Act, 41 U.S.
C. Section 9601 et, seq. and/or the applicable state statute or regulations;
and/or the applicable state statute or regulations and;
(iii) indemnification for any and all liability, including fines
and penalties, incurred under any other federal or state environmental
statute.
Landlord's liability under this paragraph shall extend to and include
all costs, expenses and reasonable attorney's fees incurred or sustained by
Tenant in making any investigation on account of any such claim, demand,
loss, liability, cost, charge, suit, order judgment or adjudication, in
prosecuting or defending any action brought in connection therewith, in
obtaining or seeking to obtain a release therefrom and in enforcing any of
the agreements herein contained.
Tenant shall have no responsibility for any hazardous conditions of the
Premises which it did not create. Neither Landlord nor Tenant shall have any
liability or responsibility hereunder for any such violation resulting from
changes in such requirements subsequent to the commencement date.
7.3 TENANT'S COMPLIANCE WITH LAWS: ENVIRONMENTAL. Tenant shall not use
or permit the use of the Premises in a manner that will tend to create waste
or a nuisance, cause an increase in insurance rates, or cause a violation of
any applicable statutes, ordinances, rules, regulations, orders and
requirements, including without limitation, fires, building and safety codes,
zoning ordinances and environmental laws. Tenant agrees to indemnify and hold
Landlord
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harmless for any such violation caused or permitted by Tenant or its agents,
subtenants, or invitees and shall further hold harmless and indemnify
Landlord for any environmental liability arising from the acts or omissions
of Tenant or its agents subtenants or invitees after the commencement of the
Lease term, including, but not limited to:
(i) indemnification for all costs, if any, incurred by Landlord
in curing, correcting, cleaning up or otherwise eliminating any such
environmental contamination of the property;
(ii) indemnification for any and all liability of Landlord under
the Comprehensive Environmental Response, Compensation and Liability act, 42
U.S. C. Section 9601 et, seq. and/or the applicable state statute or
regulation; and
(iii) indemnification for any and all liability, including fines
and penalties, incurred under any other federal or state environmental
statute.
Tenant's liability under this paragraph shall extend to and include
all costs, expenses and reasonable attorney fees incurred or sustained by
Landlord in making any investigation on account of any such claim, demand,
loss, liability, cost, charge, suit, order judgment or adjudication, in
prosecuting or defending any action brought in connection therewith, in
obtaining or seeking to obtain a release therefrom and in enforcing any of
the agreements herein contained.
7.4 The provisions of this Article shall survive expiration or
termination of this lease.
8. MAINTENANCE: REPAIRS AND ALTERATIONS: SURRENDER
8.1 MAINTENANCE AND REPAIRS.
Landlord warrants to Tenant that the Premises are in good
condition and repair at the commencement of the Lease term. Subject to the
provision of Section 10, Landlord, at its sole expense, agrees to keep the
roof, foundation and vertical and horizontal columns and any other
structural portions of the Premises in good repair, maintenance and
replacement through the term of this Lease. Subject to the provisions of
Section 10 and except as provided above, Tenant shall be responsible, at its
sole expense, for the maintenance, repair and replacement of the interior and
a proportionate share of exterior portions (based on square footage) of the
Premises (excluding structural repairs and replacements) and parking lot,
snow removal, landscaping, sidewalks, HVAC, plumbing, electrical and lighting
facilities and equipment within and serving the Premises. Notwithstanding the
foregoing, Landlord and Tenant shall each be responsible for damage to any
portions of the Premises caused by their negligence or other wrongful acts.
Repairs to Common Areas shall be prorated based on square footage.
8.2 SURRENDER.
Subject in the provisions of Section 8.1 and Section 10, on the
last day of the term hereof, or on any sooner termination, Tenant shall
surrender the Premises to Landlord in good condition and repair, broom
clean, ordinary wear and tear and casualty excepted. Tenant
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shall repair any damage to the Premises occasioned by the removal of Tenants'
trade fixtures, furnishings and equipment.
8.3 ALTERATIONS AND ADDITIONS.
A. CONSENT. Tenant shall not, without Landlord's prior
written consent, which shall not be unreasonably withheld, make any
structural alteration to the Premises or make any other alterations,
improvements, additions, or utility installations (including power panels)
in, on or about the Premises in excess of $25,000.00 for such item or related
group of items.
B. LIENS. Tenant shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to Tenant at or for
use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Tenant shall
give Landlord not less than 10 days notice prior to the commencement of any
work in the Premises, and Landlord shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If any liens are
filed against the Premises or property of which the Premises are a part,
Tenant shall cause liens to be discharged within ten (10) days of notice from
Landlord, so requiring Tenant's failure to do so shall be an Event of Default
(as hereinafter defined), and Tenant shall indemnify Landlord against all
costs and expenses incurred in connection with such lien and the removal of
the lien, including attorneys fees.
C. REMOVAL. All alterations, improvements, additions or
fixtures, other than Tenants equipment, machinery and trade fixtures, which
may be made in or on the Premises, shall become the property of Landlord and
remain upon and be surrendered with the Premises at the expiration of the
term. Any property of Tenant that is not removed prior to the expiration or
termination of the Lease shall be deemed abandoned.
D. EQUIPMENT, MACHINERY AND FIXTURES. Tenant shall have the
right and privilege to construct or install in the Premises any and all
equipment, machinery and trade fixtures, provided that such equipment,
machinery or fixtures will not exceed the structural capacity of the
Premises. All such trade fixtures, machinery and equipment supplied and
installed at the sole cost and expense of Tenant shall at all times be and
remain the property of Tenant, and Tenant shall have the right to remove all
or any part of the same, from the Premises at any time provided Tenant shall
repair any damage to the Premises resulting from the removal of the same.
9. INSURANCE: INDEMNIFICATION.
9.1 LIABILITY INSURANCE: Tenants Property. Tenant shall, at
Tenant's expense, maintain in effect bodily injury liability and property
damage liability insurance in connection with the use or condition of the
Premises, in an amount of not less than $500,000 for injury to or death of
one person in any one accident or occurrence and in an amount of not less
than $1,000,000 for injury to or death of more than one person in any one
accident or occurrence, and against liability for property damage of at least
$250,000, with no deductible portion or retained risk. Tenant agrees to carry
fire and extended coverage insurance on all of the machinery, equipment,
trade fixtures, furniture and other property installed or located in the
Premises.
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9.2 INSURANCE POLICIES. All policies of insurance required to be
carried by Tenant hereunder shall name Landlord as an additional insured
under liability policies and the loss payee under property policies. Tenant
shall deliver certificates evidencing the existence and amounts of such
insurance as required herein. In the event Tenant does not provide such
certificates of insurance within 30 days, Landlord may, but shall not be
obligated to, implement the proper coverage and bill the Tenant.
9.3 WAIVER. Landlord and Tenant for themselves and for their respective
insurers agree to and do hereby release each other of and from any and all
claims, demands, actions and causes of action that each may have or claim to
have against the other for loss or damage to the property of the other, both
real and personal, caused by or resulting from fire and all other casualties
insured against under fire and extended coverage insurance policies, required
to be maintained pursuant to this lease, notwithstanding that any such loss
or damage may be due to or result from the negligence of either of the
parties hereto or their respective officers, employees or agents, but only to
the extent of any recovery collectible under such insurance. Tenant and
Landlord, if applicable, will endeavor to secure an appropriate clause in, or
endorsement on, any fire and extended coverage insurance policy covering
Landlord's and Tenant's respective interests, pursuant to which the respective
insurance policies waive subrogation; provided, however, that a failure on
the part of Landlord or Tenant, if applicable, to secure such appropriate
clause or endorsement as aforesaid shall not in any manner affect or restrict
the provisions of the above and foregoing mutual release.
