<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to_______
Commission file number ____0-11933
-------
LASERTECHNICS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 85-0294536
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
3208 COMMANDER DRIVE
CARROLLTON, TEXAS 75006
(Address of principal executive offices) (Zip Code)
(214) 407-6080
(Issuer's telephone number, including area code)
5500 WILSHIRE AVENUE NE,
ALBUQUERQUE, NEW MEXICO 87113
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO____
----
APPLICABLE ONLY TO CORPORATE ISSUERS
Shares of common stock outstanding on August 8, 1996, 32,694,922. Shares of
nonvoting convertible common stock outstanding on August 8, 1996, 2,249,842.
Transitional Small Business Disclosure Format (Check One); Yes___ No X
----
<PAGE>
LASERTECHNICS, INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
---
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets at June 30, 1996 and December 31, 1995..............3
Consolidated Statements of Operations for the six months ended
June 30, 1996 and 1995.........................................................5
Consolidated Statements of Operations for the three months ended
June 30, 1996 and 1995.........................................................6
Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1995.........................................................7
Notes to Condensed Consolidated Financial Statements............................9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................................11
PART II. OTHER INFORMATION...................................................................20
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Under Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on form 8-K
Signatures....................................................................................23
</TABLE>
2
<PAGE>
PART 1. CONDENSED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LASERTECHNICS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
JUNE 30, DECEMBER 31,
1996 1995
---------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 426,560 1,892,357
Accounts receivable - trade, less allowance for doubtful
accounts of $264,177 in 1996 and $278,263 in 1995 5,110,917 4,040,247
Inventory 6,572,587 4,454,350
Prepaid expenses 282,664 155,859
Other 189,648 229,089
---------------- --------------
Total current assets 12,582,376 10,771,902
---------------- --------------
Property, plant & equipment, net 3,058,645 3,000,241
Goodwill 213,528 254,546
Other assets 598,030 615,913
---------------- --------------
Total assets $ 16,452,579 14,642,602
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible notes payable to stockholders $ 1,000,000 200,000
Notes payable 342,561 402,945
Accounts payable 3,266,241 3,485,328
Customer advances 450,990 426,978
Commissions payable 53,316 192,548
Product warranty reserve 58,918 256,003
Accrued payroll and payroll taxes 245,765 299,096
Accrued vacation 194,786 205,541
Capital lease obligations in default 1,052,643 1,113,768
Capital lease obligations 99,403 28,944
Contract settlement payable (note 4) 1,060,000 -
Other accrued liabilities 1,108,132 478,396
---------------- --------------
Total current liabilities 8,932,755 7,089,547
---------------- --------------
Convertible debentures 4,530,648 4,405,095
Capital lease obligations (note 3) 127,946 35,328
Other 154,886 183,046
---------------- --------------
Total liabilities $ 13,746,235 11,713,016
---------------- --------------
</TABLE>
(Table continues on following page.)
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------------- --------------
<S> <C> <C>
Stockholders' equity (note 2):
Convertible preferred stock, no par;
7,000,000 shares authorized in 1996 and
10,000,000 in 1995.
Series A: $1.30 stated value; 1,153,846
shares outstanding in 1996 and
1995. $ 1,500,000 1,473,394
Series B: $1.42 stated value; 1,056,338
shares outstanding in 1996 and
1995. 1,500,000 1,473,394
Series C: $1.51 stated value; 708,530
shares outstanding in 1996 and
1995. 1,069,880 1,069,880
Common stock, $.01 par value. 56,750,000 shares authorized
in 1996 and 41,500,000 in 1995; 31,867,373 shares
issued and outstanding in 1996 and 28,280,798 in 1995 318,674 282,808
Nonvoting convertible common stock, $.01 par value. 2,250,000
shares authorized in 1996 and 8,500,000 in 1995; 2,249,842
shares issued and outstanding in 1996 and 1995. Convertible
into common stock on a one share for one share basis. 22,499 22,499
Paid-in Capital 42,855,812 37,339,799
Accumulated deficit (44,560,521) (38,482,188)
--------------- --------------
2,706,344 3,179,586
Less - treasury stock, 200,000 common shares,
at cost (Retired on 1/1/96) - (250,000)
--------------- --------------
Total stockholders' equity 2,706,344 2,929,586
Contingencies and subsequent events (notes 5 and 6)
-------------- --------------
Total liabilities and stockholders' equity $ 16,452,579 14,642,602
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
----------------- ----------------
<S> <C> <C>
Sales $ 7,565,923 6,762,789
Cost of sales 4,830,876 4,350,673
----------------- ----------------
Gross Profit 2,735,047 2,412,116
Expenses:
Research and development 1,335,455 2,011,298
General and administrative 2,689,961 2,145,948
Selling and marketing 2,690,407 2,219,244
Loss on contract settlement (note 4) 1,000,000 -
----------------- -----------------
Operating expenses 7,715,823 6,376,490
----------------- -----------------
Loss from operations (4,980,776) (3,964,374)
----------------- -----------------
Other income (expense):
Interest income 29,410 18,157
Interest expense (968,703) (418,199)
Other 43,114 13,649
----------------- -----------------
Net other income (expense) (896,179) (386,393)
----------------- -----------------
Net loss (5,876,955) (4,350,767)
----------------- -----------------
Preferred stock dividend requirements (201,378) -
Net loss applicable to common stock $ (6,078,333) (4,350,767)
================= =================
Net loss per share $ (0.19) (0.17)
================= =================
Shares of common stock used in computing
net loss per share (note 1) 32,127,285 26,219,110
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
----------------- -----------------
<S> <C> <C>
Sales $ 3,454,222 3,496,314
Cost of sales 2,138,369 2,180,840
----------------- -----------------
Gross Profit 1,315,853 1,315,474
Expenses:
Research and development 633,935 1,113,228
General and administrative 1,327,832 1,162,893
Selling and marketing 1,584,616 1,351,008
Loss on contract settlement (note 4) 1,000,000 -
----------------- -----------------
Operating expenses 4,546,383 3,627,129
----------------- -----------------
Loss from operations (3,230,530) (2,311,655)
----------------- -----------------
Other income (expense):
Interest income 14,871 10,083
Interest expense (677,718) (293,255)
Other 64,607 19,587
----------------- -----------------
Net other income (expense) (598,240) (263,585)
----------------- -----------------
Net loss (3,828,770) (2,575,240)
----------------- -----------------
Preferred stock dividend requirements (101,195) -
Net loss applicable to common stock $ (3,929,965) (2,575,240)
================= =================
Net loss per share $ (0.12) (0.10)
================= =================
Shares of common stock used in computing
net loss per share (note 1) 33,008,899 26,285,831
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
LASERTECHNICS INC. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,876,955) $ (4,350,767)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 300,701 251,954
Provision for losses on accounts receivable 128,883 112,086
Provision for product warranty reserve 216,719 143,591
Amortization of financing discount and issuance costs 494,241 -
(Increase) decrease in:
Accounts receivable, net (1,225,811) (729,373)
inventory (2,154,550) (1,559,087)
Inventory deposit - 136,334
Prepaid expenses (127,128) 129,432
Other current assets 18,395 (55,736)
Other assets 138,502 3,942
Increase (decrease) in:
Accounts payable (246,040) 821,160
Customer advances 10,292 (132,856)
Commissions payable (139,232) (176,652)
Product warranty reserve (415,743) (129,716)
Accrued payroll and payroll taxes (59,957) (126,318)
Accrued vacation (12,308) 43,110
Contract settlement payable 1,060,000 -
Other current liabilities 626,491 -
Other liabilities (28,160) 176,987
-------------- --------------
Net cash used by operating activities (7,291,660) (5,441,909)
Cash flows from investing activities:
Capital expenditures (124,023) (428,924)
-------------- --------------
Net cash used by investing activities (124,023) (428,924)
Cash flows from financing activities:
Borrowings under financing agreements 1,000,000 5,419,308
Principal payments on financing agreements (200,000) (3,254,667)
Proceeds from issuance of convertible debentures 5,500,000 -
Convertible debenture issuance costs (385,000) -
Principal payments on capital lease obligations (92,111) (70,950)
Net proceeds from issuance of preferred and common stock 126,997 3,081,153
-------------- --------------
Net cash provided by financing activities 5,949,886 5,174,844
Net decrease in cash and cash equivalents (1,465,797) (695,989)
Cash and cash equivalents, beginning of period 1,892,357 1,427,058
-------------- --------------
Cash and cash equivalents, end of period $ 426,560 $ 731,069
============== ==============
</TABLE>
(Continued)
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
LASERTECHNICS INC. CONSOLIDATED
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
<S> <C> <C>
Supplemental information:
Cash paid during the year for interest $ 87,018 84,733
============= =============
Conversions to stock:
Debentures, net of unamortized discount and expenses 2,835,719 -
Notes payable - 3,000,000
Accrued interest $ 251,185 93,000
============= =============
Conversion feature of debentures issued $ 1,610,000 -
============= =============
Borrowings under capital lease obligations $ 194,064 -
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
LASERTECHNICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements are unaudited
and include the accounts of Lasertechnics, Inc.("LASX"), the holding company,
LASX's wholly owned subsidiary Lasertechnics Marking Corporation ("LMC"), LASX's
96 percent owned subsidiary Sandia Imaging Systems Corporation ("Sandia"),
Sandia's wholly owned French subsidiary Sandia Imaging Systems Europe SA
("Sandia EUR"), and LASX's wholly-owned subsidiary Quantrad Corporation
("Quantrad") collectively, the "Company" or "Lasertechnics". Quantrad, an
inactive company, is in the process of dissolution. All significant intercompany
accounts and transactions have been eliminated. Information contained in the
Company's condensed consolidated financial statements and notes thereto, should
be read in conjunction with the Company's consolidated financial statements and
notes thereto, contained in Lasertechnics' Annual Report on Form 10-KSB/A-3 for
the year ended December 31, 1995.
The Consolidated Balance Sheet at June 30, 1996 and December 31, 1995, the
Consolidated Statements of Operations for the three and six month periods ended
June 30, 1996 and 1995, and the Consolidated Statements of Cash Flows for the
six month periods ended June 30, 1996 and 1995 have been prepared by the Company
and are unaudited. In the opinion of the Company's management, all adjustments,
consisting of only normal recurring adjustments necessary to present fairly the
financial position at June 30, 1996, results of operations for the three and six
month periods ended June 30, 1996 and 1995, and changes in cash flow for the six
month periods ended June 30, 1996 and 1995 have been made.
Loss per common share is based on weighted average common shares
outstanding and does not give effect to outstanding common stock options,
warrants and convertible debt because their inclusion would be anti-dilutive.
Certain reclassifications have been made to prior year amounts in order to
present the consolidated financial position and results of operations on a
consistent basis.
2. ISSUANCE OF COMMON STOCK
During the quarter ended June 30, 1996, a total of 1,989,346 shares of
Lasertechnics unregistered common stock were issued. Of this amount, employees
exercised stock options to acquire 40,250 shares, and the remaining shares were
issued pursuant to debenture conversions.
9
<PAGE>
3. DEBT FINANCING
On March 13, 1996, the Company raised $5.5 million in cash from the sale of
10% convertible debentures. These debentures are convertible into common stock
at $2.00 per share, or at 85% of the average 5 day closing bid price for the
five trading days immediately prior to the conversion date at the option of the
debenture holder. Debentures are placed in denominations of at least $50,000 and
multiples of at least $50,000 in excess thereof. Debenture interest accrues at a
rate of 10% per annum and is payable in stock upon conversion. Debentures can be
converted into common stock in increments of up to 1/4 beginning the 60th, 90th,
120th and 150th days after the final closing. At the end of 3 years from the
closing date, all debentures will automatically be converted into common stock.
In connection with this financing, debenture holders received warrants to
purchase an aggregate of 550,000 shares of common stock at an exercise price of
$2.00 per share, with a 5 year term.
4. LOSS ON CONTRACT SETTLEMENT
The Company has been party to an agreement with Singapore Precision
Industries (SPI), a unit of Singapore Technology Industrial Corporation, the
technology manufacturing arm of the Singapore government, for the manufacturing
of plastic card printers for the imaging business. Various matters under the
agreement have been in dispute for approximately one year. In settlement of all
outstanding claims under this agreement, the Company will pay $1.525 million to
SPI. As part of the settlement, the Company will receive plastic card printers
and parts having an estimated net realizable value of $525,000. As a result, the
Company recorded an expense of $1 million as a cost of settling the dispute. In
addition, the Company was granted the option to distribute two new plastic card
printer lines in North and South America and Western Europe.
5. CONTINGENCIES
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management of the Company,
after consultation with outside legal counsel, the ultimate disposition of these
matters will not have a material effect on the accompanying condensed
consolidated financial statements. See also Legal Proceedings, Part II, Item I.
6. SUBSEQUENT EVENT
In July 1996, the Company raised $8.35 million in cash from the sale of
Series D Convertible Preferred Stock (par value $.01 per share) at a price of
$10,000 per share. These shares are convertible into common stock in increments
of up to 1/3 at the lower of $2.1406 per share, or at a variable percent of the
average closing bid price for the ten trading days immediately prior to the
conversion date at the option of the stockholder as follows: 90%, 87.5%, and 85%
beginning the 60th, 120th, and 180th days after the final closing. Series D
Preferred stockholders do not receive dividends; however, each share of
preferred stock possesses an 8% per annum accretion rate prior to conversion
which is payable in common stock upon conversion or redemption at the conversion
price then in effect. At the end of 3 years from the closing date, all Series D
Convertible Preferred Stock will automatically be converted into common stock.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Separate Business Units. In anticipation of a possible initial public
offering or spin-off of Sandia, the following summarized financial data for the
two businesses has been prepared. The summarized financial data of LMC and
Sandia, as presented herein, do not necessarily reflect the financial position
or results of operations of the separate businesses that might occur if the two
entities had no ownership or management relationships.
<TABLE>
<CAPTION>
CONSOLIDATED
MARKING (LMC) IMAGING (SANDIA) (LASX)
------------- ---------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current assets $ 5,704,889 6,893,609 12,598,498
Non-current assets 2,668,132 1,185,949 3,854,081
------------ ------------ -----------
$ 8,373,021 8,079,558 16,452,579
============ ============ ===========
Current liabilities $ 4,306,174 4,626,581 8,932,755
Inter-co.(receivable) payable (14,750,366) 14,750,366 -
Long-term liabilities 4,658,594 154,886 4,813,480
Stockholders' equity 14,158,619 (11,452,275) 2,706,344
------------ ------------ -----------
$ 8,373,021 8,079,558 16,452,579
============ ============ ===========
Sales $ 4,486,989 3,078,934 7,565,923
Cost of sales 2,664,582 2,166,294 4,830,876
------------ ------------ -----------
Gross profit 1,822,407 912,640 2,735,047
Gross margin % 41% 30% 36%
-- -- --
Expenses:
Research and development $ 393,457 941,998 1,335,455
General and administrative 919,427 1,770,534 2,689,961
Selling and marketing 961,569 1,728,838 2,690,407
Loss on contract settlement - 1,000,000 1,000,000
------------ ------------ -----------
Operating expenses 2,274,453 5,441,370 7,715,823
Loss from operations (452,046) (4,528,730) (4,980,776)
Other expense (income) 207,649 688,529 896,178
------------ ------------- -----------
Net loss $ (659,695) (5,217,259) (5,876,954)
============ ============= ===========
</TABLE>
11
<PAGE>
Sales. Consolidated sales for the first half of 1996 increased $803,134,
or 12%, from $6,762,789 in 1995. Imaging segment sales increased $1,410,000, or
84%, over the same period last year primarily due to increased sales of plastic
card printers and related consumables and parts. Included in this change is a
reduction for the discontinuation of a product line in December 1995 which
provided approximately $432,000 of sales in the first half of 1995. Marking
segment sales decreased $607,000, or 12%. This was primarily attributable to a
$1,126,000 decrease in marker product sales offset by a $352,000 increase in
service department revenue and a $225,000 increase from the introduction of the
BlazerJet(SM) product line. The Company's net accounts receivable increased
$1,070,670, or 27%, at June 30, 1996 compared to December 31, 1995 as a result
of the increased sales.
Cost of Sales. Consolidated cost of sales for the first half of 1996
increased 11% compared to the first half of 1995 due primarily to the increase
in sales volume in the imaging business. Gross margin was approximately 36% for
the first half of both 1996 and 1995.
Inventory. The Company's inventory increased $2,118,237, or 48%, to
$6,572,587 at June 30, 1996 compared to December 31, 1995. Marking segment
inventory increased $1,413,000, or 69%, due to the buildup of Blazer 6000 and
BlazerJet(SM) systems for stock and due to a customer rescheduling a large order
from the second quarter to the third quarter. Imaging segment inventory
increased $705,000, or 29%, since December 31, 1995, primarily due to recording
$525,000 of inventory acquired from SPI. See Loss on Contract Settlement below.
Research and Development. Consolidated research and development expense
for the first half of 1996 decreased $675,843, or 34%, compared to the first
half of 1995. Marking segment expenses decreased $318,000, or 45%, due to the
completion of major development work on the BlazerJet(SM) laser marker. In
addition, imaging segment expenses decreased $358,000, or 28% due to the
completion of development of two multi-station models of plastic card printers.