9.4 INDEMNIFICATION OF LANDLORD. Tenant shall defend, indemnify and
hold harmless Landlord from and against any and all claims arising from (i)
Tenant's use of the Premises, or from the conduct of Tenant's business in or
about the Premises; (ii) any breach or default in the performance of any
obligation on Tenants part to be performed under the terms of this lease;
(iii) the negligence of the Tenant, or any of Tenants agents, contractors or
employees or invitees; (iv) against all costs, attorney fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceedings brought thereon. In no event, however, shall Landlord be entitled
to indemnification under this Section if such claim arises from any breach or
default in the performance of any obligation on Landlord's part to be
performed under the terms of this lease, or arising from any negligence or
intentional act of the Landlord, or any of the Landlord's agents,
contractors, or employees.
9.5 INDEMNIFICATION OF TENANT. Landlord shall defend, indemnify and
hold Harmless Tenant from and against any and all claims arising from breach
or default in the performance of any obligation on Landlord's part to be
performed under the terms of this lease, or arising from any negligence of
the Landlord, or any of the Landlord's agents, contractors, or employees, and
from and against all, costs, attorney's, expenses and liabilities incurred in
the defense of any such claim, or any action or proceeding brought thereon.
In no event, however, shall Tenant be entitled to indemnification under this
Section if such claim arises from any breach or default in the performance of
any obligation on Tenant's part to be performed the terms of this
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lease, or arising from any negligence or intentional act of the Tenant, or
any of the Tenant's agents, contractors, or employees.
9.6 PROPERTY AND BUSINESS INTERRUPTION INSURANCE. During the Lease
Term, Landlord shall maintain a policy of fire and extended coverage
insurance covering loss of or damage to the Property (including Tenant's
fixtures, equipment and leasehold improvements in the Premises) in the full
amount of its replacement value and including business interruption insurance
in an amount sufficient to pay one year's rent from the Property plus
estimated real property taxes and insurance premiums. Landlord and Landlord's
mortgagee shall be named loss payee under such policy, as their interests may
appear. Such policy shall contain an Inflation Guard endorsement, shall not
provide for any deductible amount greater than $10,000, and shall provide
protection against all perils included within the classification of fire,
extended coverage (including any perils arising from Tenant's use of
chemicals at the Premises), vandalism, malicious mischief, special extended
perils (all risk), sprinkler leakage and any other perils which Landlord
deems reasonably necessary (including flood and earthquake insurance, if
required by any lender holding a security interest in the Property). Tenant
shall not do or permit anything to be done which invalidates any such
insurance policies. The premium for such insurance shall be included in
operating expenses, and Tenant shall pay its pro rata share thereof.
10. DAMAGE OR DESTRUCTION - REPAIRS AND RESTORATION.
10.1 PARTIAL DAMAGE - INSURED. Subject to the provisions of
Section 10.4, if the Premises are damaged and such damage was caused by
casualty covered under the insurance policy required to be maintained
pursuant to Section 9.6, Landlord shall repair such damage as promptly as
reasonably possible and this Lease shall continue in full force and effect.
Landlord and Tenant will each have a right to terminate if such repairs take
longer than 90 days.
10.2 PARTIAL DAMAGE - Uninsured. Subject to the provisions of
Section 10.4, if at any time during the term hereof the Premises are damaged,
and such damage was caused by a casualty not covered under the insurance
policy required to be maintained by landlord pursuant to Section 9.6,
Landlord may at Landlords option either (i) repair such damage as soon as
reasonably possible at Landlord's expense, in which event this Lease shall
continue in full force and effect or (ii) cancel and terminate this Lease as
of the date of the occurrence of such damage, by giving Tenant written notice
of Landlord's election to do so within thirty (30) days after the date of
occurrence of such damage.
10.3 TOTAL DESTRUCTION. If at any time during the term hereof the
Premises are totally destroyed from any cause whether or not covered by the
Insurance required to be maintained pursuant to Section 9.6 (including any
total destruction required by any authorized public authority), this Lease
shall automatically terminate as of the date of such total destruction.
10.4 DAMAGE NEAR END OF TERM. If the Premises are destroyed or
damaged during the last twelve months of the term of this Lease, Landlord may
at the Landlord's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written
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notice to Tenant of Landlord's election to do so within thirty (30) days
after the date of occurrence of such damage.
10.5 TENANT'S REMEDIES.
A. If the Premises are destroyed or damaged and Landlord
repairs or restores them pursuant to the provisions of this Section, Tenant
shall be entitled to an equitable abatement of rent or other charges during
the period that Tenant is unable to continue the operation of its business
the Premises in whole or in part.
B. If Landlord shall be obligated to repair or restore the
Premises under the provisions of this Section 10 and shall not commence such
repair or restoration within 90 days after such obligation shall accrue,
Tenant may at Tenant's option cancel and terminate this Lease as of the date
of the occurrence of such damage by giving Landlord written notice of
Tenant's election to do so at any time prior to the commencement of such
repair or restoration, in which event, rent or other charges shall abate as
of such occurrence and Tenant shall be entitled to any other remedies as
provided by law for Landlord's breach of its obligations under this Section
10.
10.6 TERMINATION. Upon any termination pursuant to this Section
10, an equitable adjustment shall be made concerning advance rent and any
advance payments made by Tenant to Landlord.
11. ASSIGNMENT AND SUBLETTING.
11.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or
by operation of law assign, transfer, mortgage, sublet or otherwise transfer
or encumber all or any part of Tenant's interest in this Lease or in the
Premises, without Landlord's prior written consent, which Landlord shall not
unreasonably withhold. Any attempted assignment, transfer, mortgage,
encumbrance or subletting without such consent shall be void. Notwithstanding
the foregoing, Tenant shall have the unqualified right, without Landlord's
consent, to sublet the Premises, or any part thereof, or to assign (by
operation of law or otherwise) this Lease to any of the Tenant's parent,
subsidiary or affiliated companies.
11.2 RELEASE OF TENANT. Upon obtaining Landlord's consent as
provided by Section 11.1 such subletting or assignment shall not release
Tenant of Tenant's obligation to pay the rent and to perform all other
obligations to be performed by Tenant hereunder, unless agreed to by Landlord.
12. DEFAULTS: REMEDIES.
12.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Tenant
(an "Event of Default");
A. The failure by Tenant to make any payment of rent or any
other payment required to be made by Tenant hereunder, as and when due, where
such failure shall
13
<PAGE>
continue for a period of ten (10) days after receipt of written notice
thereof from Landlord to Tenant. It is intended that the 10-day notice
provided herein be substituted for the 3-day statutory notice, and that,
following such 10-day notice, no further 3-day notice shall be necessary in
order for Landlord to proceed with eviction.
B. The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Tenant, other than described in Subsection A above, where such failure
shall continue for a period of thirty (30) days after receipt of written
notice thereof from Landlord to Tenant; provided, however, that if the nature
of Tenant's default is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
C. (i) The making by Tenant of any general assignment, or
general arrangement, for the benefit of creditors; (ii) the filing by or
against Tenant of a petition to have Tenant adjudged a bankrupt or a petition
for reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against Tenant, the same is
dismissed within 180 days); (iii) the appointment of a trustee or receiver to
take possession of substantially all of Tenants assets located at the
Premises or of Tenants interest in this Lease, where possession is not
restored to Tenant within thirty (30) days; or (iv) the attachment, execution
or other judicial seizure of substantially all of Tenants assets located at
the Premises or of Tenants interest in this Lease, where such seizure is not
discharged within sixty (60) days.
12.2 LANDLORDS REMEDIES. If an Event of Default occurs, Landlord
shall have the right, at Landlords option, in addition to and not exclusive
of any other remedy Landlord may have under this Lease or by operation of
law, without any further demand or notice to resort to one or more of the
following: (a) re-enter the Premises and eject all persons therefrom, using
all reasonably necessary and lawful force so to do; (b) lock the doors to the
Premises and exclude Tenant therefrom; (c) retain or take possession of any
property in the Premises pursuant to its Landlord's lien; (d) declare this
Lease as at an end and terminated; (e) sue for rent or any other sum due
Landlord under this Lease; (f) sue for the amount of the then present value
of the rent reserved hereunder for the balance of the term of this Lease,
less the reasonably expected net proceeds of re-letting after deducting
expenses of reletting (including without limitation commissions, tenant
improvements, advertising), up to a maximum of $300,000, such present value
to be calculated by discounting the total sum of rent reserved at the prime
rate (or base rate) reported in The Wall Street Journal as being the base
rate on corporate loans at large U.S. money center commercial banks (whether
or not such rate has actually been charged by any such bank); (g) sue for any
damages sustained by Landlord or (h) continue this Lease in effect and relet
the Premises or any part thereof, as the agent and for the account of Tenant,
on such terms and conditions as Landlord deems advisable, in which event the
rents received from such reletting shall be applied first to the expenses of
such reletting and collection, including necessary renovation and alterations
of the Premises, reasonable attorneys' fees, and any real estate commissions
paid, and, thereafter toward payment of all sums due or to become due
Landlord hereunder, and if a sufficient sum shall not be realized to pay such
sums and other charges, Tenant
14
<PAGE>
shall pay Landlord any deficiency monthly, notwithstanding Landlord may have
received rent in excess of the rents stipulated in this Lease in prior or
subsequent months, and Landlord may bring an action therefor as such monthly
deficiency may arise. Any reentry shall be allowed by Tenant without
hindrance and interference, and Landlord shall not be liable in damages for
any such reasonable reentry or be guilty of trespass or forcible entry.
Notwithstanding the foregoing, if Landlord elects any one or more remedies
granted above, Landlord shall not be deemed to have terminated this Lease
unless explicit written notice of such tamination is given by Landlord to
Tenant. Landlord agrees to use reasonable efforts to mitigate its damages in
connection with any Event of Default hereunder. The foregoing remedies are
not exclusive but they are cumulative and in addition to any remedies now or
later available at law or in equity.
12.3 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. Landlord, at any
time after Tenant defaults in the prompt performance of any of Tenant's
obligations hereunder and fails to cure such default within the time
permitted in Section 12.1, A or B, as the case may be, may, at its election,
cure the default at Tenant's cost. If Landlord at any time, by reason of any
such continuing default by Tenant, pays any sum or does any act that requires
the payment of any sum, the sum paid by Landlord shall be due immediately
from Tenant to Landlord at the time the sum is paid, and if reimbursed by
Tenant at a later date, shall bear interest at the rate set forth in Section
14.4 of this Lease from the date the sum is paid by Landlord until Landlord
is reimbursed by Tenant. The sum, together with interest, shall constitute
additional rent.
12.4 INTEREST ON UNPAID RENT. Rent and any other sums payable by
Tenant under this Lease which are not paid when due shall bear interest from
the date due until paid at a per annum rate equal to or the greater of twelve
percent (12%) per annum, or the prime rate of Colorado National Bank then in
effect plus 5% per annum.
12.5 LITIGATION COSTS. It is further agreed that in the event
suit shall be brought for the default of either party hereunder, the
prevailing party shall be entitled to recover the costs of such suit,
including reasonable attorneys' fees and expert witness fees.
12.6 LANDLORD DEFAULT. Landlord default is defined as the failure
by Landlord to observe or perform any of the covenants, conditions or
provisions of this Lease to be observed or performed by Landlord where such
failure shall continue for a period of thirty (30) days after receipt of
written notice hereof from Tenant to Landlord; provided however, that if the
nature of Landlord's default is such that more than 30 days are reasonably
required for its cure, then Landlord shall not be deemed in default if
Landlord commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
In the event Landlord fails to cure, Tenant shall have the right
to correct such cure and bill Landlord therefor with Landlord being obligated
to reimburse Tenant for such cost to cure within thirty (30) days. Should
Landlord neglect to reimburse Tenant, Tenant shall have the right to offset
such cost from the rent and pursue any other rights it may have by law,
including a suit for damages.
15
<PAGE>
13. CONDEMNATION.
If the Premises or any portion thereof are taken under the power of
eminent domain, or sold under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
condemnations), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs. If more than 10% of the floor area of the Premises is taken by
condemnation, Tenant may, at Tenant's option, to be exercised in-writing only
within 45 days after Tenant shall have received written notice of such taking
(or in the absence of such notice, within 45 days after the condemning
authority shall have taken possession) terminate this Lease as of the date
the condemning authority takes such possession. If Tenant does not terminate
this Lease in accordance with the foregoing, this lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent shall be reduced in the proportion that the floor area taken bears to
the total floor area of the Premises prior to the taking. Any award for the
taking of all or any part of the Premises under the power of eminent domain
or any payment made under threat of the exercise of such power shall be the
property of Landlord whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Tenant shall be entitled to any
award for loss or damage to Tenant's trade fixtures and removable personal
property.
14. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they
have been changed, stating how they have been changed); (ii) that this Lease
has not been canceled or terminated; (iii) the last date of payment of the
Base Rent and Additional Rent and the time period covered by such payment;
(iv) that Landlord is not in default under this Lease (or, if Landlord is
claimed to be in default, stating why); and (v) such other representations or
information with respect to Tenant or the Lease as Landlord may reasonably
request. Landlord may give any such statement by Tenant to any prospective
purchaser or encumbrancer of the Property, who may rely conclusively upon
such statements as true and correct.
(b) If Tenant does not deliver such statement to Landlord
within such ten-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms or provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been canceled
or terminated except as otherwise represented by Landlord; (iii) that not
more than one month's Base Rent or Additional Rent have been paid in advance;
and (iv) that Landlord is not in default under this Lease. In such event,
Tenant shall be stopped from denying the truth of such facts.
15. ATTORNMENT AGREEMENT.
If Landlord conveys or otherwise transfers all or any part of its
interest in the Premises to another person (the "Owner"), Owner and Tenant
shall be bound to each other, as
16
<PAGE>
Landlord and Tenant, respectively, under all of the terms, covenants, and
conditions of the Lease for the balance of the term thereof (including any
renewal or extensions term), and Tenant hereby attorns to Owner, as its
Landlord, such attornment to be effective and self-operative, without the
execution of any other instrument on the part of either party hereto,
immediately upon any such transfer of ownership with prior notification
thereof
16. GENERAL PROVISIONS.
16.1 SEVERABILITY. Any provision of this Lease determined to
be invalid by a court of competent jurisdiction, shall in no way affect any
other provision thereof.
16.2 CAPTIONS. Article and Section captions are not a part
hereof.
16.3 MERGER OF PRIOR AGREEMENTS. AMENDMENTS. This Lease
contains all agreement of the parties with respect to any matter mentioned
herein. No prior agreement or understanding pertaining to any such matter
shall be effective. It may be modified in writing only, signed by the parties
in interest at the time of the modification.
16.4 NOTICES. Any notice required or permitted to be given
hereunder shall be in writing and may be served via overnight courier or
facsimile transmittal with telephone or facsimile log confirmation, addressed
to Landlord and Tenant respectively at the addresses set forth after their
signatures at the end of this Lease. Such notices shall be deemed served
when received by facsimile or one day after delivery of the notice to an
overnight courier.
16.5 WAIVERS. No waiver of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach of
the same of any other provision.
16.6 RECORDING. Neither party shall record this Lease without
the other party's prior written consent.
16.7 HOLDING OVER. If Tenant remains in possession of the
Premises or any part thereof after the expiration of the term hereof without
the express written consent of Landlord, such occupancy shall be a tenancy
from month to month at a rental in amount of the last monthly rental, and
upon all the terms hereof applicable to a month-to-month tenancy, with either
party having the right to terminate upon thirty (30) days prior written
notice.
16.8 CUMULATIVE REMEDIES. No remedy or election hereunder
shall be deemed exclusive but shall, wherever possible, be cumulative with
all other remedies in law or equity.