General and Administrative. Consolidated general and administrative
expenses of $2,689,961 were 25% higher than the first half of 1995 because of
the expanded and increased worldwide operations in both the imaging and marking
businesses. The increases for the imaging and marking segments for the first
half of 1996 compared to the first half of 1995 were $380,000, or 27%, and
$164,000, or 22%, respectively.
Selling and Marketing. Selling and marketing expenses for the first half
of 1996 increased by $471,163, or 21%, compared to the first half of 1995
expenses of $2,219,244. The increase is due to a $225,000, or 31%, increase in
marketing efforts in the marking business and a $246,000, or 17%, increase in
marketing and customer service efforts in the imaging business. Imaging segment
expenses for continuing locations increased $382,000 offset by the closure of
sales offices in Oxford, England and Keene, New Hampshire which had
approximately $136,000 of expenses in the first half of 1995.
12
<PAGE>
Loss on Contract Settlement. The Company has been party to an agreement
with Singapore Precision Industries (SPI), a unit of Singapore Technology
Industrial Corporation, the technology manufacturing arm of the Singapore
government, for the manufacturing of plastic card printers for the imaging
business. Various matters under the agreement have been in dispute for
approximately one year. In settlement of all outstanding claims under this
agreement, the Company will pay $1.525 million to SPI. As part of the
settlement, the Company will receive plastic card printers and parts having an
estimated net realizable value of $525,000. As a result, the Company recorded an
expense of $1 million as a cost of settling the dispute. In addition, the
Company was granted the option to distribute two new plastic card printer lines
in North and South America and Western Europe.
Other Income (Expense). Other expense for the first half of 1996 of
$896,179 increased $509,786, or 132%, compared to the first half of 1995. The
change was primarily due to interest and placement fee expenses incurred by the
Company on the debentures sold in October 1995 and March 1996.
Net Results. The consolidated net loss of $5,876,955 increased $1,526,188,
or 35%, from the $4,350,767 loss incurred in the first half of 1995. The
increased loss was due primarily to the $1,000,000 loss on contract settlement
in the imaging segment and the $509,875 increase in other expenses.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Sales. Consolidated sales for the second quarter of 1996 were comparable
to the second quarter of 1995. Imaging segment sales increased $1,013,000, or
153%, which was offset by a $1,055,000, or 37%, decrease in marking segment
sales. The decrease in the marking segment was primarily attributed to a
decrease of $1,299,000 in the marker product line offset by a $69,000 increase
in service department revenue and the introduction of the BlazerJet(SM) which
created approximately $183,000 of revenue. The imaging segment increase was due
to increased sales of plastic card printers and related consumables and parts.
Cost of Sales. Consolidated cost of sales for the second quarter of 1996
was comparable to the second quarter of 1995. Gross margin was approximately 38%
for the second quarter of both 1996 and 1995.
Research and Development. Consolidated research and development expense of
$633,935 for the second quarter of 1996 was $479,293, or 43%, lower than for the
second quarter of 1995. The marking segment expense decreased $247,000, or 58%,
due to the completion of major development work on the BlazerJet(SM) laser
marker. Similarly, imaging segment expenses for the second quarter of 1996
compared to the second quarter of 1995 decreased $232,000, or 34%, due to the
completion of development of two multi-station models of plastic card printers.
General and Administrative. The second quarter of 1996 consolidated
general and administrative expenses of $1,327,832 were $164,939, or 14%, higher
than the second quarter of 1995 because of the expanded and increased worldwide
operations in both the imaging and marking businesses. The increases for the
imaging and marking segments for the second quarter of 1996 compared to the
second quarter of 1995 were $30,000, or 4%, and $135,000, or 36%, respectively.
Selling and Marketing. Selling and marketing expenses for the second
quarter of 1996 increased by $233,608, or 17%, compared to the second quarter of
1995 expenses. The increase is due primarily to a $175,000, or 46%, increase in
marketing efforts in the marking business
13
<PAGE>
and a $59,000, or 6% increase in marketing and customer service efforts in the
imaging business. Imaging segment expenses for continuing locations increased
$139,000 offset by the closure of sales offices in Oxford, England and Keene,
New Hampshire, which had approximately $80,000 of expenses in the second quarter
of 1995.
Loss on Contract Settlement. In the second quarter, the Company recorded
an expense of $1 million as the cost of settling a contract dispute with SPI.
See the paragraph on Loss on Contract Settlement in the above discussion of the
Six Months Ended June 30, 1996 Compared to the Six Months Ended June 30, 1995.
Other Income (Expense). The net increase in other expense of $334,655 to
$598,240 in the second quarter of 1996 compared to the second quarter 1995 is
primarily due to the interest and placement fee expenses incurred by the Company
on the debentures sold in October 1995 and March 1996.
Net Results. The consolidated net loss for the second quarter of 1996 was
$3,828,770, an increase of $1,253,530 from the $2,575,240 loss incurred in the
second quarter of 1995. The increased loss was due primarily to the
$1,000,000 loss on contract settlement in the imaging segment and the $334,655
increase in other expenses.
LIQUIDITY AND CAPITAL RESOURCES
Since inception the Company has utilized the proceeds from a number of
public and private sales of its equity and debt securities and the exercise of
options and warrants to meet its working capital requirements.
Cash and cash equivalents decreased $1,465,797 at June 30, 1996 compared to
December 31, 1995. Financing activities generated net cash of $5,949,886
principally from the issuance of convertible debentures. Operating activities
used net cash of $7,291,660 principally to support the loss of $5,876,955, the
increase of $1,225,811 in accounts receivable, the increase in inventory of
$2,154,550, and the reduction in accounts payable of $246,040. These changes
were offset by a $1,060,000 increase in current liabilities for the contract
settlement payable to SPI and a $626,491 increase in other current liabilities
which was primarily due to the accrual of $129,000 of dividends on preferred
stock and $250,000 of production costs. The accounts receivable increase was due
to several large plastic card printer sales in the last two weeks of June.
Capital expenditures amounted to $124,023.
The Company's operations in the second quarter of 1996 continued to
generate losses primarily as a result of increases in operating expenses and
lower than expected sales in both the imaging and marking businesses.
Between December 1995 and the end of March 1996, the Company raised $5.5
million from the sale of debentures to provide capital for further expansion and
to fund continuing losses. In July 1996, the Company raised $8.35 million
through the offering of convertible preferred
14
<PAGE>
stock to fund operations through the end of the year and for strategic
investments.
The Company's business plan for 1996 is based principally upon significant
increases in the sale of existing imaging products and the successful
introduction of new product sales in both of its business segments, significant
manufacturing cost reductions and reductions in research and development
expenditures, an improvement in gross margin, and external financing. The
Company has raised $5.5 million and $8.35 million in March and July of this year
and believes that this will be adequate funding to complete the 1996 business
plan. Because of the anticipated timing of new product introductions and
manufacturing cost reductions, together with the necessity to prepay all or a
portion of the balance of, and achieve compliance with, the covenants included
in its lease obligation financing, the Company may require additional external
financing.
In 1983, the City of Albuquerque issued 8% tax-exempt industrial
development revenue bonds in connection with a long-term 25-year capital lease
of the Company's headquarters facility. The principal amount outstanding as of
June 30, 1996 was $1,052,643. Pursuant to its agreement with the City of
Albuquerque, Lasertechnics is required to maintain a current ratio of at least 1
to 1 and a debt to equity ratio of not more than 3 to 1. At June 30, 1996,
Lasertechnics' current ratio was 1.60 to 1 (excluding the capital lease
obligations in default) and its debt to equity ratio was 5.08 to 1. The Company
has a prepayment agreement with the bondholder whereby the bondholder agreed to
waive its right to call the bond for redemption through April 1, 1998, provided
the lessee pays the base prepayment and an additional prepayment amount of
$8,000 per month on a timely basis. All such payments were made on a timely
basis.
CAUTIONARY STATEMENTS
Except for the historical information contained herein, this Report
includes "forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended. Although the Company believes that the expectations
reflected in such forward looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Certain important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed below and qualify the
forward looking statements included in this Report. All subsequent written and
oral forward looking statements attributable to the Company or personas acting
on its behalf are expressly qualified in their entirety by the Cautionary
Statements.
ACCUMULATED LOSSES
From its incorporation in 1981 through June 30, 1996, Lasertechnics has an
accumulated loss of $44,560,521 and has been profitable in only one fiscal year
during that time. There can be no assurance that the Company will generate
sufficient revenues to achieve profitability in the future.
15
<PAGE>
AUDITORS' REPORT
The Company's auditors have included an explanatory paragraph in their
audit opinion with respect to the Company's 1995 financial statements related to
a significant uncertainty with respect to the Company's financial position at
December 31, 1995, which states that the Company's recurring losses from
operations and resulting continued dependence on access to external financing
together with its default on its capital lease obligation raise substantial
doubts about its ability to continue as a going concern. In October 1995 and
March 1996, the Company had arranged an aggregate of $12.5 million in additional
financing. In addition, in July 1996 the Company completed a private placement
of convertible preferred stock for $8.35 million. Although there can be no
assurance that the Company will achieve profitability in the future and losses
are expected to continue, the Company believes that such financing will be
sufficient to satisfy its capital requirements for the next six to twelve
months. The Company may require substantial additional funds in the future, and
there can be no assurance that the Company's future financial statements will
not include a similar explanatory paragraph if the Company is unable to raise
sufficient funds either through financings or from operations to cover the cost
of its operations. The factors leading to and the existence of the explanatory
paragraph may adversely affect the Company's relationship with customers and
suppliers and have an adverse effect on its ability to obtain financing.
LIQUIDITY AND CAPITAL REQUIREMENTS
The Company's future capital requirements will depend upon many factors,
including the extent and timing of the Company's products in the market, the
Company's operating results and the status of competitive products. The Company
anticipates that its existing capital resources and revenues from operations,
together with additional financing in the aggregate amount of $13.85 million
arranged in March and July 1996, will be adequate to satisfy its capital
requirements for the six to twelve months following the date of this Report.
The company's actual working capital needs will depend upon numerous factors,
however, including the cost of increasing the Company's sales and marketing
activities and the amount of revenues generated from its operations, none of
which can be predicted with certainty, and there can be no assurance that the
Company will not require additional funding prior to such date. If the
Company's losses continue, the Company may have to obtain sufficient funds to
meet its cash requirements through alliances or partnerships with compatible
entities with resources to support its programs, the sale of assets or
securities or other financing arrangements, or it will be required to curtail
its programs or seek a merger partner. Any additional funding may be on terms
which are unfavorable to the Company or disadvantageous to existing security
holders. In addition, no assurance may be given that the Company will be
successful in raising additional funds or entering into business alliances.
16
<PAGE>
SMALL TRADING VOLUME AND VOLATILITY OF STOCK PRICE
The weekly trading volume of the Company's Common Stock in the over-the-
counter market has varied from several thousand shares to 3 to 4 million share,
which may tend to increase the volatility of the price. Since January 1993, the
bid price of Common Stock in the over-the-counter market has varied from a low
of $.91 to a high of $4.06 per share. There can be no assurance that the price
volatility will not continue in the future.
PROPRIETARY TECHNOLOGY
Lasertechnics relies on a combination of patents, trade secrets and other
intellectual property law rights, nondisclosure agreements and other protective
measures to preserve its rights pertaining to its products. Much of
Lasertechnics' ability to compete in the laser marking and imaging industries
depends on trade secrets, know-how and proprietary technical knowledge that is
unprotected by patents. Although the company continues to implement protective
measures and intends to defend its proprietary rights vigorously, there can be
no assurance that these efforts will be successful. Such protections may not
preclude competitors from developing products similar to the Company's. In
addition, the laws of certain foreign countries do not protect intellectual
property rights to the same extent as do the laws of the United States.
There can also be no assurance that third parties will not assert
intellectual property infringement claims against the Company. Any such
infringement claim could result in protracted and costly litigation and could
have a material adverse effect on the Company's results of operations regardless
of its outcome.
TECHNOLOGICAL OBSOLESCENCE
The laser and imaging industries are undergoing, and are expected to
continue to undergo, rapid and significant technological change. There can be no
assurance that Lasertechnics' research and development programs will enable it
to compete effectively in the future. The development by others of new or
improved processes or products may make Lasertechnics' research and its products
obsolete.
COMPETITION
The imaging and laser marking industries are highly competitive in all
aspects, including research and development and marketing. Many of
Lasertechnics' competitors have considerably greater financial, technical and
marketing resources than Lasertechnics. The Company's laser marking business
faces competition not only from other laser marking companies, but from several
other marking technologies in widespread use such as ink jet (currently the
dominant technology in the packaging industry), embossing and hot stamping.
17
<PAGE>
DEPENDENCE ON KEY EMPLOYEES AND CONSULTANTS
Because of the specialized nature of its businesses, Lasertechnics is
dependent upon the efforts of its current officers, consultants and scientists
and upon its ability to attract and retain technologically qualified personnel,
particularly scientists and software designers highly qualified in the areas of
laser and imaging technology. There is intense competition for qualified
personnel in the laser and imaging industries, including competition from
companies with substantially greater resources than Lasertechnics. Although the
Company has been successful to date in recruiting adequate numbers of qualified
personnel, there is no assurance that Lasertechnics will be successful in the
future in recruiting or retaining personnel of the requisite scientific caliber
or in the requisite numbers to enable Lasertechnics to compete effectively.
DEPENDENCE ON SUPPLIERS
The Company acquires all of its plastic card printers from a single source.
Although to date the Company has generally been able to obtain adequate supplies
of these products, the inability of the Company in the future to obtain
sufficient sole or limited source products, or to develop alternative sources,
could result in delays in product introductions or shipments and could have a
material adverse effect on the Company's results of operations.
DEPENDENCE ON CUSTOMERS
A substantial portion of the revenues in 1996 for the Company's Sandia
Imaging unit will be derived from two contracts awarded during the first quarter
of 1996. The loss of either of these two contracts could have a material adverse
effect on the Company's results of operations.
NASDAQ LISTING
Lasertechnics' Common Stock is listed on the NASDAQ Small Capitalization
Market which requires a minimum stockholders' equity of $1 million and tangible
assets of $2 million for continued listing. Because Lasertechnics' stockholders'
equity fell below this limit at September 30, 1995 NASDAQ temporarily put the
Company's stock on a conditional listing until a new minimum of $2,450,000 in
equity was met on December 30, 1995. This was accomplished through the
conversion of an aggregate of $1,045,342 of convertible subordinated debentures
of the Company and the issuance of Series C Convertible Preferred Stock. On
January 2, 1996, NASDAQ removed the conditional listing and lowered the
stockholders' equity requirement to $1 million. While management believes that
in the event of future losses the Company will be able to obtain additional
equity financing to preserve such listing, there can be no assurance that the
Company will be able to do so.
In the event the Common Stock were delisted from NASDAQ, trading, if any,
would be conducted in the over-the-counter market on the NASD's electronic
bulletin board, in what are commonly referred to as the pink sheets. As a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities. In addition,
the Common Stock would be subject to rules promulgated under the Securities
18
<PAGE>
Exchange Act of 1934 (the "Exchange Act") applicable to penny stocks. The
Securities and Exchange Commission (the "Commission") has adopted regulations
that generally define a "penny stock" to be an equity security that has a market
price (as defined) or exercise price of less than $5.00 per share, subject to
certain exceptions. By virtue of being listed on NASDAQ, the Company's Common
Stock will be exempt from the definition of "penny stock." If, however, the
Common Stock is removed from NASDAQ, the Company's securities may become subject
to the penny stock rules that impose additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors. Consequently, the penny stock rules may affect the
ability of broker-dealers to sell the Company's securities and may affect the
ability of purchasers in the offering to sell their securities in the secondary
market.
SHARES ELIGIBLE FOR FUTURE SALE; CONVERTIBLE SECURITIES AND WARRANTS
Future sales of Common Stock in the public market by existing stockholders,
warrantholders and holders of convertible securities after this offering could
adversely affect the market price of Lasertechnics' Common Stock. At June 30,
1996, an aggregate of 23,177,477 shares of Common Stock were freely tradable
without restriction under the Securities Act. In addition, up to 9,116,207
shares were eligible for resale in accordance with the manner of sale and volume
limitations of Rule 144 promulgated under the Securities Act.