16.9 BINDING EFFECT. Subject to any provisions hereof
restricting assignment or subletting by Tenant, this Lease shall bind the
parties, their personal representatives, successors and assigns. It shall be
governed by the internal laws of the State in which the Premises are located.
17
<PAGE>
16.10 SIGNS. Tenant, with the prior consent of Landlord which
consent shall not be unreasonably withheld, shall have the right and
privilege to erect, maintain, remove and replace such signs on the Premises
as Tenant may deem reasonably necessary or convenient in the operation of its
business from the Premises, within governmental building and business park
guidelines. Tenant agrees to maintain said signs in a good state of repair
and shall repair any damage which may be caused by the erection, maintenance
or removal of said signs. Tenant shall remove said signs upon termination of
this Lease and repair any damage caused by the removal.
16.11 ENTRY BY LANDLORD. Landlord reserves the right (for Landlord
and agents and representatives of Landlord) to enter the Premises, upon
reasonable notice, to inspect the same, to repair or maintain the Premises,
and to show the Premises to prospective purchasers or Tenants (within the
last 12 months of lease term), so long as Landlord does not unreasonably
interfere with Tenant's business for each of the aforesaid purposes. Landlord
shall at all times have and retain a key with which to unlock all of the
doors of the Premises, excluding Tenant's vaults and safes, and Landlord
shall have the right to use any and all means which Landlord may deem proper
to open doors to the Premises in an emergency, and any such entry by Landlord
shall not be construed to be an eviction of Tenant from the Premises.
17. QUIET ENJOYMENT.
Tenant, upon paying the minimum rent and other charges herein
provided for, and performing all the other terms of this Lease Agreement,
shall quietly have and enjoy the Premises during the term of this Lease
Agreement.
18. SURVIVAL.
Any covenants, agreements, representations or other matters
contained herein which by their nature are appropriate to survive the
expiration or termination of this lease shall so survive.
IN WITNESS WHEREOF the parties have executed this Lease Agreement as of the
date first above written but actually on the dates set forth opposite their
signatures below.
LANDLORD: Spiral, Inc.
Date: ________________________________ By: /s/ Reggie Fowler
----------------------------------
Printed Name: Reggie Fowler
-----------------------
Title: President/C.E.O.
-------------------------------
NOTICE ADDRESS:
7100 W. Erie St.
Phoenix, AZ 85226
Telephone: 602-940-0441
Facsimile: 602-940-1522
18
<PAGE>
TENANT: Training Devices, Inc, U.S.A.
Date: Dec. 19, 1997 By: /s/ ROBERT T. BRUCE
--------------------------------- ----------------------------------
Printed Name: Robert T. Bruce
------------------------
Title: CEO
-----------------------------
NOTICE ADDRESS:
Telephone: 303-792-3792
Facsimile 303-792-3793
19
<PAGE>
COMMENCEMENT CERTIFICATE
THIS COMMENCEMENT CERTIFICATE is attached to and made a part of the
Lease dated as of the 1st day of December, 1997, by and between Spiral Inc.,
an Arizona corporation thence assigned to First Industrial L.P., a Delaware
limited partnership by First Industrial Realty Trust, a Maryland corporation
its general partner; as Landlord, and Training Devices, Inc., a Colorado
corporation, as Tenant. By this Commencement Certificate dated as of the 17th
of February, 1999, the parties to the Lease agree as follows with respect to
the Premises located in the building known as 7367 S. Revere Parkway,
Building #2, in Englewood, Colorado (the "Building"):
1. In accordance with the provisions of Paragraph 3.1, of the Lease,
the term of the Lease shall commence at 12:01 a.m., on May 26, 1998,
and expire at 12:00 midnight on May 31, 2003.
2. In accordance with Paragraph 4.1 the annual base rent increase for
the Premises shall commence every year on June 1st.
IN WITNESS WHEREOF, the parties hereto have caused this Commencement
Certificate to be executed the day and year first above written.
LANDLORD: TENANT:
First Industrial, L.P., a Delaware limited Training Devices, Inc., a Colorado
partnership by First Industrial Realty corporation.
Trust, a Maryland corporation its general
partner.
By: /s/ GREGORY S. DOWNS By: /s/ B. BETSCHORT
--------------------------------------- ------------------------------
Gregory S. Downs B. Betschort
--------------------------------------- -----------------(Printed Name)
Its: Regional Director Its: President
-------------------------------------- -----------------------------
Address: 5350 South Roslyn Street, Address: 7367 S. Revere Pkwy.,
Suite 240 Bldg.#2
Englewood, Colorado 80111 Englewood, Colorado 80120
-------------------------
Phone: (303) 220-5565 Phone: (303) 792-3792
-------------------------
Fax: (303) 220-5585 Fax: (303) 792-3793
-------------------------
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C>
$49,500.00 06-04-1999 03-04-2000 1000009501 522 N1804948675 DAH11
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
BORROWER: TRAINING DEVICES INCORPORATED LENDER: KEYBANK NATONAL ASSOCIATION
7367 REVERE PARKWAY BLDG #2 DENVER DOWNTOWN KEYCENTER
ENGLEWOOD, CO 80112 515 17TH ST.
DENVER, CO 80202
[BAR CODE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $49,500.00 INITIAL RATE: 9.250% DATE OF NOTE: June 4, 1999
PROMISE TO PAY. TRAINING DEVICES INCORPORATED ("BORROWER") PROMISES TO PAY TO
KEYBANK NATIONAL ASSOCIATION ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED
STATES OF AMERICA, THE PRINCIPAL AMOUNT OF FORTY NINE THOUSAND FIVE HUNDRED &
00/100 DOLLARS ($49,500.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH
INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST
SHALL BE CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH
ADVANCE.
PAYMENT: BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING
PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MARCH 4, 2000. Interest on this
Note is computed on a 365/360 simple interest basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, times the outstanding
principal balance, times the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Prime Rate announced
by Lender (the "Index"). The interest rate will change automatically and
correspondingly on the date of each announced change of the index by Lender.
The index is not necessarily the lowest rate charged by Lender on its loans and
is set by Lender in its sole discretion. If the index becomes unavailable
during the term of this loan, the Lender may designate a substitute index after
notifying Borrower. Lender will tell Borrower the current index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each day. THE INDEX CURRENTLY IS 7.750% PER ANNUM. THE INTEREST RATE TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.500
PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 9.250% PER
ANNUM. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $25.00,
whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on or
in which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (f) Any guarantor dies or any of the
other events described in this default section occurs with respect to any
guarantor of this Note. (g) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or performance
of the indebtedness is impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonable practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 4.500
percentage points over the index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF COLORADO. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF DENVER COUNTY, THE STATE OF COLORADO. LENDER AND BORROWER HEREBY
WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and interest in and to Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender to the extent
<PAGE>
06-04-1999 PROMISSORY NOTE PAGE 2
(Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person. All
oral requests shall be confirmed in writing on the day of the request. All
communications, instructions, or directions by telephone otherwise to Lender are
to be directed to Lender's office shown above. The following party or parties
are authorized to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority; Ronald C. Ellington, CEO. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instructions of
an authorized person or (b) credited to any of Borrower's accounts with Lender.
The unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; (d) Borrower has applied
funds provided pursuant to this Note for purposes other than those authorized by
Lender; or (e) Lender in good faith deems itself insecure under this Note or any
other agreement between Lender and Borrower.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Training Devices Incorporated
By: /s/ Ronald C. Ellington
------------------------------
Ronald C. Ellington, CEO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COMMERCIAL PLEDGE AGREEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$49,500.00 06-04-1999 03-04-2000 1000009501 522 N1804948675 DAH11
- -----------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of
this document to any particular loan or item.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: TRAINING DEVICES INCORPORATED LENDER: KEYBANK NATIONAL ASSOCIATION
7367 REVERE PARKWAY BLDG #2 DENVER DOWNTOWN KEYCENTER
ENGLEWOOD, CO 80112 515 17TH ST.