Lasertechnics has reserved approximately 10.2 million shares of Common
Stock for issuance upon the exercise of outstanding convertible securities and
warrants. Lasertechnics has also reserved 1,150,000 shares of Common Stock for
issuance to key employees, officers, directors and consultants pursuant to the
Company's benefit plans. The Company's 10% Subordinated Convertible Debentures
due October 2, 1998 (the "1995 Debentures"), the Company's 10% Subordinated
Convertible Debentures due March 1, 1999 (the "1996 Debentures" and, with the
1995 Debentures, the "Debentures"), in the aggregate principal amount of $12.5
million, and the Company's Series D Preferred Stock (the "Series D Preferred"),
in the amount of $8.35 million, became or will become convertible into Common
Stock at various times during 1995 and 1996. Subject to certain exceptions, the
conversion price for the 1995 Debentures is equal to the lesser of (i) $2.34 or
(ii) a variable conversion rate equal to the average closing bid price for the
Common Stock for the five trading days prior to conversion (the "Variable
Conversion Rate"). The conversion price for the 1996 Debentures is equal to the
lesser of (i) $2.00 or (ii) the Variable Conversion Rate. The conversion price
for the Series D Preferred is equal to the lesser of (i) $2.1406 or (ii) as
little as 85% of the average closing bid price for the Common Stock for the ten
trading days prior to the conversion date. These variable conversion rates for
the Debentures and the Series D Preferred could result in substantial dilution
to the existing stockholders of the Company if the trading price of the
Company's Common Stock declines. This potential dilution may also adversely
affect the Company's ability to raise additional financing on favorable terms in
the future. In addition, because the conversion prices are variable,
Lasertechnics is unable to determine whether the number of shares it has
reserved or its remaining authorized shares of Common Stock will be sufficient
to satisfy all future requirements for the issuance of Common Shares upon
conversion of the Debentures and Series D Preferred. The governing instruments
for both the Series D Preferred and the Debentures
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<PAGE>
include substantial penalties in the event that the Company has insufficient
authorized or reserved shares to satisfy the conversion requirements of the
Series D Preferred and the Debentures.
CAPITAL LEASE OBLIGATION IN DEFAULT
In 1983, the City of Albuquerque issued 8% tax-exempt industrial
development revenue bonds in connection with a long-term 25-year capital lease
of the Company's headquarters facility. The principal amount outstanding as of
June 30, 1996 was $1,052,643. Pursuant to its agreement with the City of
Albuquerque, Lasertechnics is required to maintain a current ratio of at least 1
to 1 and a debt to equity ratio of not more than 3 to 1. At June 30, 1996,
Lasertechnics' current ratio was 1.60 to 1 (excluding the capital lease
obligations in default) and its debt to equity ratio was 5.08 to 1. The Company
has a prepayment agreement with the bondholder whereby the bondholder agreed to
waive its right to call the bond for redemption through April 1, 1998 provided
that the lessee pays the base prepayment and additional prepayment amount of
$8,000 per month on a timely basis. However, the Company is in the process of
arranging new long-term financing for this real estate and expects to obtain it
by the end of 1996. There can be no assurance that the Company will be able to
do so. Failure to obtain such financing could force the Company to relocate its
facilities and experience the associated disruption of business.
OTHER
Inflation has not had nor is expected to have a material impact on the
operations and financial condition of the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 28, 1996, an investor group filed suit against the Company in
the United States District Court for the Southern District of New York. This
lawsuit arises out of the Company's refusal to recognize the investor group's
attempt to exercise an option to purchase 1,400,000 shares of the Company's
common stock at $.495 per share. The option had been granted to the Company's
former President and CEO who attempted to transfer his option to the investor
group on the last day of the option term in September of 1995. On that same day,
the investor group attempted to exercise the option. The Company refused to
recognize the attempted transfer of the option to the investor group on the
primary grounds that the option was granted personally to the Company's former
President and CEO and was not transferable to third-parties. The lawsuit seeks
issuance and registration of the 1,400,000 shares upon payment of the exercise
price, or in the alternative, monetary damages which the investor group alleges
to be not less than $2,800,000. On May 1, 1996, the Company moved to dismiss the
complaint on the grounds that the court in New York lacks personal jurisdiction
over the Company. A decision on that motion is still pending. The Company
believes the claim is without merit and will vigorously oppose it.
20
<PAGE>
ITEM 2. CHANGES IN SECURITIES
On June 17, 1996, the stockholders of the Company adopted an amendment to
the Company's Certificate of Incorporation to delete the requirement that any
shares of convertible preferred stock issued by the Company only be convertible
into shares of the common stock of the Company on a one-share for one-share
basis. As a result of this amendment, the Company may now issue preferred stock
convertible into common stock using any conversion ratio which the board of
directors of the Company deems appropriate.
ITEM 3. DEFAULTS UNDER SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 17, 1996, the Company held its annual meeting of stockholders for
the following purposes: (1) to elect seven directors (Proposal No. 1). (2) to
consider and vote upon a proposal to approve a stock option plan for non-
employee directors of the Company (Proposal No. 2), (3) to consider and vote
upon a proposal to amend Article Fourth of the Company's Certificate of
Incorporation relating to the Company's authorized capital stock (Proposal No.
3), (4) to consider and vote upon a proposal to amend Article Fourth of the
Company's Certificate of Incorporation relating to the conversion of Preferred
Stock into Common Stock (Proposal No. 4), and (5) to consider and act upon a
proposal to confirm the appointment of KPMG Peat Marwick LLP as the independent
auditors of the Company (Proposal No. 5).
The stockholders of the Company elected the persons named below, the
Company's nominees for director, as directors of the Company, casting votes in
favor of such nominees or votes against as indicated:
<TABLE>
<CAPTION>
Votes in Favor Votes Against
<S> <C> <C>
Jean-Pierre Arnaudo 15,787,573 61,857
Eugene A Bourque 15,787,273 62,157
Richard M. Clarke 15,787,273 62,157
Paul J. Coleman, Jr. 15,787,273 62,157
C. Seth Cunningham 15,788,573 60,857
Richard C.E. Morgan 15,788,573 60,857
Alfred E. Paulekas 15,788,573 60,857
</TABLE>
The stockholders approved Proposal No. 2 as follows:
Votes For Votes Against Votes Abstained
15,168,460 327,240 353,730
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<PAGE>
The stockholders approved Proposal No. 3 as follows:
Votes For Votes Against Votes Abstained
15,276,070 212,780 360,580
The stockholders approved Proposal No. 4 as follows:
Votes For Votes Against Votes Abstained
15,265,285 210,325 357,720
The stockholders approved Proposal No. 5 as follows:
Votes For Votes Against Votes Abstained
15,447,957 45,010 340,363
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
4.1 Certificate of Designation of Series D Preferred Stock.
10.1 Settlement Agreement with Singapore Precision Industries PTE LTD,
dated July 15, 1996.
10.2 Form of Regulation D Subscription Agreement dated as of July 29, 1996
pursuant to which shares of the Company's Series D Preferred
Stock are issued.
10.3 Registration Rights Agreement dated as of July 29,1996 among
Lasertechnics, Swartz investments, LLC, and the subscribers named
therein.
10.4 Placement Agent Agreement dated as of July 29, 1996 between
Lasertechnics and Swartz Investments, LLC.
11.0 Statement regarding computation of per share earnings.
27.0 Financial Data Schedule.
REPORTS ON FORMS 8-K
Filed 1/2/96.
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date__________ LASERTECHNICS, INC.
By: /s/ RICHARD C.E. MORGAN
--------------------------
Richard C. E. Morgan
Chairman of the Board &
Chief Executive Officer
By: /s/ E.A. MILO MATTORANO
--------------------------
E.A. Milo Mattorano
Vice President and
Chief Financial Officer
23
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF DESIGNATION OF
SERIES D PREFERRED STOCK
OF
LASERTECHNICS, INC.
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is
Lasertechnics, Inc. a Delaware corporation.
2. The certificate of incorporation of the Company authorize the issuance
of Seven Million (7,000,000) shares of preferred stock, $.01 value per share,
and expressly vests in the Board of Directors of the Company the authority
provided therein to issue any or all of said shares in one (1) or more series
and by resolution or resolutions to establish the designation and number and to
fix the relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series D issue of Preferred Stock:
RESOLVED, that Eight Hundred Fifty (850) of the Seven Million (7,000,000)
authorized shares of Preferred Stock of the Company shall be designated Series D
Preferred Stock, $.01 par value per share, and shall possess the rights and
preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have a
par value of $.01 per share and shall be designated as Series D Preferred Stock
(the "Series D Preferred Stock") and the number of shares constituting the
Series D Preferred Stock shall be Eight Hundred Fifty (850). The Series D
Preferred Stock shall be offered at a purchase price of Ten Thousand Dollars
($10,000) per share (the "Original Series D Issue Price"), with an eight percent
(8%) per annum accretion rate as set forth herein.
Section 2. Rank. The Series D Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series D Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Common Stock, $.01 par value per share ("Common Stock"); (iii) prior to any
class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series D
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
"Junior Securities"); and (iv) on parity with any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Series D Preferred Stock ("Parity Securities") in each case as
to distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
Section 3. Dividends. The Series D Preferred Stock will bear no
dividends, and the holders of the Series D Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Series D Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Company ("Liquidation Event"), either voluntary or involuntary, the Holders of
shares of Series D Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the Company's
Certificate of Incorporation or any certificate of designation, and prior in
preference to any distribution to Junior Securities but in parity with any
distribution to Parity Securities, an amount per share equal to the sum of (i)
the Original Series D Issue Price for each outstanding share of Series D
Preferred Stock and (ii) an amount equal to eight percent (8%) of the Original
Series D Issue Price per annum for the period that has passed since the date
that, in connection with the
1
<PAGE>
consummation of the purchase by Holder of shares of Series D Preferred Stock
from the Company, the escrow agent first had in its possession funds
representing full payment for the shares of Series D Preferred Stock (such
amount being referred to herein as the "Premium"). If upon the occurrence of
such event, and after payment in full of the preferential amounts with respect
to the Senior Securities, the assets and funds available to be distributed among
the Holders of the Series D Preferred Stock and Parity Securities shall be
insufficient to permit the payment to such Holders of the full preferential
amounts due to the Holders of the Series D Preferred Stock and the Parity
Securities, respectively, then the entire assets and funds of the Company
legally available for distribution shall be distributed among the Holders of the
Series D Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Company's Certificate of Incorporation and any certificate(s) of designation
relating thereto.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Company, they shall be distributed to holders of
Junior Securities in accordance with the Company's Certificate of Incorporation
including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition of all
or substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which any person
or entity acquires more than fifty percent (50%) of the voting power of the
Company (a "Change of Control") shall be deemed to be a Liquidation Event as
defined in Section 4(a); provided further that (i) a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
publicly traded company or companies shall not be treated as a Liquidation Event
as defined in Section 4(a), but instead shall be treated pursuant to Section
5(e)(iii) hereof, and (ii) a consolidation, merger, acquisition, or other
business combination of the Company with or into any other non-publicly traded
company or companies shall be treated as a Liquidation Event as defined in
Section 4(a). The Company shall not effect any transaction described in
subsection 4(c)(ii) unless it first gives thirty (30) business days prior notice
of such transaction (during which time the Holder shall be entitled to convert
its shares of Series D Preferred Stock into Common Stock). For purposes of this
Section 4(c), the public offering, sale or distribution of shares of stock of
the Company's Sandia Imaging Systems Corp. subsidiary or the Lasertechnics
Marking Corporation subsidiary (but not both) shall not be deemed to be a
Liquidation Event.
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) which would constitute a liquidation
event, the cash distributions required by Section 4(a) or Section 6 have not
been made, the Company shall either: (i) cause such closing to be postponed
until such cash distributions have been made, or (ii) cancel such transaction,
in which event the rights of the Holders of Series D Preferred Stock shall be
the same as existing immediately prior to such proposed transaction.
Section 5. Conversion. The record Holders of this Series D Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder of Series D Preferred Stock
shall be entitled (at the times and in the amounts set forth below) and subject
to the Company's right of redemption set forth in Section 6(a), at the office of
the Company or any transfer agent for the Series D Preferred Stock (the
"Transfer Agent"), to convert (in multiples of one (1) share of Preferred Stock)
as follows: (x) up to one-third (1/3) of the shares of Series D Preferred Stock
initially issued to such Holder at any time beginning sixty (60) days following
the date of the last closing of a purchase and sale of Series D Preferred Stock
that occurs pursuant to the offering of the Series D Preferred Stock by the
Company (the "Last Closing Date") and at any time thereafter, (y) up to an
additional one-third (1/3) of the shares of Series D Preferred Stock initially
issued to such Holder at any time beginning one hundred twenty (120) days
following the Last Closing Date and at any time thereafter, and (z) all
remaining Series D Preferred Stock held by such Holder at any time beginning one
hundred eighty (180) days following the Last Closing Date (each of the time
periods referenced in subclauses (x), (y) and (z) is hereinafter referred to
singularly as a "Conversion Gate") at the office of the Company or any Transfer
Agent for the Series D Preferred Stock, into that number of fully-paid and non-
assessable shares of Common Stock of the Company calculated in accordance with
the following formula (the "Conversion Rate"):
2
<PAGE>
Number of shares issued upon conversion of one (1) share of Series D
Preferred Stock =
(.08) (N/365) (10,000) + 10,000
-------------------------------
Conversion Price
where,
* N= the number of days between (i) the date that, in connection with the
consummation of the initial purchase by Holder of shares of Series D
Preferred Stock from the Company, the escrow agent first had in its
possession funds representing full payment for the shares of Series D
Preferred Stock for which conversion is being elected, and (ii) the
applicable Date of Conversion (as defined in Section 5(c)(iv) below) for
the shares of Series D Preferred Stock for which conversion is being
elected, and
* Conversion Price = the lesser of (x) 100% of the average Closing Bid
Price, as that term is defined below, for the ten (10) trading days
ending on July 19, 1996, which amount is equal to $ 2.1406 (the "Fixed
Conversion Price"), or (y) X% of the average Closing Bid Price, as
that term is defined below, of the Company's Common Stock for the ten
(10) trading days immediately preceding the Date of Conversion, as
defined below (the "Variable Conversion Price"), where X is
determined as follows:
No. of Days Between Last
Closing and Date of Conversion X=
------------------------------ -------
60 - 119 90%
120 - 179 87.5%
180(+) 85%
For purposes hereof, any Holder which acquires shares of Series D Preferred
Stock from another Holder (the "Transferor") and not upon original issuance from
the Company shall be entitled to exercise its conversion right as to the
percentages of such shares specified under Section 5(a) in such amounts and at
such times such that the number of shares eligible for conversion by such Holder
at any time shall be in the same proportion that the number of shares of Series
D Preferred Stock acquired by such Holder from its Transferor bears to the total
number of shares of Series D Preferred Stock originally issued by the Company to
such Transferor (or its predecessor Transferor).
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the Nasdaq Small Cap Market, or if no longer traded on the Nasdaq
Small Cap Market, the closing bid price on the principal national securities
exchange or the National Market System on which the Common Stock is so traded
and if not available, the mean of the high and low prices on the principal
national securities exchange or the National Market System on which the Common
Stock is so traded.
(b) Mechanics of Conversion. In order to convert Series D Preferred
Stock into full shares of Common Stock, the Holder shall (i) fax, on or prior to
8:00 p.m., New York City time (the "Conversion Notice Deadline") on the date of
conversion, a copy of the fully executed notice of conversion ("Notice of
Conversion") to the Company at the office of the Company or its designated
transfer agent (the "Transfer Agent") for the Series D Preferred Stock stating
that the Holder elects to convert, which notice shall specify the date of
conversion, the number of shares of Series D Preferred Stock to be converted,
the applicable conversion price and a calculation of the number of shares of
Common Stock issuable upon such conversion (together with a copy of the front
page of each certificate to be converted) and (ii) surrender to a common courier
for delivery to the office of the Company or the Transfer Agent the original
certificates representing the Series D Preferred Stock being converted (the
"Preferred Stock Certificates"), duly endorsed for transfer; provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless either the Preferred
Stock Certificates are delivered to the Company or its Transfer Agent as
provided above, or the Holder notifies the Company or its Transfer Agent that
such certificates have been lost, stolen or destroyed (subject to the
requirements of
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<PAGE>
subparagraph (i) below). Upon receipt by Company of a facsimile copy of a Notice
of Conversion, Company shall immediately send, via facsimile, a confirmation of
receipt of the Notice of Conversion to Holder which shall specify that the
Notice of Conversion has been received and the name and telephone number of a
contact person at the Company whom the Holder should contact regarding
information related to the Conversion. In the case of a dispute as to the
calculation of the Conversion Rate, the Company shall promptly issue to the
Holder the number of Shares that are not disputed and shall submit the disputed
calculations to its outside accountant via facsimile within three (3) days of
receipt of Holder's Notice of Conversion. The Company shall cause the accountant
to perform the calculations and notify Company and Holder of the results no
later than forty-eight (48) hours from the time it receives the disputed
calculations. Accountant's calculation shall be deemed conclusive absent
manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series D Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Company, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, Company shall
not be obligated to re-issue such lost or stolen Preferred Stock Certificates if
Holder contemporaneously requests Company to convert such Series D Preferred
Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The Transfer Agent or
the Company (as applicable) shall use its best efforts to, no later than the
close of business on the second (2nd) business day and in no event later than
the third (3rd) business day (the "Deadline") after receipt by the Company or
the Transfer Agent of a facsimile copy of a Notice of Conversion and receipt by
Company or the Transfer Agent of all necessary documentation duly executed and
in proper form required for conversion, including the original Preferred Stock
Certificates to be converted (or after provision for security or indemnification
in the case of lost or destroyed certificates, if required), issue and surrender
to a common courier for either overnight or (if delivery is outside the United
States) two (2) day delivery to the Holder at the address of the Holder as shown
on the stock records of the Company a certificate for the number of shares of
Common Stock to which the Holder shall be entitled as aforesaid.