DENVER, CO 80202
[BARCODE]
*18180494867510000095010E60*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS COMMERCIAL PLEDGE AGREEMENT IS ENTERED INTO BETWEEN TRAINING DEVICES
INCORPORATED (REFERRED TO BELOW AS "GRANTOR"); AND KEYBANK NATIONAL
ASSOCIATION (REFERRED TO BELOW AS "LENDER").
GRANT OF SECURITY INTEREST. FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND
AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH
RESPECT TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY
HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement:
AGREEMENT. The word "Agreement" means this Commercial Pledge Agreement,
as this Commercial Pledge Agreement may be amended or modified from
time to time, together with all exhibits and schedules attached to this
Commercial Pledge Agreement from time to time.
COLLATERAL. The word "Collateral" means the following specifically
described property, which Grantor has delivered or agrees to deliver (or
cause to be delivered) immediately to Lender, together with all Income
and Proceeds as described below:
IRREVOCABLE STANDBY LETTER OF CREDIT, ISSUED BY VECTRA BANK,
1380 SOUTH FEDERAL BOULEVARD, DENVER, COLORADO 80219, ISSUED ON
JUNE 4, 1999, IN THE SUM OF $50,000.00, FOR THE BENEFIT OF TRAINING
DEVICES INCORPORATED, LETTER OF CREDIT NO. 6604390-6003.
In addition, the word "Collateral" includes all property of Grantor, in
the possession of Lender (or in the possession of a third party subject
to the control of Lender), whether now or hereafter existing and whether
tangible or intangible in character, including without limitation each
of the following:
(a) ALL PROPERTY TO WHICH LENDER ACQUIRES TITLE OR DOCUMENTS OF
TITLE.
(b) ALL PROPERTY ASSIGNED TO LENDER.
(c) ALL PROMISSORY NOTES, BILLS OF EXCHANGE, STOCK CERTIFICATES,
BONDS, SAVINGS PASSBOOKS, TIME CERTIFICATES OF DEPOSIT, INSURANCE
POLICIES, AND ALL OTHER INSTRUMENTS AND EVIDENCES OF AN OBLIGATION.
(d) ALL RECORDS RELATING TO ANY OF THE PROPERTY DESCRIBED IN THIS
COLLATERAL SECTION, WHETHER IN THE FORM OF A WRITING, MICROFILM,
MICROFICHE, OR ELECTRONIC MEDIA.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means Training Devices Incorporated, its
successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INCOME AND PROCEEDS. The words "Income and Proceeds" mean all present
and future income, proceeds, earnings, increases, and substitutions from
or for the Collateral of every kind and nature, including without
limitation all payments, Interest, profits, distributions, benefits,
rights, options, warrants, dividends, stock dividends, stock splits,
stock rights, regulatory dividends, distributions, subscriptions,
monies, claims for money due and to become due, proceeds of any
Insurance on the Collateral, shares of stock of different par value or
no par value issued in substitution or exchange for shares included in
the Collateral, and all other property Grantor is entitled to receive
on account of such Collateral, including accounts, documents,
instruments, chattel paper, and general intangibles.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
In addition, the word "Indebtedness" includes all other obligations,
debts and liabilities, plus interest thereon, of Grantor, or any one or
more of them, to Lender, as well as all claims by Lender against
Grantor, or any one or more of them, whether existing now or later;
whether they are voluntary or involuntary, due or not due, direct or
indirect, absolute or contingent, liquidated or unliquidated; whether
Grantor may be liable individually or jointly with others; whether
Grantor may be obligated as guarantor, surety, accommodation party or
otherwise; whether recovery upon such Indebtedness may be or hereafter
may become barred by any statute of limitations; and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means KeyBank National Association, its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated June 4,
1999, in the principal amount of $49,500.00 from Training Devices
Incorporated to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions for
the note or credit agreement.
OBLIGOR. The work "Obligor" means and includes without limitation any
and all persons or entities obligated to pay money or to perform some
other act under the Collateral.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security
interest in and hereby assigns, conveys, delivers, pledges, and transfers
all
<PAGE>
06-04-1999 COMMERCIAL PLEDGE AGREEMENT PAGE 2
(CONTINUED)
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- --------------------------------------------------------------------------------
of Grantor's right, title and interest in and to Grantor's accounts with
Lender (whether checking, savings, or some other account), including all
accounts held jointly with someone else and all accounts Grantor may open in
the future, excluding, however, all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by
law. Grantor authorizes Lender, to the extent permitted by applicable law, to
charge or setoff all Indebtedness against any and all such accounts.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL.
Grantor represents and warrants to Lender that:
OWNERSHIP. Grantor is the lawful owner of the Collateral free and clear
of all security interests, liens, encumbrances and claims of others
except as disclosed to and accepted by Lender in writing prior to
execution of this Agreement.
RIGHT TO PLEDGE. Grantor has the full right, power and authority to
enter into this Agreement and to pledge the Collateral.
BINDING EFFECT. This Agreement is binding upon Grantor, as well as
Grantor's heirs, successors, representatives and assigns, and is legally
enforceable in accordance with its terms.
NO FURTHER ASSIGNMENT. Grantor has not, and will not, sell, assign,
transfer, encumber or otherwise dispose of any of Grantor's rights in
the Collateral except as provided in this Agreement.
NO DEFAULTS. There are no defaults existing under the Collateral, and
there are no offsets or counterclaims to the same. Grantor will strictly
and promptly perform each of the terms, conditions, covenants and
agreements contained in the Collateral which are to be performed by
Grantor, if any.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do
not prohibit any term or condition of this Agreement.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO COLLATERAL. Lender may hold
the Collateral until all the Indebtedness has been paid and satisfied and
thereafter may deliver the Collateral to any Grantor. Lender shall have the
following rights in addition to all other rights it may have by law:
MAINTENANCE AND PROTECTION OF COLLATERAL. Lender may, but shall not be
obligated to, take such steps as it deems necessary or desirable to
protect, maintain, insure, store, or care for the Collateral, including
payment of any liens or claims against the Collateral. Lender may charge
any cost incurred in so doing to Grantor.
INCOME AND PROCEEDS FROM THE COLLATERAL. Lender may receive all income
and Proceeds and add it to the Collateral. Grantor agrees to deliver to
Lender immediately upon receipt, in the exact form received and without
commingling with other property, all Income and Proceeds from the
Collateral which may be received by, paid, or delivered to Grantor or
for Grantor's account, whether as an addition to, in discharge of, in
substitution of, or in exchange for any of the Collateral.
APPLICATION OF CASH. At Lender's option, Lender may apply any cash,
whether included in the Collateral or received as Income and Proceeds or
through liquidation, sale, or retirement, of the Collateral, to the
satisfaction of the Indebtedness or such portion thereof as Lender shall
choose, whether or not matured.
TRANSACTIONS WITH OTHERS. Lender may (a) extend time for payment or
other performance, (b) grant a renewal or change in terms or conditions
or (c) compromise, compound or release any obligation, with any one or
more Obligors, endorsers, or Guarantors of the Indebtedness as Lender
deems advisable, without obtaining the prior written consent of
Grantor, and no such act or failure to act shall affect Lender's rights
against Grantor or the Collateral.
ALL COLLATERAL SECURES INDEBTEDNESS. All Collateral shall be security
for the Indebtedness, whether the Collateral is located at one or more
offices or branches of Lender and whether or not the office or branch
where the Indebtedness is created is aware of or relies upon the
Collateral.
COLLECTION OF COLLATERAL. Lender, at Lender's option may, but need not,
collect directly from the Obligors on any of the Collateral all Income
and Proceeds or other sums of money and other property due and to become
due under the Collateral, and Grantor authorizes and directs the
Obligors, if Lender exercises such option, to pay and deliver to Lender
all Income and Proceeds and other sums of money and other property
payable by the terms of the Collateral and to accept Lender's receipt
for the payments.