(iii) No Fractional Shares. If any conversion of the Series D
Preferred Stock would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion,
in the aggregate, shall be the next lower number of shares.
(iv) Date of Conversion. The date on which conversion occurs (the
"Date of Conversion") shall be deemed to be the date set forth in such Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
faxed to the Company before 8:00 p.m., New York City time, on the Date of
Conversion, and (ii) that the original Preferred Stock Certificates representing
the shares of Series D Preferred Stock to be converted are surrendered by
depositing such certificates with a common courier, for delivery to the Company
or the Transfer Agent as provided above, as soon as practicable after the Date
of Conversion. The person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record Holder or Holders of such shares of Common Stock on the Date of
Conversion.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series D Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series D Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series D Preferred Stock, the Company will
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
4
<PAGE>
(d) Automatic Conversion. Each share of Series D Preferred Stock
outstanding on the date which is three (3) years after the Last Closing Date
automatically shall be converted into Common Stock on such date at the
Conversion Rate then in effect (calculated in accordance with the formula in
Section 5(a) above), and the date which is three (3) years after the Last
Closing Date shall be deemed the Date of Conversion with respect to such
conversion.
(e) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the conversion of all of the Series D Preferred
Stock, the number of outstanding shares of Common Stock is increased by a stock
split, stock dividend, or other similar event, the Fixed Conversion Price shall
be proportionately reduced, or if the number of outstanding shares of Common
Stock is decreased by a combination or reclassification of shares, or other
similar event, the Fixed Conversion Price shall be proportionately increased.
(ii) Adjustment to Variable Conversion Price. If, at any time when
any shares of the Series D Preferred Stock are issued and outstanding, the
number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any conversion of the Series D Preferred Stock, then the Variable
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all five (5) trading days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc. If, prior to
the conversion of all Series D Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities of the Company or another entity or
there is a sale of all or substantially all the Company's assets or there is a
Change of Control not deemed to be a liquidation pursuant to section 4(c), then
the Holders of Series D Preferred Stock shall thereafter have the right to
receive upon conversion of Series D Preferred Stock, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities and/or
other assets which the Holder would have been entitled to receive in such
transaction had the Series D Preferred Stock been converted immediately prior to
such transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holders of the Series D Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for the adjustment of the Conversion Price and of the number of
shares issuable upon conversion of the Series D Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in relation to any
securities thereafter deliverable upon the exercise hereof. The Company shall
not effect any transaction described in this subsection 5(e)(iii) unless (a) it
first gives thirty (30) business days prior notice of such merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event (during which time the Holder shall be entitled to convert its
shares of Series D Preferred Stock into Common Stock) and (b) the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligations of the Company under this Certificate of Designation including
this subsection 5(e)(iii).
(iv) No Fractional Shares. If any adjustment under this Section 5(e)
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion shall be the next
lower number of shares.
Section 6. Redemption by Company.
(a) Company's Right to Redeem Upon Receipt of Notice of Conversion. If
the Conversion Price of the Company's Common Stock is less than the Fixed
Conversion Price (as defined in Section 5(a)), at the time of receipt of a
Notice of Conversion pursuant to Section 5, the Company shall have the right, in
its sole discretion, to redeem in whole or in part any Series D Preferred Stock
submitted for conversion, immediately prior to and in lieu of conversion
("Redemption Upon Receipt of Notice of Conversion"). If the Company elects to
redeem some, but
5
<PAGE>
not all, of the Series D Preferred Stock submitted for conversion, the Company
shall redeem from among the Series D Preferred Stock submitted by the various
shareholders for conversion on the applicable date, a pro-rata amount from each
such Holder so submitting Series D Preferred Stock for conversion.
(i) Redemption Price Upon Receipt of a Notice of Conversion. The
redemption price per share of Series D Preferred Stock under this Section 6(a)
shall be calculated in accordance with the following formula ("Redemption
Rate"):
[[(.08)(N/365) (10,000)] + 10,000] x Closing Bid Price on Date of Conversion
---------------------------------------
Conversion Price
where,
"N", "Date of Conversion", "Closing Bid Price" and "Conversion Price" shall
have the same meanings as defined in Section 5.
(ii) Mechanics of Redemption Upon Receipt of Notice of Conversion.
The Company shall effect each such redemption by giving notice of its election
to redeem, by facsimile, by 5:00 p.m. New York City time the next business day
following receipt of a Notice of Conversion from a Holder, and the Company shall
provide a copy of such redemption notice by overnight or two (2) day courier, to
(A) the Holder of the Series D Preferred Stock submitted for conversion at the
address and facsimile number of such Holder appearing in the Company's register
for the Series D Preferred Stock and (B) the Company's Transfer Agent. Such
redemption notice shall indicate whether the Company will redeem all or part of
the Series D Preferred Stock submitted for conversion and the applicable
redemption price.
(b) Company's Right to Redeem at its Election. At any time,
commencing twelve (12) months and one (1) day after the Last Closing Date, the
Company shall have the right, in its sole discretion, to redeem ("Redemption at
Company's Election"), from time to time, any or all of the Series D Preferred
Stock; provided (i) Company shall first provide thirty (30) business days
advance written notice as provided in subparagraph 6(b)(ii) below (which can be
given beginning thirty (30) business days prior to the date which is twelve (12)
months and one (1) day after the Last Closing Date), and (ii) that the Company
shall only be entitled to redeem Series D Preferred Stock having an aggregate
Stated Value (as defined below) of at least One Million Dollars ($1,000,000).
If the Company elects to redeem some, but not all, of the Series D Preferred
Stock, the Company shall redeem a pro-rata amount from each Holder of the Series
D Preferred Stock.
(i) Redemption Price At Company's Election. The "Redemption Price At
Company's Election" shall be calculated as a percentage of Stated Value, as that
term is defined below, of the Series D Preferred Stock redeemed pursuant to this
Section 6(b), which percentage shall vary depending on the date of Redemption at
Company's Election (as defined below), and shall be determined as follows:
Date of Notice of Redemption at Company's Election % of Stated Value
-------------------------------------------------- ----------------
12 months and 1 day to 18 months following Last Closing Date 130%
18 months and 1 day to 24 months following Last Closing Date 125%
24 months and 1 day to 30 months following Last Closing Date 120%
30 months and 1 day to 36 months following Last Closing Date 115%
For purposes hereof, "Stated Value" shall mean the Original Series D Issue
Price (as defined in Section 4(a)) of the shares of Series D Preferred Stock
being redeemed pursuant to this Section 6(b), together with the accreted but
unpaid Premium (as defined in Section 4(a)).
(ii) Mechanics of Redemption at Company's Election. The Company shall
effect each such redemption by giving at least thirty (30) business days prior
written notice ("Notice of Redemption At Company's Election") to (A) the Holders
of the Series D Preferred Stock selected for redemption, at the address and
facsimile number of such Holder appearing in the
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<PAGE>
Company's Series D Preferred stock register and (B) the Transfer Agent, which
Notice of Redemption At Company's Election shall be deemed to have been
delivered three (3) business days after the Company's mailing (by overnight or
two (2) day courier, with a copy by facsimile) of such Notice of Redemption At
Company's Election. Such Notice of Redemption At Company's Election shall
indicate (i) the number of shares of Series D Preferred Stock that have been
selected for redemption, (ii) the date which such redemption is to become
effective (the "Date of Redemption At Company's Election") and (iii) the
applicable Redemption Price At Company's Election, as defined in subsection
(b)(i) above. Notwithstanding the above, Holder may convert into Common Stock
pursuant to section 5, prior to the close of business on the Date of Redemption
at Company's Election, any Series D Preferred Stock which it is otherwise
entitled to convert, including Series D Preferred Stock that has been selected
for redemption at Company's election pursuant to this subsection 6(b); provided,
however, that the Company shall still be entitled to exercise its right to
redeem upon receipt of a Notice of Conversion pursuant to section 6(a).
(c) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure under Sections 6(a) and 6(b) unless it has:
(i) the full amount of the redemption price in cash, available in a
demand or other immediately available account in a bank or similar financial
institution; or
(ii) immediately available credit facilities, in the full amount of
the redemption price with a bank or similar financial institution; or
(iii) an agreement with a standby underwriter willing to purchase
from the Company a sufficient number of shares of stock to provide proceeds
necessary to redeem any stock that is not converted prior to redemption; or
(iv) a combination of the items set forth in (i), (ii) and (iii)
above, aggregating the full amount of the redemption price.
If the foregoing conditions of this Section 6(c) are satisfied and Company
complies with Section 6(d) hereof, then any shares of Series D Preferred Stock
called for by a Redemption at Company's Election shall cease to be outstanding
for all purposes hereunder (including the right to convert or to accrete
additional Premium or to exercise any other right or privilege hereunder) on the
Date of Redemption at Company's Election and shall instead represent the right
to receive the Redemption Price at Company's Election without interest from and
after the Date of Redemption at Company's Election.
(d) Payment of Redemption Price.
(i) Each Holder submitting Preferred Stock being redeemed under this
Section 6 shall send their Series D Preferred Stock Certificates so redeemed to
the Company or its Transfer Agent, and the Company shall pay the applicable
redemption price to that Holder within five (5) business days of the Date of
Redemption at Company's Election. The Company shall not be obligated to deliver
the redemption price unless the Preferred Stock Certificates so redeemed are
delivered to the Company or its Transfer Agent, or, in the event one (1) or more
certificates have been lost, stolen, mutilated or destroyed, unless the Holder
has complied with Section 5(c)(i).
(ii) If Company elects to redeem pursuant to Section 6(a) hereof, and
Company fails to pay Holder the redemption price within the time frame as
required by this Section 6(d), then Company shall issue shares of Common Stock
to any such Holder who has submitted a Notice of Conversion in compliance with
Section 5(c) hereof. The shares to be issued to Holder pursuant to this
provision shall be the number of shares determined using a Conversion Price (as
defined in Section 6 hereof) that equals the lesser of (i) the Conversion Price
on the date Holder sends its Notice of Conversion to Company or Transfer Agent
via facsimile or (ii) the Conversion Price on the date the Transfer Agent issues
Common Stock pursuant to this Section 6(d)(ii).
7
<PAGE>
(e) Blackout Period. Notwithstanding the foregoing, the Company may
not either send out a redemption notice or effect a redemption pursuant to
Section 6(b) above during a Blackout Period (defined as a period during which
the Company's officers or directors would not be entitled to buy or sell stock
because of their holding of material non-public information), unless the Company
shall first disclose the non-public information that resulted in the Blackout
Period; provided, however, that no redemption shall be effected until at least
ten (10) days after the Company shall have given the Holder written notice that
the Blackout Period has been lifted.
Section 7. Advance Notice of Redemption.
(a) Holder's Right to Elect to Receive Notice of Cash Redemption by
the Company. Holder shall have the right to require Company to provide advance
notice stating whether the Company will elect to redeem Holder's shares of
Series D Preferred Stock in cash, pursuant to the Company's redemption rights
discussed in Section 6(a).
(b) Mechanics of Holder's Election Notice. Holder shall send notice
("Election Notice") to the Company and such other person(s) as the Company may
designate, via facsimile, stating Holder's intention to require Company to
disclose that if Holder were to exercise his, her or its right of conversion
(pursuant to Section 5) whether Company would elect to redeem a specific number
of shares of Holder's Series D Preferred Stock for cash in lieu of issuing
Common Stock. Company is required to disclose to Holder what action Company
would take over the subsequent twenty (20) business day period, including the
date of such Election Notice, as further discussed in subsection 7(c).
(c) Company's Response. Upon receipt by the Company of a facsimile
copy of an Election Notice, Company shall immediately send, via facsimile, a
confirmation of receipt of the Election Notice to Holder, which shall specify
that the Election Notice has been received and the name and telephone number of
a contact person at the Company whom the Holder should contact regarding
information related to the requested advance notice. Thereafter, the Company
must respond by the close of business on the next business day following receipt
of Holder's Election Notice (1) via facsimile and (2) by depositing such
response with an overnight or two (2) day courier. The Company's response must
state whether it would redeem the shares, in whole or in part, or allow
conversion into shares of Common Stock without redemption. If Company does not
respond to Holder within one (1) business day via facsimile and overnight or two
(2) day courier, Company shall be required to issue to Holder Common Stock upon
Holder's conversion within the subsequent twenty (20) business day period of
Holder's Election Notice. However, if the Company's Common Stock price
decreases so that under the Conversion Rate Company would be required to issue
more than an additional ten percent (10% ) of shares of Common Stock than Holder
was entitled to receive at the time Holder sent Company its Election Notice,
then Company shall no longer be bound to convert Holder's Preferred Stock into
Common Stock but may elect to redeem for cash.
Section 8. Voting Rights. The Holders of the Series D Preferred Stock
shall have no voting power whatsoever, except as otherwise provided by the
corporation law of the State of Delaware ("Delaware Law"), and no Holder of
Series D Preferred Stock shall vote or otherwise participate in any proceeding
in which actions shall be taken by the Company or the shareholders thereof or be
entitled to notification as to any meeting of the shareholders.
Notwithstanding the above, Company shall provide Holder with notification
of any meeting of the shareholders regarding any major corporate events
affecting the Company. In the event of any taking by the Company of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire any share of any class or any other
securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the record date specified therein, of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or other event,
and a brief statement
8
<PAGE>
regarding the amount and character of such dividend, distribution, right or
other event to the extent known at such time.
To the extent that under Delaware Law the vote of the Holders of the Series
D Preferred Stock, voting separately as a class, is required to authorize a
given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series D Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series D Preferred Stock (except as otherwise may be
required under Delaware Law) shall constitute the approval of such action by the
class. To the extent that under Delaware Law the Holders of the Series D
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one (1) class, each share of Series D Preferred Stock shall
be entitled to a number of votes equal to the number of shares of Common Stock
into which it is then convertible using the record date for the taking of such
vote of stockholders as the date as of which the Conversion Price is calculated.
Holders of the Series D Preferred Stock also shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Company's by-
laws and applicable statutes.
Section 9. Protective Provision. So long as shares of Series D Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by Delaware Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series D Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of the
Series D Preferred Stock or any Senior Securities so as to affect adversely the
Series D Preferred Stock; provided, however, that no such change may be approved
at any time on or prior to the fortieth (40th) day following the Last Closing
Date unless such change is unanimously approved by all Holders;
(b) create any new class or series of stock having a preference over
the Series D Preferred Stock with respect to Distributions (as defined in
Section 2 above) or increase the size of the authorized number of Series D
Preferred; or
(c) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series D Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Series D Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series D Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series D Preferred
Stock, then the Company will deliver notice of such approved change to the
Holders of the Series D Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) business days to convert pursuant to the terms of
this Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the sixty (60) day, one hundred twenty (12) day, and one
hundred eight (180) day holding requirements set forth in Section 5(a) hereof),
or continue to hold their shares of Series D Preferred Stock provided, however,
that the Dissenting Holders may not convert anytime on or before the fortieth
(40th) day following the Last Closing Date.
Section 10. Status of Converted or Redeemed Stock. In the event any
shares of Series D Preferred Stock shall be converted or redeemed pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Company as Series D
Preferred Stock.
Section 11. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with
9
<PAGE>
dividend and/or liquidation preferences junior to or on parity with the dividend
and liquidation preferences of the Series D Preferred Stock.
Signed on ____________________, 1996
___________________________________
E.A. Milo Mattorano, Vice President & CFO
Attest:
_________________________
E.A. Milo Mattorano, Secretary
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<PAGE>
EXHIBIT 10.1
Dated this 15th day of July 1996
BETWEEN
SINGAPORE PRECISION INDUSTRIES PTE. LTD.
AND
SANDIA IMAGING SYSTEMS CORPORATION
___________________________________________________________________
SETTLEMENT AGREEMENT
___________________________________________________________________
Singapore Technologies Industrial Corporation Ltd
Corporate Legal
Republic of Singapore
<PAGE>
SETTLEMENT AGREEMENT
THIS AGREEMENT is made this 15th day of July 1996 BETWEEN:-
(1) SINGAPORE PRECISION INDUSTRIES PTE LTD, a company incorporated in the
Republic of Singapore and having its registered office at 20, Tuas West
Road, Singapore 638379 (hereinafter referred to as "SPI") of the one part;
AND
(2) SANDIA IMAGING SYSTEMS CORPORATION, a corporation established under the
laws of Delaware, U.S.A. and having its principal office at 3208, Commander
Drive, Carrollton, Texas, U.S.A. (hereinafter referred to as "Sandia") of
the other part.
WHEREAS
A. The parties signed a Contract Manufacturing Agreement on the 13th day of
May, 1994 (the "Manufacturing Agreement") whereby SPI agreed to manufacture
and supply Secumind printers to Sandia and Sandia agreed to purchase from
SPI such printers;
B. There are certain issues in disputes between the parties in relation to the
Manufacturing Agreement and parties have alleged claims against each other
under the said Manufacturing Agreement.
C. The parties have agreed as to settlement and disposal of the said disputes
as hereinafter provided on the terms of this Agreement.