POWER OF ATTORNEY. Grantor irrevocably appoints Lender as Grantor's
attorney-in-fact, with full power of substitution, (a) to demand, collect,
receive, receipt for, sue and recover all Income and Proceeds and other
sums of money and other property which may now or hereafter become due,
owing or payable from the Obligors in accordance with the terms of the
Collateral; (b) to execute, sign and endorse any and all instruments,
receipts, checks, drafts and warrants issued in payment for the
Collateral; (c) to settle or compromise any and all claims arising under
the Collateral, and in the place and stead of Grantor, execute and
deliver Grantor's release and acquittance for Grantor; (d) to file any
claim or claims or to take any action or institute or take part in any
proceedings, either the Lender's own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable; and (e) to execute in Grantor's name and to deliver to the
Obligors on Grantor's behalf, at the time and in the manner specified by
the Collateral, any necessary instruments or documents.
PERFECTION OF SECURITY INTEREST. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or
constituting the Collateral. When applicable law provides more than one
method of perfection of Lender's security interest, Lender may choose
the method(s) to be used. Upon request of Lender, Grantor will sign and
deliver any writings necessary to perfect Lender's security interest.
Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact
for the purpose of executing any documents necessary to perfect or to
continue the security interest granted in this Agreement. THIS IS A
CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH
ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR
A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the
Note and be apportioned among and be payable with any installment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also
will secure payment of these amounts. Such right shall be in addition to all
other rights and remedies to which Lender may be entitled upon the occurrence
of an Event of Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable
care in the physical preservation and custody of the Collateral in Lender's
possession, but shall have no other obligation to protect the Collateral or
its value. In particular, but without limitation, Lender shall have no
responsibility for (a) any depreciation in value of the Collateral or for the
collection or protection of any Income and Proceeds from Collateral, (b)
preservation of rights against parties to the Collateral or against third
persons, (c) ascertaining any maturities, calls, conversions, exchanges,
offers, lenders, or similar matters relating to any of the Collateral, or (d)
informing Grantor about any of the above, whether or not Lender has or is
deemed to have knowledge of such matters. Except as provided above, Lender
shall have no liability for depreciation or deterioration of the Collateral.
<PAGE>
06-04-1999 COMMERCIAL PLEDGE AGREEMENT Page 3
(CONTINUED)
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EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor gives Lender written
notice of the creditor or forfeiture proceeding and deposits with Lender
monies or a surety bond for the creditor or forfeiture proceeding. In an
amount determined by Lender, in its sole discretion, as being an
adequate reserve or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes Incompetent. Lender, at its option, may, but shall not
be required to, permit the Guarantor's estate to assume unconditionally
the obligations arising under the guaranty in a manner satisfactory to
Lender, and, in doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of
the indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b) if the cure requires more than fifteen (15) days, immediately initiates
steps which Lender deems in Lender's sole discretion to be sufficient to
cure the default and thereafter continues and completes all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of the
following rights and remedies:
ACCELERATE INDEBTEDNESS. Declare all indebtedness, including any
prepayment penalty which Grantor would be required to pay, immediately
due and payable, without notice of any kind to Grantor.
COLLECT THE COLLATERAL. Collect any of the Collateral and, at Lender's
option and to the extent permitted by applicable law, retain possession
of the Collateral while suing on the indebtedness.
SELL THE COLLATERAL. Sell the Collateral, at Lender's discretion, as a
unit or in parcels, at one or more public or private sales. Unless the
Collateral is perishable or threatens to decline speedily in value or is
of a type customarily sold on a recognized market, Lender shall give or
mail to Grantor, or any of them, notice at least ten (10) days in
advance of the time and place of any public sale, or of the date after
which any private sale may be made. Grantor agrees that any requirement
of reasonable notice is satisfied if Lender mails notice by ordinary
mail addressed to Grantor, or any of them, at the last address Grantor
has given Lender in writing. If a public sale is held, there shall be
sufficient compliance with all requirements of notice to the public by a
single publication in any newspaper of general circulation in the county
where the Collateral is located, setting forth the time and place of
sale and a brief description of the property to be sold. Lender may be a
purchaser at any public sale.
REGISTER SECURITIES. Register any securities included in the Collateral
in Lender's name and exercise any rights normally incident to the
ownership of securities.
SELL SECURITIES. Sell any securities included in the Collateral in a
manner consistent with applicable federal and state securities laws,
notwithstanding any other provision of this or any other agreement. If,
because of restrictions under such laws, Lender is or believes it is
unable to sell the securities in an open market transaction, Grantor
agrees that Lender shall have no obligation to delay sale until the
securities can be registered, and may make a private sale to one or more
persons or to a restricted group of persons, even though such sale may
result in a price that is less favorable than might be obtained in an
open market transaction, and such a sale shall be considered
commercially reasonable. If any securities held as Collateral are
"restricted securities" as defined in the Rules of the Securities and
Exchange Commission (such as Regulation D or Rule 144) or state
securities departments under state "Blue Sky" laws, or if Grantor is an
affiliate of the issuer of the securities, Grantor agrees that neither
Grantor nor any member of Grantor's family will sell or dispose of any
securities of such issuer without obtaining Lender's prior written
consent.
FORECLOSURE. Maintain a judicial suit for foreclosure and sale of the
Collateral.
TRANSFER TITLE. Effect transfer of title upon sale of all or part of
the Collateral. For this purpose, Grantor irrevocably appoints Lender as
its attorney-in-fact to execute endorsements, assignments and
instruments in the name of Grantor and each of them (if more than one)
as shall be necessary or reasonable.
OTHER RIGHTS AND REMEDIES. Have and exercise any or all of the rights
and remedies of a secured creditor under the provisions of the Uniform
Commercial Code, at law, in equity, or otherwise.
APPLICATION OF PROCEEDS. Apply any cash which is part of the
Collateral, or which is received from the collection or sale of the
Collateral, to reimbursement of any expenses, including any costs for
registration of securities, commissions incurred in connection with a
sale, attorney fees as provided below, as provided below, and court
costs, whether or not there is a lawsuit and including any fees on
appeal, incurred by Lender in connection with the collection and sale of
such Collateral and to the payment of the indebtedness of Grantor to
Lender, with any excess funds to be paid to Grantor as the interests of
Grantor may appear. Grantor agrees, to the extent permitted by law, to
pay any deficiency after application of the proceeds of the Collateral
to the Indebtedness.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or by any other writing, shall be cumulative
and may be exercised singularly or concurrently. Election by Lender to
pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation
of Grantor under this Agreement, after Grantor's failure to perform,
shall not affect Lender's right to declare a default and to exercise its
remedies.
<PAGE>
06-04-1999 COMMERCIAL PLEDGE AGREEMENT Page 4
(CONTINUED)
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MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted in the State of Colorado. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of
Denver County, the State of Colorado. Lender and Grantor hereby waive
the right to any jury trial in any action, proceeding, or counterclaim
brought by either Lender or Grantor against the other. This Agreement
Shall be governed by and construed in accordance with the laws of the
State of Colorado.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this Agreement,
and Grantor shall pay the costs and expenses of such enforcement. Costs
and expenses include Lender's attorneys' fees and legal expenses whether
or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court
costs and such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited in
the United States mail, first class, postage prepaid, addressed to the
party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Grantor, notice to any
Grantor will constitute notice to all Grantors. For notice purposes,
Grantor will keep Lender informed at all times of Grantor's current
address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid
and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Grantor, shall
constitute a waiver of any of Lender's rights or of any of Grantor's
obligations as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by
Lender in any instance shall not constitute continuing consent to
subsequent instances where such consent is required and in all cases
such consent may be granted or withheld in the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS PLEDGE AGREEMENT,
AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 4, 1999.
GRANTOR:
TRAINING DEVICES INCORPORATED
BY: /s/ Ronald C. Ellington
----------------------------------
Ronald C. Ellington, CEO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COLLATERAL RECEIPT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$49,500.00 05-04-1999 03-04-2000 1000009501 522 N1804948675 DAH11
- ---------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: Training Devices Incorporated Lender: KeyBank National Association
7367 Revere Parkway Bldg #2 Denver Downtown KeyCenter
Englewood, CO 80112 515 17th St.
Denver, CO 80202
[UPC CODE]
*18180494687510000095010050*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DESCRIPTION OF COLLATERAL CUSTODY CONTROL DATE RELEASED
SIGNATURES
- --------------------------------------------------------------------------------
<S> <C> <C>
Irrevocable Stanby Letter of
Credit, issued by Vectra Bank,
1380 South Federal Boulevard,
Denver, Colorado 80219, issued
on June 4, 1999, in the sum of
$50,000.00, for the benefit of
Training Devices Incorporated,
Letter of Credit No. 6604390-6003.
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- --------------------------------------- -------------------------------------------- -----------------------------------------
Initial Delivery Acknowledgements: Return Receipt Acknowledgement: Instructions for Returning Collateral
and Disposition of Coupons:
------------
GRANTOR: /s/ Ronald C. Ellington Grantor acknowledges the receipt of
---------------------------- all collateral, including all unmatured ----------------------------------------
(Grantor's Signature) coupons, if any.
----------------------------------------
KeyBank National Association X
By: -------------------------------------- ----------------------------------------
---------------------------------- (Grantor's Signature)
(Authorized Officer)
- --------------------------------------- -------------------------------------------- -----------------------------------------
</TABLE>
<PAGE>
INDEMNIFICATION AGREEMENT
Training Devices Incorporated
1. EFFECTIVE DATE: July 27, 1999
2. PARTIES: Training Devices Incorporated
7367 S. Revere Parkway, Bldg. 2C
Englewood, CO 80112
a Colorado corporation ("Corporation")
Ronald C. Ellington
7367 S. Revere Parkway, Bldg. 2C
Englewood, CO 80112
("Ellington")
3. RECITALS/AGREEMENT:
(a) At the request of the Corporation, Ellington currently serves as a
director and/or officer (as defined below) of the Corporation.
(b) Ellington has indicated that it was and is a condition of Ellington's
acceptance and continuing in such service that, among other things, the
Corporation agree to (i) indemnify Ellington against liabilities, expenses and
costs incurred in connection with any claims, suits or proceedings related to
Ellington's service to or for the Corporation and (ii) advance to him such
expenses and costs incurred in connection with such claims, suits or
proceedings, all in accordance with, and to the fullest extent permitted by,
the Colorado Business Corporation Act.
(c) The Corporation's Articles of Incorporation and the Colorado Business
Corporation Act contemplate that contracts may be made between the Corporation
and members of its Board of Directors and officers with respect to
indemnification and advancement of expenses and costs.
(d) In consideration of Ellington's acceptance and continuation of service
as a director of the Corporation after the date of this Agreement, and in
consideration of the mutual covenants stated herein, the parties agree as
follows.
4. DEFINITIONS: As used in this Agreement, the following terms have the
following meanings:
(a) ACT. The term "Act" means the Colorado Business Corporation Act as it
exists on the date of this Agreement and as it may be hereafter amended from
time to time. In the case of any amendment of the Colorado Business Corporation
Act after the date of this Agreement, when used in reference to an act or
omission occurring prior to
<PAGE>
effectiveness of such amendment, the term "Act" shall include such amendment
only to the extent that the amendment can apply to a prior act or omission
and the amendment permits the Corporation to provide broader indemnification
rights than the Colorado Business Corporation Act permitted the Corporation
to provide at the date of this Agreement and prior to the amendment.
(b) DIRECTOR. The term "director and/or officer" means an individual who
is or was a director or an officer, or both, of a corporation or an individual
who, while a director and/or officer of a corporation, is or was serving at the
corporation's request as a director, an officer, an agent, an associate, an
employee, a fiduciary, a manager, a member, a partner, a promoter, or a trustee
of, or to hold any similar position with, another corporation or other person or
of an employee benefit plan. A director or officer is considered to be serving
an employee benefit plan at the corporations' request if the director's or
officer's duties to the corporation also impose duties on, or otherwise involve
services by, the director or officer to the plan or to participants in or
beneficiaries of the plan. The term "director and/or officer" includes (i)
unless the context requires otherwise, the estate or personal representative of
a director or officer and (ii) any broader definition as may be provided in the
Act from time to time.
(c) EXPENSES. The term "expenses" includes counsel fees.
(d) LIABILITY. The term "liability" means the obligation incurred with
respect to a proceeding to pay a judgment, settlement, penalty, fine, including
an excise tax assessed with respect to an employee benefit plan, or reasonable
expenses.
(e) PARTY. The term "party" includes a person who was, is, or is
threatened to be made a defendant or respondent in a proceeding.
(f) PROCEEDING. The term "proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, and whether formal or informal.
5. AGREEMENT TO INDEMNIFY: The Corporation shall indemnify and hold harmless
Ellington in accordance with, and to the fullest extent permitted and/or
required by, the express provisions of the Act from and against any liability,
judgment, penalty, fine (including but not limited to excise taxes with respect
to an employee benefit plan), amounts paid in settlement and reasonable expenses
(including but not limited to expenses of investigation and preparation and fees
and disbursements of Ellington's counsel, accountants or other experts) actually
incurred by Ellington in connection with any proceeding in which Ellington was
or is made a party or was or is involved (for example, as a witness) because
Ellington is or was a director or an officer of the Corporation.
6. INSURANCE: So long as Ellington may be subject to any possible proceeding
by reason of the fact that Ellington is or was a director or officer of the
Corporation, to the extent the Corporation maintains an insurance policy or
policies providing directors'
2
<PAGE>
and officers' liability insurance, Ellington shall be covered by such policy
or policies, in accordance with its or their terms, to the maximum extent of
the coverage applicable to any then current director or officer of the
Corporation.
7. ADVANCES: In the event of any proceeding in which Ellington is a party or
is involved and which may give rise to a right of indemnification from the
Corporation pursuant to this Agreement, following written request to the
Corporation by Ellington, the Corporation shall pay to Ellington, in accordance
with and to the fullest extent permitted and/or required by express provisions
of the Act, amounts to cover reasonable expenses incurred by Ellington in such
proceeding in advance of its final disposition upon (a) receipt by the
Corporation of (i) a written affirmation by Ellington of Ellington's good faith
belief that Ellington has met any applicable standard of conduct described in
the Act and (ii) a written undertaking executed by or on behalf of Ellington to
repay the advance if it shall ultimately be determined that Ellington did not
meet such standard of conduct and (b) the making of a determination on behalf of
the Corporation (in the manner prescribed in the Act) that, based on the facts
then known to the persons making the determination would not preclude
indemnification under the Act. If a requested is made by Ellington to the
Corporation for advancement of any expenses incurred in connection with any
claim, suit or proceeding for which Ellington has claimed indemnification under
this Agreement, Ellington shall furnish to the Corporation satisfactory evidence
as to the amount of such expenses. The undertaking required by clause (a) must
be an unlimited general obligation of Ellington, but it need not be secured, and
it shall be accepted without reference to the financial ability of Ellington to
make repayment.
8. BURDEN OF PROOF: If under applicable law, the entitlement of Ellington to
be indemnified by the Corporation or to receive the advancement of expenses
hereunder depends upon whether a standard of conduct has been met, the
Corporation shall have the burden of proof of establishing that Ellington did
not act in accordance with such standard. Ellington shall be presumed to have
acted in accordance with such standard and to be entitled to indemnification or
the advancement of expenses (as the case may be) unless, based upon a
preponderance of the evidence, it shall be determined that Ellington has not met
such standard. Such determination and any evaluation as to the reasonableness
of amounts claimed by Ellington shall be made by the Board of Directors of the
Corporation, or such other body or persons as may be permitted by the Act,
acting in good faith. For purposes of this Agreement, unless otherwise
expressly stated, the termination of any proceeding by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere, or its equivalent, shall not create a presumption, and
is not determinative, that Ellington did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
9. NOTICE TO THE CORPORATION: Ellington shall notify the Secretary of the
Corporation in writing of any matter for which Ellington intends to seek
indemnification hereunder as soon as reasonably practicable following the
receipt by Ellington of written
3
<PAGE>
notice thereof; PROVIDED, however, that delay in so notifying the Corporation
shall not constitute a waiver or release by Ellington or rights hereunder.