NOW IT IS AGREED AS FOLLOWS:
1. In consideration of the implementation of the provisions hereinafter
referred to, SPI and Sandia mutually and individually hereby waive, release
and relinquish all their respective rights or interests claimed in the
Manufacturing Agreement, whether such rights or interests arise by way of
claim or counterclaim, and undertake each with the other that they will not
in relation to any claim under the Manufacturing Agreement whatsoever
henceforth bring, lodge or pursue such claims or any part thereof, and that
they will bring no further claims under any agreements or in respect of any
obligations arising directly or indirectly out of the Manufacturing
Agreement.
2. SPI warrants to Sandia that it has not assigned, charged, hypothecated or
in any other way dealt with or disposed or purported to deal with its
rights or interests in the Manufacturing Agreement, whether by way of claim
or counterclaim, and that its rights or interests remain vested in itself
solely as beneficial owner, and will indemnify Sandia in respect of any
breach of such warranty.
<PAGE>
3. Sandia warrants to SPI that it has not assigned, charged, hypothecated or
in any other way dealt with or disposed or purported to deal with its
rights or interests in the Manufacturing Agreement, whether by way of claim
or counter claim, and that its rights or interests remain vested in itself
solely as beneficial owner, and will indemnify SPI in respect of any breach
of such warranty.
4. Parties agree that the value of the part materials purchased by SPI for
purpose of the Manufacturing Agreement now in the possession of SPI amounts
to United States Dollars One Million (US$1,000,000) ("Inventory"). SPI
shall retain possession and ownership of the twenty (20) items of the
Inventory listed in Schedule 1 amounting to United States Dollars Three
Hundred and Forty Thousand (US$340,000). Sandia shall take possession and
ownership of the balance of the items in the Inventory as listed in
Schedule 2 amounting to United States Dollars Six Hundred and Sixty
Thousand (US$660,000) and shall pay to SPI the said sum of United States
Dollars Six Hundred and Sixty Thousand (US$660,000) for the aforesaid in
the manner as provided for in Clause 5.
5. In addition to the said sum of United States Dollars Six Hundred and Sixty
Thousand (US$660,000) payable pursuant to Clause 4, Sandia shall pay to SPI
the further sum of United States Dollars Five Hundred Thousand (US$500,000)
being for the finished products, the Print Head Assemblies (both as
described in Schedule 3) and the trading account credit balance in favour
of SPI (invoiced as at 31 December 1995.) The total sum of United States
Dollars One Million One Hundred and Sixty Thousand (US$1,160,000) shall be
payable by Sandia to SPI as follows:-
(a) An initial sum of United States Dollars Six Hundred and Ten Thousand
(US$610,000) shall be payable on or before 28 July 1996 ("Initial
Payment").
(b) The balance sum of United States Dollars Five Hundred and Fifty
Thousand (US$550,000) shall be payable by five (5) equal, monthly
instalments of United States Dollars One Hundred and Ten Thousand
(US$110,000) each with instalment to be paid on 15 August 1996 and
thereafter on the 15th day of each calendar month until the full
balance is paid.
6. All payments shall be made by wire transfer to the account of SPI at Citi
Bank Number 0-708319-007. Instalment payments received later than five (5)
business days after the date such payments are due shall accrue interest at
the rate of twenty (20) percent per annum on the due date of payment amount
then due until such amount is paid. Notwithstanding anything contained in
this clause herein, in the event that Sandia defaults in payment of any of
the instalment on its due date, then, the full balance then outstanding
shall become immediately payable.
<PAGE>
7. Upon receipt of the Initial Payment, Sandia shall be entitled take delivery
of the items listed in Schedule 2 and 3. SPI shall take commercially
reasonable steps to prepare the said items ready for Sandia to take
delivery at SPI's designated premises. All costs of delivery and shipment
shall be borne by Sandia.
8. SPI hereby grants to Sandia a non-revocable right of first refusal, to be
exercisable within sixty (60) days from the date hereof, to be a non-
exclusive distributor of SPI for the product described in Part I of
Schedule 4 in the North American continent, South American continent and
Western Europe. SPI shall, after the execution of this Agreement, send to
Sandia an evaluation unit on SPI's standard terms and conditions. If Sandia
elects to become a distributor of the SPI product, then SPI shall provide
to Sandia such demonstration products and marketing materials as SPI deems
necessary. Sandia shall pay for the costs, to be agreed between the
Parties, of such demonstration products and marketing materials. SPI and
Sandia shall agree upon the terms of such distributorship agreement, which
terms shall be no less favourable than the terms granted to other existing
or future distributors of the same or similar SPI products, PROVIDED ALWAYS
that SPI shall be entitled to take into consideration the quantities to be
purchased by Sandia in deciding on such terms.
9. SPI hereby grants to Sandia a non-revocable right of first refusal, to be a
non-exclusive distributor of SPI for the product described in Part II of
Schedule 4 ("Multistation Printer") in the North American continent, South
American continent and Western Europe. Such option shall be exercisable
within sixty (60) days of the date of the written notice from SPI to Sandia
that SPI has a Multistation Printer ready for marketing. SPI shall, upon
the request of Sandia thereafter, send to Sandia an evaluation unit on
SPI's standard terms and conditions. If Sandia elects to become a
distributor of the Multistation Printer, then SPI shall provide to Sandia
such demonstration products and marketing materials as SPI deems necessary.
Sandia shall pay for the costs, to be agreed between the Parties, of such
demonstration products and marketing materials. SPI and Sandia shall agree
upon the terms of such distributorship agreement, which terms shall be no
lessless favourable than the terms granted to other existing or future
distributors of the same or similar SPI products, PROVIDED ALWAYS that SPI
shall be entitled to take into consideration the quantities to be purchased
by Sandia in deciding on such terms. If no other distributors of the
Multistation Printer exist, the terms (excluding the terms in relation to
price) shall be no less favourable than comparable terms for the SPI
product described in Clause 8.
10. SPI and Sandia acknowledge and agree that the Manufacturing Agreement shall
cease and determine with effect from the date hereof and all obligations of
any party thereto past or present whether arising thereunder or in
connection therewith shall be deemed to be fully discharged from the date
hereof and neither party shall bring any proceedings or make any claim
against the other in respect thereof.
<PAGE>
11. With regard to confidential information, disclosed by each party to the
other pursuant to the Manufacturing Agreement ("Disclosed Information") and
without prejudice to the generality of the provisions of Clause 1 hereof,
the parties agree with each other as follows:-
(a) Each party (the "Receiving Party") may use the Disclosed Information
received from the other party (the "Disclosing Party") for any purpose
of the Receiving Party and disclose the Disclosed Information to
another party, PROVIDED ALWAYS that the Receiving Party must bound the
recipient of the Disclosed Information to obligations of
confidentiality.
(b) The Disclosing Party grants to the Receiving Party immunity from suit
from, and hereby undertakes that it will take no action against the
Receiving Party in any court of law or other forum alleging or based
on, any claim in relation to infringement of copyright, intellectual
property rights or other rights or any other claims resulting from any
use or disclosure whatsoever made by the Receiving Party of the
Disclosing Party's Disclosed Information. The grant and undertaking
pursuant to this paragraph is given to the Receiving Party both:-
(i) for itself and
(ii) in the capacity of agent for any person (a "User") whom the
Receiving party has, in accordance to Clause 11 (a), either
directly or indirectly (through another User) permitted to use
and/or disclose the Disclosing Party's Disclosed Information,
whether as sub-licensee or otherwise, to the intent that all
such Users shall benefit from and may enforce such grant and
undertaking as if they were the Receiving Party and signatories
to this Agreement.
(c) The parties further agree that in respect of Disclosed Information
disclosed by the Disclosing Party to the Receiving Party, the
Disclosing Party hereby grants the Receiving Party a free of charge,
fully paid up, irrevocable, worldwide, non-exclusive license to do any
act in relation to such Disclosed Information which would be an
infringement of any copyright or other intellectual property right of
the Disclosing Party, including without limitation copying, modifying
and sub-licensing or otherwise using such Disclosed Information,
including any code, design or other feature or information comprised
therein or extracted therefrom.
(d) It is the intention of the Parties hereto that neither Party waive any
right to preserve trade secrets or any other confidential or
proprietary information as to any other person or entity not a party
to this Agreement except as provided herein. SPI and Sandia agree to
cooperate in taking reasonable steps to preserve the confidentiality
of the Confidential Information.
<PAGE>
12. This Agreement sets forth the entire intent and understanding of the
parties relating to the settlement of the disputes in relation of the
Manufacturing Agreement. This Agreement may not be amended unless the
amendment is in writing and is executed by both parties.
13. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the United Kingdom, Disputes will be settled by
binding arbitration conducted in London, England in accordance with the
rules of the International Chamber of Commerce. All arbitration
proceedings, arguments, and briefs shall be in English.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers or representatives thereunto duly authorised the
day and year first above written.
SIGNED BY ) Chong Phit Lian
for and on behalf of )
SINGAPORE PRECISION INDUSTRIES PTE LTD )
in the presence of:- Chin Kin Wei ) Chong Phit Lian
SIGNED BY ) Jean-Pierre Arnaudo
for and on behalf of )
SANDIA IMAGING SYSTEMS CORPORATION )
in the presence of:- Jean-Pierre Arnaudo ) Valeria Mauge
<PAGE>
EXHIBIT 10.2
LASERTECHNICS, INC.
REGULATION D SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES
REVIEWED OR DETERMINED THE ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SUBSCRIBERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE
RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE
DOCUMENTS AS EXHIBIT D.
SEE ADDITIONAL LEGENDS AT SECTION 9.
THIS SUBSCRIPTION AGREEMENT ("Agreement") is made as of the 29th day
of July, 1996, by and between of Lasertechnics, Inc., a corporation duly
organized and existing under the laws of the State of Delaware (the "Company"),
and the Subscriber executing this Agreement ("Subscriber").
THE PARTIES HEREBY AGREE AS FOLLOWS:
This Regulation D Securities Subscription Agreement (the "Agreement") is
executed by the undersigned (the "Subscriber") in connection with the offer and
purchase by the undersigned of Series D Preferred Stock, $.01 par value (the
"Preferred Stock"), of Lasertechnics, Inc., a Delaware corporation (the
"Company"). The Preferred Stock is being offered at a purchase price of Ten
Thousand Dollars ($10,000), U.S., per share, in minimum subscription amounts of
at least ten (10) shares ($100,000), and increments of one (1) share ($10,000)
in excess thereof, with a minimum aggregate offering amount of Five Hundred
(500) shares of Preferred Stock, or Five Million Dollars ($5,000,000) (the
"Minimum Amount"), and up to a maximum aggregate amount of Eight Hundred Fifty
(850) shares of Preferred Stock, or Eight Million Dollars ($8,500,000) (the
"Maximum Amount") (collectively, the "Offering"). The terms of the Preferred
Stock, including the terms on which the Preferred Stock may be converted into
common stock, $.01 par value, of the Company (the "Common Stock"), are set forth
in the Certificate of Designation of Series D Preferred Stock (the "Certificate
of Designation"), substantially in the form attached hereto as Exhibit A. The
solicitation of this Subscription and, if accepted by the Company, the offer and
sale of the Preferred Stock are being made in reliance upon the provisions of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as
amended ("the Act"). The Preferred Stock and the Common Stock issuable upon
conversion thereof (the "Conversion Shares") are sometimes referred to herein
collectively as the "Securities."
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It is agreed as follows:
1. Offering
1.1 Offer to Subscribe; Purchase Price and Closing; and Placement
Fees.
Subject to satisfaction of the conditions to closing set forth in Section 1.2
below, the Subscriber hereby offers to subscribe for and purchase Preferred
Stock, for the aggregate purchase price in the amount set forth in Section 10 of
this Agreement, in accordance with the terms and conditions of this Agreement.
Assuming that the Minimum Amount and corresponding subscription agreements
accepted by the Company are received into the Company's designated escrow
account for this Offering (the "Escrow Account"), the closing of a sale and
purchase of Preferred Stock as to each Subscriber (the "Closing") shall be
deemed to occur when this Agreement has been executed by both the Subscriber and
the Company and full payment shall have been made by the Subscriber, by wire
transfer to the Company's designated escrow account as set forth in Section
7.1(a) for payment in consideration for the Company's delivery of certificates
representing the Preferred Stock subscribed for.
The parties hereto acknowledge that Swartz Investments, LLC is acting as
placement agent ("Placement Agent") for this Offering and will be compensated by
the Company in cash and warrants to purchase Common Stock of the Company.
Placement Agent has acted solely as placement agent in connection with the
Offering by the Company of the Preferred Stock pursuant to this Agreement. The
information and data contained in the Disclosure Documents (as defined in
Section 4.2) have not been subjected to independent verification by Placement
Agent, and no representation or warranty is made by Placement Agent as to the
accuracy or completeness of the information contained in the Disclosure
Documents.
The Company and each of the Subscribers acknowledge that the Matthew Fund, N.V.
(the "Fund"), which is managed by affiliates of the Placement Agent, may
subscribe for securities in the Offering. The parties acknowledge that neither
the Placement Agent nor any of its affiliates shall be under any obligation to
advise the Company or the Subscribers of the activities of the Fund with respect
to such securities following the consummation of the Offering. Such
acknowledgment shall not act as a waiver of any obligation required by law or
written agreement of which the Fund is a party. It is understood that the Fund
will act independently of the Placement Agent and may take action with respect
to such investment which may be inconsistent or contrary to any action or
interest of the Placement Agent, the Company or any of the Subscribers.
1.2 Conditions to Subscriber's Obligations. The Subscriber's
obligations hereunder are conditioned upon all of the following:
(a) the following documents shall have been deposited with the
Company's escrow agent for this Offering ("Escrow Agent"): the
Registration Rights Agreement, substantially in the form attached
hereto as Exhibit B (executed by the Company), the Opinion of Counsel,
substantially in the form attached hereto as Exhibit C (signed by
Company's counsel), and the Certificate of Designation, substantially
in the form attached hereto as Exhibit A (together with evidence
showing that it has been filed with the Secretary of State of
Delaware);
(b) the Company's Common Stock shall be listed for and actively
trading on the Nasdaq-Small Cap Market;
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(c) other than losses described in the Risk Factors and Recent
Developments as set forth in Section 2.2.4 below there have been no
material adverse changes in the Company's business prospects or
financial condition since the date of the last balance sheet included
in the Disclosure Documents (defined below in Section 4.2), including
but not limited to incurring material liabilities;
(d) the representations and warranties of the Company are true and
correct in all material respects on the Closing date as if made on
such date, and the Company shall deliver a certificate, signed by an
officer of the Company, to such effect to the Escrow Agent;
(e) the Minimum Amount and corresponding subscription agreements
accepted by the Company have been received by the Escrow Agent; and
(f) the Company shall have reserved for issuance upon conversion of
the Preferred Stock a sufficient number of shares of Common Stock
which number of shares shall initially be equal to Six Million
(6,000,000) shares.
2. Representations and Warranties of the Subscriber. Subscriber hereby
represents and warrants to the Company as follows:
2.1 Accredited Investor. Subscriber hereby represents and warrants
to the Company that it is an accredited investor, as defined in Rule 501 of
Regulation D, and has checked the applicable box set forth in Section 10 of this
Agreement.
2.2 Investment Experience; Access to Information; Independent
Investigation.
2.2.1 Access to Information. The Subscriber or his professional
advisor has been granted the opportunity to ask questions of and receive
answers from representatives of the Company, its officers, directors, employees
and agents concerning the terms and conditions of this offering, the Company and
its business and prospects, and to obtain any additional information which the
Subscriber or his professional advisor deems necessary to verify the accuracy of
the information received.
2.2.2 Reliance on Own Advisors. The Subscriber has relied completely
on the advice of, or has consulted with, his own personal tax, investment, legal
or other advisors and has not relied on the Company or any of its affiliates,
officers, directors, attorneys, accountants or any affiliates of any thereof and
each other person, if any, who controls any thereof, within the meaning of
Section 15 of the Act for any tax or legal advice (other than reliance on
information in the Disclosure Documents as defined in Section 2.2.4 below). The
foregoing, however, does not limit or modify the subscriber's right to rely upon
representations and warranties of the Company in Section 4 of this Agreement.
2.2.3 Capability to Evaluate. The Subscriber has such knowledge and
experience in financial and business matters so as to enable such Subscriber to
utilize the information made available to it in connection with the Offering in
order to evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 2.2.4 below).