10. COUNSEL FOR PROCEEDING: In the event of any proceeding in which Ellington
is a party or is involved and which may give rise to a right of indemnification
hereunder, the Corporation shall have the right to retain counsel reasonably
satisfactory to Ellington to represent Ellington and any others the Corporation
may designate in such proceeding. In any such proceeding, Ellington shall have
the right to retain Ellington's own counsel, but the fees and expenses of such
counsel shall be at the expense of Ellington unless (a) the retention of such
counsel has been specifically authorized by the Corporation; (b) representation
of Ellington and another party by the same counsel as proposed by the
Corporation would be inappropriate, in the reasonable judgment of Ellington, due
to actual or potential differing interests between (as might be the case for
representation of both the Corporation and Ellington in a proceeding by or in
the right of the Corporation); (c) the counsel retained by the Corporation and
satisfactory to Ellington has advised Ellington, in writing, that such counsel's
representation of Ellington would be likely inappropriate due to actual or
potential different interests, whether it be a conflicting, inconsistent,
diverse or other interest; or (d) the Corporation shall fail to retain counsel
for Ellington in such proceeding. Notwithstanding the foregoing, if an
insurance carrier has supplied directors' and officers' liability insurance
covering the liability which is the subject of a proceeding and is entitled to
retain counsel for the defense of such proceeding, then the insurance carrier
shall retain counsel to conduct the defense of such proceeding unless Ellington
and the Corporation concur in writing that the insurance carrier's doing so is
undesirable. The Corporation shall not be liable under this Agreement for any
settlement of any proceeding effected without its written consent. The
Corporation shall not settle any proceeding in any manner which would impose any
penalty or limitation on Ellington without Ellington's prior written consent.
Consent to a proposed settlement of any proceeding shall not be unreasonably
withheld or delayed by either the Corporation or Ellington.
11. ENFORCEMENT: The Corporation acknowledges that Ellington is relying upon
this Agreement in serving as a director and/or officer of the Corporation, as
well as any serving in the future in any capacity as a director and/or officer
of the Corporation. If a claim for indemnification or advancement of expenses
is not paid in full by the Corporation within 30 days after a written claim has
been received from Ellington by the Corporation, Ellington may at any time bring
suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in such suit, Ellington shall also be entitled to
be paid all reasonable fees and expenses (including without limitation fees of
counsel) in bringing and prosecuting such claim. Whether or not Ellington has
met any applicable standard of conduct, the Court in such suit may order
indemnification or the advancement of expenses as the Court deems proper
(subject to any express limitation of the Act). Further, the Corporation shall
indemnify Ellington from and against any and all expenses (including attorneys'
fees) and, if requested by Ellington, shall (within 10 business days of such
request) advance such expenses to Ellington, which are incurred by Ellington in
connection with any claim asserted against or suit brought by Ellington for
recovery under any directors' and officers' liability insurance
4
<PAGE>
policies maintained by the Corporation, regardless of whether Ellington is
unsuccessful in whole or in part in such claim or suit.
12. PROCEEDINGS BY ELLINGTON: The Corporation shall indemnify Ellington and
advance expenses to Ellington in connection with any proceeding (or part
thereof) initiated by Ellington only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
13. NONEXCLUSIVITY: The rights of Ellington for indemnification and
advancement of expenses under this Agreement shall not be deemed exclusive of,
or in limitation of, any rights to which Ellington may be entitled under any
applicable law, the Corporation's Articles of Incorporation or Bylaws, vote of
stockholders or otherwise.
14. MISCELLANEOUS:
(a) EFFECTIVENESS. This Agreement is effective for, and shall apply to,
(i) any claim which is asserted or threatened before, on or after the date of
this Agreement but for which no action, suit or proceeding has actually been
brought prior to the date of this Agreement and (ii) any proceeding which is
threatened before, on or after the date of this agreement but which is not
pending prior to the date of this Agreement. Thus, this Agreement shall not
apply to any action, suit or proceeding which has actually been brought before
the date of this Agreement. So long as the foregoing standard of effectiveness
has been satisfied, this Agreement shall be effective for and shall be applied
to acts or omissions prior to, on or after the date of this Agreement.
(b) SURVIVAL; CONTINUATION. The rights of Ellington hereunder shall inure
to the benefit of Ellington (even after Ellington ceases to be a director or
officer), Ellington's personal representative, heirs, executors, administrators
and beneficiaries; and this Agreement shall be binding upon the Corporation, its
successors and assigns. The rights of Ellington under this Agreement shall
continue so long as Ellington may be subject to any possible proceeding because
of the fact that Ellington was a director or officer of the Corporation. If the
Corporation sells, leases, exchanges or otherwise disposes of, in a single
transaction or series of related transactions, all or substantially all of its
property and assets, the Corporation shall, as a condition precedent to such
transaction, cause effective provision to be made so that the person or entity
acquiring such property and assets shall become bound by and replace the
Corporation under this Agreement.
(c) GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Colorado.
(d) SEVERABILITY. If any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be deemed
amended to accomplished the objectives of the provision as originally written
and to the fullest extent permitted by law and all other provisions shall remain
in full force and effect.
5
<PAGE>
(e) AMENDMENT. No amendment, termination or cancellation of this
Agreement shall be effective unless in writing signed by the Corporation and
Ellington.
(f) SUBROGATION. In the event of payment under this Agreement the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Ellington, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
(g) HEADINGS. The headings in this Agreement are for convenience only and
are not to be considered in construing this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in counterparts, both of
which shall be deemed an original, and together shall constitute one document.
The parties have executed this Agreement as of the effective date first
above stated.
TRAINING DEVICES INCORPORATED RONALD C. ELLINGTON
By: __________________________________ __________________________________
Bruce S. Betschart
President and Chief Operating
Officer
6
<PAGE>
Exhibit 23.2
CONSENT OF ARTHUR ANDERSON, LLP
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made part of this
registration statement.
Arthur Andersen, LLP
/s/ Arthur Andersen, LLP
---------------------------------------
Denver, Colorado
August 17, 1999
<PAGE>
7/13/99
POWER OF ATTORNEY
Each of the undersigned directors and officers of Training Devices
Incorporated (the "Company") hereby authorizes Bruce S. Betschart and Ronald
C. Ellington and each of them as their true and lawful attorneys-in-fact and
agents: (1) to sign in the name of each such person and file with the
Securities and Exchange Commission a Registration Statement on an appropriate
form, and any and all amendments (including post-effective amendments) to
such Registration Statement, for the registration under the Securities Act of
1933, as amended, of 2,000,000 shares of Common Stock (the "Offering"), of an
underwriters' over-allotment option to purchase 15% of the number of shares
of Common Stock sold in the Offering, and any other securities of the Company
which the Company's Board of Directors authorizes to be included in such
Registration Statement; and (2) to take any and all actions necessary or
required in connection with such Registration Statement and amendments to
comply with the Securities Act of 1933, as amended, and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Signature Title Date
- --------- ----- ----
/s/ Bruce S. Betschart Director, President, Chief July 23, 1999
Bruce S. Betschart Operating Officer and
Chairman of the Board
/s/ Ronald C. Ellington Director and Chief Executive July 23, 1999
Ronald C. Ellington Officer
/s/ Robert E. Sawyer, Jr. Director and Vice President, July 23, 1999
Robert E. Sawyer, Jr. Engineering
/s/ Leonard Hawkins Director July 23, 1999
Leonard Hawkins
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<PERIOD-START> JAN-01-1998
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