2.2.4 Disclosure Documents. The Subscriber, in making its investment
decision to subscribe for the Securities hereunder, represents that (a) it has
received and had an opportunity to review (i) the Company's Annual Report on
Form 10-KSB / A-3 for the year ended December 31, 1995, (ii) the Company's
quarterly report on Form 10-QSB filed with the
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Commission for the quarter ending March 31, 1996, (iii) the Company's proxy
statements for the Company's 1996 annual meeting and for the Company's special
meeting of shareholders held on July 28, 1995, (iv) Risk Factors, attached as
Exhibit D, (v) Capitalization Schedule, attached as Exhibit E, (vi) Use of
Proceeds, attached as Exhibit F, and (vii) Recent Developments and Tax
Considerations, attached as Exhibit G, (b) it has read, reviewed, and relied
solely on the documents described in (a) above, the Company's representations
and warranties and other information in this Subscription Agreement, including
the Exhibits, any other written information prepared by the Company which has
been specifically provided to the Subscriber in connection with this Offering
(together, the "Disclosure Documents"), and an independent investigation made by
it and its representatives, if any; (c) it has, prior to the date of this
Subscription Agreement, been given an opportunity to review material contracts
and documents of the Company which have been filed as exhibits to the Company's
filings under the Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has had an opportunity to ask questions of and receive
answers from the Company's officers and directors; and (d) is not relying on any
oral representation of the Company or any other person, nor any written
representation or assurance from the Company other than those referred to in
Section 4 or otherwise contained in the Disclosure Documents or incorporated
herein or therein. The foregoing, however, does not limit or modify the
Subscriber's right to rely upon representations and warranties of the Company in
Section 4 of this Agreement. Also, the Company has not relied on statements made
in the analyst report dated July 8, 1996 sent to Subscriber by Placement Agent.
2.2.5 Investment Experience; Fend for Self. Subscriber has
substantial experience in investing in securities and has made investments in
securities other than those of the Company. Subscriber acknowledges that it is
able to fend for itself in the transaction contemplated by this Agreement, that
it has the ability to bear the economic risk of its investment pursuant to this
Agreement and that it is an "Accredited Investor" by virtue of the fact that it
meets the Subscriber qualification standards set forth in Section 2.1 above.
Subscriber has not been organized for the purpose of investing in securities of
the Company, although such investment is consistent with its purposes.
2.3 Exempt Offering Under Regulation D.
2.3.1 Investment; No Distribution. The Subscriber is acquiring the
Securities solely for the Subscriber's own account for investment purposes as a
principal and not with a view to immediate resale or distribution of all or any
part thereof. The Subscriber is aware that there are legal and practical limits
on the Subscriber's ability to sell or dispose of the Securities and, therefore,
that the Subscriber must bear the economic risk of the investment for an
indefinite period of time and has adequate means of providing for the
Subscriber's current needs and possible personal contingencies and has need for
only limited liquidity of this investment. The Subscriber's commitment to
illiquid investments is reasonable in relation to the Subscriber's net worth.
2.3.2 No General Solicitation. The Securities were not offered to
the Subscriber through, and the Subscriber is not aware of, any form of general
solicitation or general advertising, including, without limitation, (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
2.3.3 Restricted Securities. Subscriber understands that the
Preferred Stock is, and the Conversion Shares will be, characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may not be
transferred or resold without registration under the Act or pursuant to an
exemption
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<PAGE>
therefrom. In this connection, Subscriber represents that it is familiar with
Rule 144 under the Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
2.3.4 Disposition. Without in any way limiting the representations
set forth above, Subscriber further agrees not to make any disposition of all or
any portion of the Securities unless and until:
(a) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Subscriber shall have notified the Company in advance of
the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed
disposition, and (ii) if reasonably requested by the Company,
Subscriber shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition
will not require registration of the Securities under the Act. It is
agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual
circumstances.
2.4 Due Authorization.
2.4.1 Authority. The Subscriber, if executing this Subscription
Agreement in a representative or fiduciary capacity, has full power and
authority to execute and deliver this Subscription Agreement and each other
document included herein for which a signature is required in such capacity and
on behalf of the subscribing individual, partnership, trust, estate, corporation
or other entity for whom or which the Subscriber is executing this Subscription
Agreement. The Subscriber has reached the age of majority (if an individual)
according to the laws of the state in which he resides, has adequate means for
providing for his current needs and personal contingencies, is able to bear the
economic risk of his investment in the Securities for an indefinite period of
time and could afford a complete loss of such investment. The Subscriber's
commitment to illiquid investments is reasonable in relation to the Subscriber's
net worth.
2.4.2 Due Authorization. If the Subscriber is a corporation, the
Subscriber is duly and validly organized, validly existing and in good tax and
corporate standing as a corporation under the laws of the jurisdiction of its
incorporation with full power and authority to purchase the Securities to be
purchased by it and to execute and deliver this Subscription Agreement.
2.4.3 Partnerships. If the Subscriber is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners in the Subscriber (and if any such partner is
itself a partnership, all persons holding an interest in such partnership,
directly or indirectly, including through one or more partnerships), and the
person executing this Agreement has made due inquiry to determine the
truthfulness of the representations and warranties made hereby.
2.4.4 Representatives. If the Subscriber is purchasing in a
representative or fiduciary capacity, the above representations and warranties
shall be deemed to have been made on behalf of the person or persons for whom
the Subscriber is so purchasing.
3. Acknowledgments The Subscriber is aware that:
3.1 Risks of Investment. The Subscriber recognizes that investment in
the Company involves substantial risks, including the potential loss of the
Subscriber's entire
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investment herein. The Subscriber recognizes that this Agreement and the
exhibits hereto do not purport to contain all the information which would be
contained in a registration statement under the Act;
3.2 No Government Approval. No federal or state agency has passed upon
the securities or made any finding or determination as to the fairness of this
transaction;
3.3 No Registration. The securities and any component thereof have not
been registered under the Act or any applicable state securities laws by reason
of exemptions from the registration requirements of the Act and such laws, and
may not be sold, pledged, assigned or otherwise disposed of in the absence of an
effective registration statement for the Securities and any component thereof
under the Act or unless an exemption from such registration is available;
3.4 Restrictions on Transfer. The Subscriber will not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws;
3.5 No Assurances of Registration. There can be no assurance that any
registration statement will become effective at the scheduled time. Therefore,
the Subscriber may bear the economic risk of the Subscriber's investment for an
indefinite period of time.
3.6 Exempt Transaction. The Subscriber understands that the Securities
are being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and that the representations,
warranties, agreements, acknowledgments and understandings set forth herein are
being relied upon by the Company in determining the applicability of such
exemptions and the suitability of the Subscriber to acquire such Securities.
3.7 Legends. It is understood that the certificates evidencing the
Preferred Stock and the Conversion Shares shall bear the following legend (prior
to registration as provided in Section 5.1):
"The securities represented hereby have not been registered under the
Securities Act of 1933, or applicable state securities laws, nor the
securities laws of any other jurisdiction. They may not be sold or
transferred in the absence of an effective registration statement
under those securities laws or pursuant to an exemption therefrom."
4. Representations and Warranties of the Company The Company hereby
makes the following representations and warranties to the Subscribers (which
shall be true at the signing of this Agreement, as of Closing, and as of any
such later date as contemplated hereunder) and agrees with the Subscribers that:
4.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware USA and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the business or properties of the Company and its subsidiaries taken
as a whole. The Company is not the subject of any pending, threatened or, to
its knowledge, contemplated investigation or administrative or legal proceeding
by the Internal Revenue Service, the taxing authorities of any state or local
jurisdiction, or the Securities and Exchange Commission ("SEC"), or any state
securities commission, or any other governmental entity, which have not been
disclosed in the Disclosure Documents.
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4.2 Corporate Condition. The Company's condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the Company. There have been no material
adverse changes to the Company's business, financial condition, or prospects
since the date of such reports. The financial statements contained in the
Disclosure Documents have been prepared in accordance with generally accepted
accounting principles, consistently applied (except as otherwise permitted by
Regulation S-X of the Exchange Act), and fairly present the consolidated
financial condition of the Company as of the dates of the balance sheets
included therein and the consolidated results of its operations and cash flows
for the period then ended. Without limiting the foregoing, there are no material
liabilities, contingent or actual, that are not disclosed in the Disclosure
Documents (other than liabilities incurred by the Company in the ordinary course
of its business, consistent with its past practice, after the period covered by
the Disclosure Documents). The Company has paid all material taxes which are
due, except for taxes which it reasonably disputes. There is no material claim,
litigation, or administrative proceeding pending, or, to the best of the
Company's knowledge, threatened against the Company, except as disclosed in the
Disclosure Documents. This Agreement and the Disclosure Documents do not contain
any untrue statement of a material fact and do not omit to state any material
fact required to be stated therein or herein necessary to make the statements
contained therein or herein not misleading in the light of the circumstances
under which they were made.
4.3 Authorization. Except for the filing of the Certificate of
Designation, all corporate action on the part of the Company by its officers,
directors and shareholders necessary for the authorization, execution and
delivery of this Agreement, the performance of all obligations of the Company
hereunder and the authorization, issuance and delivery of the Preferred Stock
being sold hereunder and issuance (and reservation for issuance) of the
Conversion Shares have been taken, and this Agreement, the Certificate of
Designation, and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
except insofar as the enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally or by principles governing the availability of equitable remedies.
Company has obtained all consents and approvals required for it to execute,
deliver and perform this Agreement.
4.4 Valid Issuance of Preferred Stock and Common Stock. The Preferred
Stock, when issued, sold and delivered in accordance with the terms hereof, for
the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of the Subscriber in
this Agreement, will be issued in compliance with all applicable U.S. federal
and state securities laws. The Common Stock issuable upon conversion of the
Preferred Stock when issued in accordance with the terms of the Certificate of
Designation shall be duly and validly issued and outstanding, fully paid and
nonassessable, and based in part on the representations and warranties of
Subscriber of the Preferred Stock, will be issued in compliance with all
applicable U.S. federal and state securities laws. The Preferred Stock and the
Conversion Shares will be issued free of any preemptive rights. The Company
currently has Six Million (6,000,000) Conversion Shares reserved for issuance
upon conversion of the Preferred Stock.
4.5 Compliance with Other Instruments. The Company is not in violation or
default of any provisions of its Certificate of Incorporation or Bylaws as
amended and in effect on and as of the date of the Agreement or of any material
provision of any material instrument or contract to which it is a party or by
which it is bound or, to its knowledge, of any provision of any federal or state
judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse affect on the
Company's business or prospects, except as described in the Disclosure
Documents. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
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time and giving of notice, either a default under any such provision, instrument
or contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company.
4.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since June 30, 1995. The Company undertakes to furnish the
Subscriber with copies of such reports as may be reasonably requested by the
Subscriber prior to consummation of this Offering and thereafter as long as the
Subscriber holds the Securities.
4.7 Capitalization. The capitalization of the Company as of June 30,
1996, is, and the capitalization as of the Closing, after taking into account
the offering of the Securities contemplated by this Agreement and all other
share issuances occurring prior to this offering, will be, as set forth in the
capitalization statement and the pro-forma capitalization statement of the
Company set forth in Exhibit E.
4.8 Intellectual Property. The Company has valid, unrestricted and
exclusive patents, trademarks, trademark registrations, trade names, copyrights,
know-how, technology and other intellectual property necessary to the conduct of
its business. Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid, unrestricted and exclusive
patents, trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business. Company has been granted licenses, know-how, technology and/or other
intellectual property necessary to the conduct of its business. To the best of
Company's knowledge, the Company is not infringing on the intellectual property
rights of any third party, nor is any third party infringing on the Company's
intellectual property rights. There are no restrictions in any agreements,
licenses, franchises, or other instruments which preclude the Company from
engaging in its business as presently conducted.
4.9 Use of Proceeds. As of the date hereof, the Company expects to
use the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth as Exhibit F hereto. These purposes
and amounts are estimates and are subject to change without notice to any
Subscriber.
4.10 No Rights of Participation. No person or entity, including, but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
4.11 Representations Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive the Closing and the issuance of the shares of
Preferred Stock.
4.12 Termination Date of Offering. In no event shall the last
closing ("Last Closing") of a sale and purchase of a Preferred Stock occur later
than July 31, 1996, which date can be extended by up to ten (10) days upon
written approval by the Company and Placement Agent.
4.13 Underwriter's Fees and Rights of First Refusal. The Company is
not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Placement Agent in connection with this Offering.
8
<PAGE>
5. Covenants of the Company
5.1 Independent Auditors. The Company shall, until at least three
(3) years after the date of the Last Closing, maintain as its independent
auditors an accounting firm authorized to practice before the SEC.
5.2 Corporate Existence and Taxes. The Company shall, until at least
the later of the date that is three (3) years after the date of the Last Closing
or the conversion or redemption of all of the Preferred Stock purchased pursuant
to this Agreement maintain its corporate existence in good standing (provided,
however, that the foregoing covenant shall not prevent the Company from entering
into any merger or corporate reorganization as long as the surviving entity in
such transaction, if not the Company, assumes the Company's obligations with
respect to the Preferred Stock and has Common Stock listed for trading on a
stock exchange or on Nasdaq and is a "Reporting Issuer") and shall pay all its
taxes when due except for taxes which the Company disputes.
5.3 Registration Rights. The Company will enter into a registration
rights agreement covering the resale of the Conversion Shares substantially in
the form of the Registration Rights Agreement attached as Exhibit B)
5.4 Notification of Final Closing Date by Company. Within five (5)
business days after the Last Closing, the Company shall notify the Subscriber in
writing that the Last Closing has occurred, the date of the Last Closing, the
dates that the subscribers are entitled to convert the respective portions of
their Preferred Stock, the value of the Fixed Conversion Price, as that term is
defined in the Certificate of Designation, and the name and telephone number of
an administrative contact person at the Company whom the Subscriber may contact
regarding information related to conversion of the Preferred Stock and/or
advance notice of redemption as contemplated by the Certificate of Designation.
5.5 Filing of S-3 Registration Statement. The Company shall, within
20 days of the Last Closing, file a registration statement ("Registration
Statement") on Form S-3 (or other suitable form, at the Company's discretion but
subject to the reasonable approval of the Subscribers) with the SEC, covering
the resale of the Conversion Shares issuable to all Subscribers in this
Offering. The Company shall, within 30 days of the Last Closing, send a copy of
the Registration Statement to the Subscribers. Such Registration Statement
shall initially cover a number of Conversion Shares equal to at least Six
Million (6,000,000) shares of Common Stock. The Company shall use best efforts
to have the Registration Statement declared effective as soon as possible. The
rights of the holders of Common Stock and Warrant Shares to have their
securities registered under the Registration Statement are set forth in the
Registration Rights Agreement ("Registration Rights Agreement"), attached hereto
as Exhibit B. If the Registration Statement (as defined in the Registration
Rights Agreement) is not declared effective within 90 days after the last
Closing, Company shall pay the Subscribers an amount equal to two percent (2%)
per month of the aggregate amount of Preferred Stock sold to Subscriber in the
Offering, compounded monthly and accruing daily until the Registration Statement
or a registration statement filed pursuant to Section 3 or Section 4 of the
Registration Rights Agreement is declared effective (the "Late Registration
Payment"), payable in Common Stock, as follows:
Upon conversion of each share of Preferred Stock, the numerator of the
Conversion Rate formula (which formula is set forth in Section 5(a) of the
Certificate of Designation) shall be increased by the amount of the Late
Registration Payment attributable to such share, as set forth below:
= Late Registration Payment + [(.08)(N/365)($10,000)] + $10,000
---------------------------------------------------------------
Conversion Price
9
<PAGE>
Such common stock shall also be deemed "Registrable Securities" as defined in
the Registration Rights Agreement. The Company covenants to use best efforts to
remain eligible to use form S-3 for the registration required by this Section
5.1 during all applicable times contemplated by this Agreement.
5.6 Capital Raising Limitations; Rights of First Refusal.
5.6.1 Capital Raising Limitations. The Company shall not issue any
debt or equity securities for cash in private capital raising transactions
("Future Offerings") for a period beginning on the date hereof and ending one
hundred twenty (120) days after the Last Closing without obtaining the prior
written approval of Subscribers holding a majority of the purchase price of
Preferred Stock then outstanding.
5.6.2 Subscriber's180 Day Right of First Refusal. The Company will
not conduct any Future Offerings for a period beginning on the date hereof and
ending one hundred eighty (180) days after the Last Closing without delivering
to the Subscriber, at least seven (7) days prior to the closing of such
issuance, written notice describing the proposed issuance and the terms upon
which such securities are being issued, and providing the Subscriber the option
during such seven (7) day period to purchase the securities being offered in the
Future Offerings on the same terms as contemplated by such Future Offerings and
in the amount set forth below (the limitations referred to in this and the
immediately preceding sentence are collectively referred to as the "Capital
Raising Limitation").
5.6.3 Amount of Subscriber's Right of First Refusal. The amount of
securities which a Subscriber is entitled to purchase in such a Future Offering
shall be a number obtained by multiplying the aggregate amount of securities
being offered in the Future Offering by a fraction, the numerator of which is
the purchase price of the Preferred Stock purchased by the Subscriber pursuant
to this Agreement and the denominator of which is the aggregate dollar amount of
Preferred Stock placed in this Offering.
5.6.4 Exceptions to the Capital Raising Limitation. The Capital
Raising Limitation shall not apply to any transaction involving the Company's
commercial banking arrangements or issuances of securities in connection with a
merger, consolidation or purchase or sale of assets, or in connection with or as
part of the same transaction as a joint venture or other acquisition or
disposition of a business, a product or a license by the Company or exercise of
options by employees, consultants or directors or any transaction with a
strategic corporate partner. The Capital Raising Limitation also shall not apply
to the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of June 30,
1996, or to the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option, or restricted stock plan.
Additionally, the Capital Raising Limitation shall not apply to any public
offerings undertaken by the Company or to any offerings of debt or equity
securities to Wolfensohn Partners L.P. or its affiliates.
5.7 Financial 10-K Statements, Etc. and Current Reports on Form 8-K.
The Company shall provide Subscriber with copies of its annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on form 8-K for as long
as the Preferred Stock may remain outstanding.
5.8 Opinion of Counsel. Subscribers shall, upon purchase of the
Preferred Stock pursuant to this Agreement, receive an opinion letter from Baker
& Botts, LLP, counsel to the Company, to the effect that (i) the Company is duly
incorporated and validly existing; (ii) this Agreement, the issuance of the
Preferred Stock, and the issuance of the Conversion Shares upon conversion of
the Preferred Stock have been duly approved by all required corporate action,
and
10
<PAGE>
that all such securities, upon due issuance, shall be validly issued fully paid
and non-assessable; (iii) this Agreement, the Registration Rights Agreement, and
the Escrow Agreement are valid and binding obligations of the Company,
enforceable in accordance with their terms, except as enforceability of the
indemnification provisions may be limited by principles of public policy, and
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of laws governing specific performance and other
equitable remedies; and (iv) based upon the representation and acknowledgments
of the Subscribers contained in Sections 2 and 3 hereof, the Preferred Stock has
been, and the Conversion Shares will be, issued in a transaction that is exempt
from the registration requirements of the Securities Act and applicable state
securities laws; and (v) the Conversion Shares are authorized for listing on the
Nasdaq Small Cap Market subject to notice of issuance.
5.9 Payments for Late Conversion or Failure to Reserve Authorized but
Unissued Common.
(a) Payments for Late Conversion. As set forth in the Certificate of
Designation, the Company shall use its best efforts to issue and surrender to a
common courier, within two (2) business days, and shall in any event issue and
surrender to a common courier, within three (3) business days (the "Deadline")
after the Subscriber has fulfilled all conditions and delivered all necessary
documents duly executed and in proper form, required for conversion, including
the original certificate(s) representing the Preferred Stock to be converted,
all in accordance with the subscription documents (or, in the case of lost or
stolen certificates, after provision of security or indemnification) , a
certificate or certificates for the number of Conversion Shares to which the
holder of Preferred Stock ("Holder") shall be entitled as upon submission of a
notice of conversion, for overnight or two (2) day delivery to such Holder at
the address of the stockholder records on the books of the Company. The Company
understands that a delay in the issuance of the Conversion Shares beyond the
Deadline could result in economic loss to the Holder. As compensation to the
Holder for such loss, the Company agrees to pay Holder for late issuance of
Conversion Shares upon Conversion in accordance with the following schedule
(where "No. Business Days Late" is defined as the number of business days beyond
the Deadline):
<TABLE>
<CAPTION>
Late Payment
For Each Preferred
No. Business Days Late Share Being Converted
---------------------- ---------------------
<S> <C>
1 $ 50
2 $100
3 $150
4 $200
5 $250
6 $300
7 $350
8 $400
9 $450
10 $500
>10 $500 + $100 for each
Business Day Late beyond 10 days
</TABLE>
To the extent that the failure of the Company to issue the Conversion
Shares pursuant to this Section 5.9 is due to the unavailability of authorized
but unissued
11
<PAGE>
shares of Common Stock, the provisions of Section 5.9(a) shall not apply but
instead the provisions of Section 5.9(b) shall apply.
The Company shall pay any late payments to Holder incurred under this
Section by check within seven (7) business days from the date of issuance of
Conversion Shares. Nothing herein shall limit the Holder's right to pursue
actual damages for the Company's failure to issue and deliver Conversion Shares
to the Subscriber in accordance with the terms of the Certificate of
Designation.
(b) Payments for Failure to Reserve Authorized but Unissued Common.
If, at any time a Holder or Holders of Preferred Stock submit a Notice of
Conversion (as defined in the Certificate of Designation) and the Company does
not have sufficient authorized but unissued Conversion Shares available to
effect, in full, a conversion of the Preferred Stock under Section 5 of the
Certificate of Designation (a "Conversion Default", the date of such default
being referred to herein as the "Conversion Default Date"), the Company shall
issue to such Holder(s), pro rata, all of the Conversion Shares which are
available, and the Notice of Conversion as to any shares of Preferred Stock
requested to be converted but not converted (the "Unconverted Preferred
Conversion Shares") shall become null and void. The Company shall provide notice
of such Conversion Default ("Notice of Conversion Default") to all Holders of
outstanding Preferred Stock, by facsimile, within one (1) business day of such
default (with the original delivered by overnight or two (2) day courier). No
Holder may submit a Notice of Conversion after receipt of a Notice of Conversion
Default until the date additional Conversion Shares are authorized by the
Company. The Company will use best efforts to authorize an appropriate number of
additional Conversion Shares as soon as practicable.
If the Company is unable to cure the Conversion Default within 75
days, then the Company agrees to pay to all Holders of outstanding Preferred
Stock payment ("Conversion Default Payments") for a Conversion Default in the
amount of (N/365) X .24 X the initial issuance price of the outstanding
Preferred Stock held by each Holder where N = the number of days from the
Conversion Default Date to the date (the "Authorization Date") that the Company
authorizes a sufficient number of Conversion Shares to effect conversion of all
remaining shares of Preferred Stock. The Company shall send notice
("Authorization Notice") via facsimile, with a copy by overnight or two (2) day
courier, to all Holders of outstanding Preferred Stock that additional
Conversion Shares have been authorized, the Authorization Date and the amount of
Holder's accrued Conversion Default Payments. The accrued Conversion Default
Payments for each calendar month shall be paid in cash or shall be convertible
into Common Stock at the Conversion Rate, at the Holder's option, payable as
follows: (i) in the event Holder elects to take such payment in cash, cash
payments shall be made to each Holder of outstanding Preferred Stock by the
fifth (5th) day of the following calendar month or (ii) in the event Holder
elects to take such payment in stock, the Holder may convert such payment amount
into Common Stock at the Conversion Rate at anytime after the fifth (5th) day of
the calendar month following the month the Authorization Notice was received,
until the automatic conversion date set forth in the Certificate of Designation.
Nothing herein shall limit Holder's right to pursue actual damages for
the Company's failure to maintain a sufficient number of authorized shares of
Common Stock.
5.10 Removal of Legend Upon Conversion. The legends will be removed
from the Common Stock upon conversion, assuming that, at the time of such
conversion, either (i) the Registration Statement is effective or (ii) the
shares of Common Stock are eligible for resale under Rule 144, without volume
limitations. The Subscriber agrees that it will only sell such shares of
12
<PAGE>
Common Stock pursuant to the Registration Statement or an available exemption
and agrees to deliver a prospectus in connection with any sale made pursuant to
the Registration Statement.
5.11 Listing. The Company shall use its best efforts to maintain the
listing of the shares of Common Stock on Nasdaq-Small Cap Market or National
Market System or another national securities exchange or quotation system.
6. Subscriber Covenant/Miscellaneous
6.1 Representations and Warranties Survive the Closing; Severability.
The Subscriber's and the Company's representations and warranties shall survive
the closing of the transaction notwithstanding any due diligence investigation
made by or on behalf of the party seeking to rely thereon. In the event that any
provision 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.
6.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Subscriber may assign its rights hereunder, in connection
with any private sale of the Preferred Stock of such Subscriber, so long as, as
a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement.
6.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware without respect to conflict of laws.
6.4 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
6.5 Titles and Subtitles; Gender. 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. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
6.6 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or the Subscriber pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile (with a hard copy to follow by two (2) day courier),
addressed to the parties at the addresses and/or facsimile telephone number of
the parties set forth at the end of this Agreement or such other address as a
party may request by notifying the other in writing.
6.7 Expenses. Each of the Company and the Subscriber shall pay all
costs and expenses that it respectively incurs, with respect to the negotiation,
execution, delivery and performance of this Agreement.
6.8 Entire Agreement; Written Amendments Required. This Agreement,
the Certificate of Designation, the Preferred Stock certificates, the
Registration Rights Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants
13
<PAGE>
except as specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
7. Subscription and Wiring Instructions; Irrevocability.
7.1 Subscription
(a) Wire transfer of Subscription Funds. Subscriber shall send its
signed Subscription Agreement by facsimile to Placement Agent at (770) 640-7150,
and send its subscription funds by wire transfer, to the Escrow Agent as
follows:
First Union National Bank
ABA No. 053000219
Account No. 465946/Trust Ledger
ATTN: Claire Moore
Reference:
Acct Name: Lasertechnics, Inc./Swartz Investments, LLC
Ref: Subscriber's Name
A/C: 3072233513
Contact: Nicole Stefanini
Telephone No.: (404) 827-7326
SWIFT Code: FUNBUS33
(b) Irrevocable Subscription. The Subscriber hereby acknowledges and
agrees, subject to the provisions of any applicable laws providing for the
refund of subscription amounts submitted by the Subscriber, that this Agreement
is irrevocable and that the Subscriber is not entitled to cancel, terminate or
revoke this Agreement or any other agreements executed by such Subscriber and
delivered pursuant hereto, and that this Agreement and such other agreements
shall survive the death or disability of such Subscriber and shall be binding
upon and inure to the benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and assigns. If the
Securities subscribed for are to be owned by more than one person, the
obligations of all such owners under this Subscription Agreement shall be joint
and several, and the agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and be binding upon each such
person and his heirs, executors, administrators, successors, legal
representatives and assigns. Notwithstanding the foregoing, (i) if the
Disclosure Documents are discovered prior to Closing to contain statements which
are materially inaccurate, or omit statements of material fact, the Subscriber
may revoke or cancel this Agreement, or (ii) if the Subscriber executes this
Agreement prior to receiving the Recent Developments, Subscriber may revoke or
cancel this Agreement within forty-eight (48) hours of receiving the Recent
Developments.
(c) Company's Right to Reject Subscription. The Subscriber
understands that this Subscription Agreement is not binding on the Company until
the Company accepts it. This Agreement shall be accepted by the Company when
the Company countersigns this Agreement. The Subscriber hereby confirms that
the Company has full right in its sole discretion to accept or
14
<PAGE>
reject the subscription of the Subscriber, in whole or in part, provided that,
if the Company decides to reject such subscription, the Company must do so
promptly and in writing. In the case of rejection, the Company will promptly
return any rejected payments and (if rejected in whole) copies of all executed
subscription documents (including without limitation this Agreement) to
Subscriber (with any earned interest).
7.2 Acceptance of Subscription. In the case of acceptance of the
Subscriber's subscription, ownership of the number of securities being purchased
hereby will pass to the Subscriber upon the Closing.
7.3 Subscriber to Forward Original Signed Subscription Agreement to
Company. Subscriber agrees to courier to Company his, her or its original inked
signed Subscription Agreement within two (2) days after faxing said signed
agreement to Placement Agent.
8. Indemnification.
The Company agrees to indemnify and hold harmless Subscriber and Placement
Agent and each of their officers, directors, employees and agents, and each
person who controls Subscriber or Placement Agent within the meaning of the Act
or the Exchange Act (each, a "Subscriber Indemnified Party") against any losses,
claims, damages or liabilities, joint or several, to which it, they or any of
them, may become subject and not otherwise reimbursed arising from or due to any
untrue statement of a material fact or the omission to state any material fact
required to be stated in order to make the statements not misleading in any
representation or warranty made by the Company contained in this Agreement or in
any statements contained in the Disclosure Documents.
The Subscriber agrees to indemnify and hold harmless Company and Placement
Agent and each of their officers, directors, employees and agents, and each
person who controls Company or Placement Agent within the meaning of the Act or
the Exchange Act (each, a "Company Indemnified Party") (a Subscriber Indemnified
Party or a Company Indemnified Party may be hereinafter referred to singularly
as "Indemnified Party") against any losses, claims, damages or liabilities,
joint or several, to which it, they or any of them, may become subject and not
otherwise reimbursed arising from or due to any untrue statement of a material
fact or the omission to state any material fact required to be stated in order
to make the statements not misleading in any representation or warranty made by
the Subscriber contained in this Agreement.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 18, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Company, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 18, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 18 to the extent it is prejudicial.
15
<PAGE>
9. Certain Additional Legends and Information.
FOR FLORIDA RESIDENTS:
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY,
THE HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA
SECURITIES ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE
STATE OF FLORIDA. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE
OF VOIDING THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH SUBSCRIBER TO THE ISSUER, AN AGENT OF THE ISSUER,
OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE
IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.
FOR MAINE RESIDENTS:
THESE SECURITIES ARE BEING SOLD PURSUANT TO AN EXEMPTION FROM
REGISTRATION WITH THE BANK SUPERINTENDENT OF THE STATE OF MAINE UNDER SECTION
10502(2)(R) OF TITLE 32 OF THE MAINE REVISED STATUTES. THESE SECURITIES MAY BE
DEEMED RESTRICTED SECURITIES AND AS SUCH THE HOLDER MAY NOT BE ABLE TO RESELL
THE SECURITIES UNLESS PURSUANT TO REGISTRATION UNDER STATE OR FEDERAL SECURITIES
LAWS OR UNLESS AN EXEMPTION UNDER SUCH LAWS EXISTS.
FOR PENNSYLVANIA RESIDENTS:
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE SECURITIES BEING OFFERED
HEREBY AGREES NOT TO SELL THESE SECURITIES FOR A PERIOD OF TWELVE MONTHS AFTER
THE DATE OF PURCHASE UNLESS SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE.
UNDER PROVISION OF THE PENNSYLVANIA SECURITIES ACT OF 1972 (THE "1972 ACT"),
EACH PENNSYLVANIA RESIDENT SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE
WITHOUT INCURRING ANY LIABILITY, TO THE SELLER, UNDERWRITER (IF ANY) OR ANY
PERSON, WITHIN TWO (2) BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF
HIS WRITTEN BINDING CONTRACT OF PURCHASE OR IN THE CASE OF A TRANSACTION IN
WHICH THERE IS NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS
AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED. TO
ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LETTER OR TELEGRAM TO
THE SELLING AGENT AT THE ADDRESS SET FORTH IN THE TEXT OF THE MEMORANDUM,
INDICATING HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE
SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED SECOND BUSINESS DAY.
ITS IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED.
IF THE REQUEST IS MADE ORALLY (IN PERSON OR BY TELEPHONE, TO THE SELLING AGENT
AT THE NUMBER LISTED IN THE TEXT OF THE MEMORANDUM) A WRITTEN CONFIRMATION THAT
THE REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
16
<PAGE>
FOR NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
[INTENTIONALLY LEFT BLANK]
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<PAGE>
10. Number of Shares and Purchase Price. Subscriber subscribes for
_________ shares of Preferred Stock (in the amount of $10,000 per Share) against
payment by wire transfer in the amount of $___________________ ("Purchase
Price").
11. Accredited Investor. The Subscriber is (check applicable box):
(a) [ ] a corporation, business trust, or partnership not formed for the
specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered,
whose purchase is directed by a sophisticated person who has such
knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of the
prospective investment.
(c) [ ] an individual, who
[ ] is a director, executive officer or general partner of the issuer
of the securities being offered or sold or a director, executive
officer or general partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeding
$1,000,000.
[ ] had an individual income in excess of $200,000 in each of the two
most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current
year.
(d) [ ] an entity each equity owner of which is an entity described in
a-b above or is an individual who could check one (1) of the last
three (3) boxes under subparagraph (c) above.
(e) [ ] other [specify] _________________________________________
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that he has (they have) by the following signature(s) executed this Agreement.
Dated this _____ day of __________, 1996.
____________________________________ ______________________________________
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
____________________________________ DELIVERY INSTRUCTIONS:
Name: Please Print ----------------------
Please type or print address where your
security is to be delivered
____________________________________ ATTN.:________________________________
Title/Representative Capacity
(if applicable)
____________________________________ ______________________________________
Name of Company You Represent Street Address
(if applicable)
____________________________________ ______________________________________
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
______________________________________
Phone Number (For Federal Express) and
Fax Number (re: Notice)
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE ____ DAY OF
______________, 1996.
LASERTECHNICS, INC.
By:________________________________
Name:______________________________
Title:_______________________________
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NOTICE OF CONVERSION [AND RESALE]
(To be Executed by the Registered Holder
in order to Convert the Preferred Stock)
The undersigned hereby irrevocably elects to convert _____________ shares of
Series D Preferred Stock, represented by stock certificate No(s).
________________ (the "Preferred Stock Certificates") into shares of common
stock ("Common Stock") of Lasertechnics, Inc. (the "Company") according to the
conditions of the Certificate of Designation of Series D Preferred Stock, as of
the date written below [in connection with the resale of the underlying Common
Stock]. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates. No fee will be charged to
the Holder for any conversion, except for transfer taxes, if any. A copy of
each of the Preferred Stock Certificates being converted is attached hereto.
Date of Conversion:_________________
Applicable Conversion Price:___________
Number of Shares of
Common Stock to be Issued:____________
Signature:__________________________
Name:_____________________________
Address: ___________________________
* No shares of Common Stock will be issued until the original Series D Preferred
Stock Certificate(s) to be converted and the Notice of Conversion are received
by the Company or its Transfer Agent. The Holder shall (i) fax, on or prior to
8:00 p.m., New York City time, on the date of conversion, a copy of this
completed and fully executed Notice of Conversion to the Company at the office
of the Company or its designated Transfer Agent for the Series D Preferred Stock
that the Holder elects to convert and (ii) surrender, to a common courier for
either overnight or two (2) day delivery to the office of the Company or the
Transfer Agent, the original Series D Preferred Stock Certificate(s)
representing the Series D Preferred Stock being converted, duly endorsed for
transfer. The Company or its Transfer Agent shall use its best efforts to issue
shares of Common Stock and surrender them to a common courier for delivery to
the shareholder within two (2) business days and shall in any event issue and
surrender to a common courier within three (3) business days following receipt
of a facsimile of this Notice of Conversion and receipt by the Company or its
Transfer Agent of the original Series D Preferred Stock Certificate(s) to be
converted, all in accordance with the terms of the Certificate of Designation
and the Subscription Agreement, and shall make payments for the number of
business days such issuance and delivery is late, pursuant to the terms of the
Subscription Agreement.
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EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of July
29, 1996, by and among Lasertechnics, Inc., a Delaware corporation ("Company"),
Swartz Investments, LLC, a Georgia limited liability company ("Swartz
Investments") and the subscribers (hereinafter referred to as "Subscribers" or
"Investors") to the Company's offering ("Offering") of up to Eight Million Five
Hundred Thousand Dollars ($8,500,000) of Series D Convertible Preferred Stock
(the "Preferred Stock") pursuant to the Regulation D Securities Subscription
Agreement between the Company and the Subscribers ("Subscription Agreement").
1. DEFINITIONS. For purposes of this Agreement:
(a) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act"), and
pursuant to Rule 415 under the Act or any successor rule, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) For purposes of the Required Registration under Section 2 hereof,
the term "Registrable Securities" means the shares of the Company's Common Stock
$.01 par value per share ("Common Stock"), together with any capital stock
issued in replacement of, in exchange for or otherwise in respect of such Common
Stock, issuable or issued upon (i) conversion of the Preferred Stock issued to
Subscribers in the Offering and (ii) exercise of the Warrants. For purposes of
a Demand Registration under Section 3 hereof or a Piggyback Registration under
Section 4 hereof, "Registrable Securities" shall have the meaning set forth
above, except that shares of Common Stock obtainable (x) on conversion of the
Preferred Stock (in whole or in part) and (y) on exercise of the Warrant (the
"Warrant Shares"), shall not constitute Registrable Securities if those shares
of Common Stock may be resold in a public transaction without registration under
the Act, including without limitation pursuant to Rule 144 under the Act. For
purposes of Sections 2, 3 and 4, any Registrable Securities resold pursuant to
an effective registration statement or pursuant to Rule 144 shall cease to
constitute Registrable Securities;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock which have been
issued or are issuable upon conversion of the Preferred Stock and exercise of
the Warrants at the time of such determination;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof;
(e) The term "Warrants" means the warrants granted to Swartz
Investments or to persons designated by Swartz Investments in connection with
this Offering and in connection with any prior offerings of securities of the
Company in which warrants were granted to Swartz Investments or to persons
designated by Swartz Investments;
(f) The term "Prospectus" means the prospectus included in the
registration statement as of the date it becomes effective under the Act and, in
the case of references to the Prospectus as of a date subsequent to the
effective date of the registration statement, as amended or supplemented as of
such date, including all documents incorporated by reference therein, as
amended, and each prospectus supplement relating to the offering and sale of any
of the Registrable Securities;
(g) The term "Initiating Holders" means (i) holders of Registrable
Securities obtained or obtainable upon conversion of at least Two Hundred (200)
shares of Preferred Stock;
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(h) The term "Due Date" means the date which is ninety (90) days after
the Last Closing (as defined in the Subscription Agreement) of the Offering; and
(i) The term "Last Closing" has the meaning ascribed to it in the
Subscription Agreement.
2. REQUIRED REGISTRATION.
(a) Within twenty (20) days after the Last Closing, the Company shall
file a registration statement ("Registration Statement") on Form S-3 (or other
suitable form, at the Company's discretion but subject to the reasonable
approval of the Investors), covering the resale of all shares of Registrable
Securities then outstanding.
(b) The Registration Statement shall permit the resale of the
Registrable Securities covered thereby to be offered and sold on a delayed or
continuous basis pursuant to Rule 415 under the Act. The Company shall use its
best efforts to cause the Registration Statement to be declared effective within
ninety (90) days after the Last Closing.
(c) If the Registration Statement is not declared effective by the Due
Date, the Company shall continue to use its best efforts to obtain a declaration
of effectiveness and shall pay the Investors an amount ("Late Registration
Payment") equal to two percent (2%) per month of the aggregate amount of
Preferred Stock sold in the Offering, compounded monthly and accruing daily,
until the Registration Statement or a registration statement filed pursuant to
Section 3 or Section 4 is declared effective, payable in common stock, which
common stock shall also be deemed "Registrable Securities" for the purpose of
this Agreement. The Late Registration Payment is not in addition to the Late
Registration Payment contemplated by the Subscription Agreement. In the event a
Late Registration Payment is required, upon conversion of each share of
Preferred Stock, the numerator of the Conversion Rate formula (which formula is
set forth in Section 5(a) of the Certificate of Designation) shall be increased
by the amount of the Late Registration Payment attributable to such share, as
set forth below:
= Late Registration Payment + [(.08)(N/365)($10,000)] + $10,000
--------------------------------------------------------------
Conversion Price
The accrual amount payable will be tolled for any periods occasioned by a delay
of a registration statement under Section 3 as a result of the choice of the
Holders to have that registration statement underwritten.
3. DEMAND REGISTRATION.
(a) If the Registration Statement described in Section 2 above is not
effective by the Due Date, Initiating Holders may notify the Company in writing
and demand that the Company file a registration statement under the Securities
Act (a "Demand Registration Statement") covering the resale of the Registrable
Securities then outstanding. Upon receipt of such notice, the Company shall,
within ten (10) days thereafter, give written notice of such request to all
Holders and shall, subject to the limitations of subsections 3(b) and 5(b), as
soon as practicable, and in any event within sixty (60) days after the receipt
of such request, effect registration under the Act of all Registrable Securities
which the Holders request, by notice given to the Company within ten (10) days
of receipt of the Company's notice.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 3
and the Company shall include such information in the written notice referred to
in subsection 3(a). In such event, the right of any other Holder to
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<PAGE>
include his Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company as provided in
subsection 6(f)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, and reasonably acceptable to the Company.
The Holder will not be required to make any representation other than as to its
ownership of the Registrable Securities and its intended method of distribution.
(c) The Company is obligated to effect only one (1) demand
registration pursuant to Section 3 of this Agreement. The Company agrees to
include all Registrable Securities held by all Holders in such registration
statement without cutback or reduction. In the event the Company breaches its
obligation of the preceding sentences, any Holders of the Registrable Securities
which were not included in such registration statement shall be entitled to a
second demand registration for such excluded securities and the Company shall
keep such registration statement effective as required by Section 6.
(d) The Company represents that it is presently eligible to effect the
registration contemplated in Section 2 and Section 3 hereof on Form S-3 and will
use its best efforts to continue to take such actions as are necessary to
maintain such eligibility.
4. PIGGYBACK REGISTRATION. If the Registration Statement described
in Section 2 is not effective by the Due Date, and no demand for a Demand
Registration Statement has been made pursuant to Section 3, and if (but without
any obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its Common Stock under the Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely for the sale of securities to participants in a Company stock plan or a
registration on Form S-4 promulgated under the Act or any successor or similar
form registering stock issuable upon a reclassification, upon a business
combination involving an exchange of securities or upon an exchange offer for
securities of the issuer or another entity), the Company shall, at such time,
promptly give each Holder written notice of such registration (a "Piggyback
Registration Statement"). Upon the written request of each Holder given by fax
within ten (10) days after mailing of such notice by the Company, which request
shall state the intended method of disposition of such shares by such Holder,
the Company shall cause to be included in such registration statement under the
Act all of the Registrable Securities that each such Holder has requested to be
registered ("Piggyback Registration"); nothing herein shall prevent the Company
from withdrawing or abandoning the registration statement prior to its
effectiveness.
5. LIMITATION ON OBLIGATIONS TO REGISTER.
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises in
writing that the inclusion in the registration statement of all Registrable
Securities proposed to be included would interfere with the successful marketing
of the securities proposed to be registered by the Company, then the number of
such Registrable Securities to be included in the registration statement shall
be allocated among all Holders who had requested Piggyback Registration, in the
proportion that the number of Registrable Securities which each such Holder,
including Swartz Investments, seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders, including Swartz
Investments.
(b) Notwithstanding anything to the contrary herein, the Company shall
have the right (i) to defer the initial filing or request for acceleration of
effectiveness of any Demand
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Registration Statement or Piggyback Registration Statement or (ii) after
effectiveness, to suspend effectiveness of any such registration statement, if,
in the good faith judgment of the board of directors of the Company and upon the
advice of counsel to the Company, such delay in filing or requesting
acceleration of effectiveness or such suspension of effectiveness is necessary
in light of (i) the requirement by the underwriter in a public offering by the
Company that such registration statement be delayed or suspended or (ii) the
existence of material non-public information (financial or otherwise) concerning
the Company, disclosure of which at the time is not, in the opinion of the board
of directors of the Company upon the advice of counsel, (A) otherwise required
and (B) in the best interests of the Company; provided, however, that solely in
the case of a demand registration the Company will not delay filing or suspend
the use of such registration statement for more than three (3) months from the
date it otherwise was required to effect such filing or the date it suspended
its use, as applicable, unless it is then engaged in an acquisition that would
make such registration impracticable, in which case it will use its best efforts
to eliminate such impracticability as soon as possible after such three (3)
month period.
(c) In the event the Company believes that shares sought to be
registered under Section 2, Section 3 or Section 4 by Holders do not constitute
"Registrable Securities" by virtue of Section 1(b) of this Agreement, and the
status of those Shares as Registrable Securities is disputed, the Company shall
provide, at its expense, an Opinion of Counsel, reasonably acceptable to the
Holders of the Securities at issue (and satisfactory to the Company's transfer
agent to permit the sale and transfer) that those securities may be sold
immediately, without restriction or resale, without registration under the Act,
by virtue of Rule 144 or applicable provisions.
(d) The Company is not obligated to effect a Demand Registration under
this Section 3: i) during the 90 day period after the Due Date, so long as the
Registration Statement has been filed, and the Company is using its best efforts
to obtain a declaration of the effectiveness of the Registration Statement
during such period or, ii) if in the opinion of counsel to the Company
reasonably acceptable to the person or persons from whom written request for
registration has been received (and satisfactory to the Company's transfer agent
to permit the transfer) that registration under the Act is not required for the
immediate transfer of all of the Registrable Securities pursuant to Rule 144 or
other applicable provision.
6. OBLIGATIONS TO INCREASE THE NUMBER OF AVAILABLE SHARES. In the
event that the number of shares available under a registration statement filed
pursuant to Section 2 or Section 3 is insufficient to cover all of the
Registrable Securities then outstanding, the Company shall amend that
registration statement, or file a new registration statement, or both, so as to
cover all shares of Registrable Securities then outstanding. The Company shall
effect such amendment or new registration within sixty (60) days of the date the
registration statement filed under Section 2 or Section 3 is insufficient to
cover all the shares of Registrable Securities then outstanding. Any
registration statement filed hereunder shall, to the extent permissible by the
rules and regulations of the Securities and Exchange Commission ("SEC"), state
that, in accordance with Rule 416 under the Act, such registration statement
also covers such indeterminate numbers of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Stock to prevent dilution
resulting from stock changes or by reason of changes in the conversion price in
accordance with the terms thereof. Unless and until such amendment or new
registration statement is effective, the Investors shall have the rights
described in Section 2(c) above.
7. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become effective.
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(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the Prospectus as may be necessary to keep the
Prospectus current and in compliance in all material respects with the
provisions of the Act.
(c) keep any registration statement effective until the sooner to
occur of (A) such time as the Holders of Registrable Securities covered by such
registration statement have completed the distribution described in the
registration statement, and (B) such time as all of the Registrable Securities
covered by such registration statement may be sold without any volume limitation
pursuant to Rule 144 promulgated under the Act ("Rule 144").
(d) furnish to the Holders such numbers of copies of a Prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(e) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions in the United States as shall be reasonably
requested by the Holders of the Registrable Securities covered by such
registration statement; provided, however, that the Company shall in no event be
required to qualify to do business as a foreign corporation or a dealer in any
jurisdiction where it is not so qualified, to conform its capitalization or the
composition of its assets at the time to the securities or blue sky laws of such
jurisdiction, to execute or file any general consent to service of process under
the laws of any jurisdiction, to take any action that would subject it to
service of process in suits other than those arising out of the offer and sale
of the Registrable Securities covered by such registration statement, or to
subject itself to taxation in any jurisdiction where it has not theretofore done
so.
(f) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in such form as are
reasonable and customarily entered into by issuers in secondary distributions,
with the managing underwriter of such offering. Each Holder participating in
such underwriting shall also enter into and perform its obligations under such
an agreement.
(g) furnish, at the request of any Holder whose Registrable Securities
are being registered pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the outside
counsel of recognized standing (or reasonably acceptable to Holder) representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders whose Registrable Securities are being registered.
(h) as promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the registration
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statement to correct such untrue statement or omission, and deliver a number of
copies of such supplement or amendment to each Holder as such Holder may
reasonably request.
(i) provide Holders with written notice of the date that a
registration statement registering the resale of the Registrable Securities is
declared effective by the SEC, and the date or dates when the registration
statement is no longer effective.
(j) provide Holders and their representatives the opportunity to
conduct a reasonable due diligence inquiry of Company's pertinent financial and
other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement.
(k) provide Holders and their representatives the opportunity to
review the registration statement and all amendments thereto a reasonable period
of time prior to their filing with the SEC.
8. OBLIGATIONS OF THE HOLDERS. The Company's obligations under this
Agreement (including without limitation, its obligations under Section 2(a)
hereof) with respect to a Holder shall be conditioned upon such Holder's
compliance with the following:
(a) During such time as the Company is preparing a registration
statement, and for so long as the Company as the Company is obligated to keep
the registration statement effective, such Holder will provide to the Company,
in writing, for use in the registration statement, all information regarding
such Holder and such other information as may be necessary to enable the Company
to prepare the registration statement and the Prospectus and to maintain the
currency and effectiveness thereof;
(b) any Holder shall enter into such agreements with the Company and
any underwriter, broker-dealer or similar securities industry professional
containing representations, warranties, indemnities and agreements as are in
each case reasonable and customarily entered into and made by selling
stockholders, and in the case of an underwritten offering, will cause its
counsel to give any legal opinions customarily given, in secondary distributions
under similar circumstances;
(c) during such time as such Holder may be engaged in a distribution
of the Registrable Securities, such Holder will comply with all applicable laws
including but not limited to Rules 10b-6 and 10b-7 promulgated under the
Exchange Act of 1934 (the Exchange Act");
(d) on notice from the Company that, as set forth in Section 5(b), it
requires the suspension by such Holder of the distribution of any of the
Registrable Securities, such Holder shall cease offering or distributing the
Registrable Securities until such time as the Company notifies such Holder that
offering and distribution of the Registrable Securities may recommence.
9. EXPENSES OF REQUIRED OR DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions and fees and expenses of counsel and
accountants to the selling Holders incurred in connection with registrations,
filings or qualifications pursuant to Sections 2 and 3, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company, shall be
borne by the Company.
10. EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registration pursuant to Section 4
for each Holder, including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or
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apportionable thereto but excluding underwriting discounts and commissions and
fees and expenses of counsel to the selling Holders relating to Registrable
Securities.
11. INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers and directors of each Holder, and each
person, if any, who controls such Holder within the meaning of the Act or the
Exchange Act (collectively, the "Holder Indemnified Parties") against any
losses, claims, damages, or liabilities (joint or several) (collectively
"Losses") to which they may become subject under the Act, the Exchange Act or
other federal or state law, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) 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, or (iii) any violation
by the Company of the Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Act, the Exchange Act or any state
securities law; and the Company, subject to Section 11(c), will reimburse each
such Holder Indemnified Party for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such Loss;
provided, however, that the indemnity agreement contained in this subsection
11(a) shall not apply to amounts paid in settlement of any such Loss if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld); and provided, further, that the Company will not
indemnify or hold harmless any Holder Indemnified Party from or against any such
Losses (i) that arise out of or are based upon any violation of any federal or
state securities laws, rules or regulations committed by any of the Holder
Indemnified Parties (or any person who controls any of them or any agent,
broker-dealer or underwriter engaged by them) or in the case of a non-
underwritten offering, any failure by such Holder to give any purchaser of
Registrable Securities at or prior to the written confirmation of such sale, a
copy of the most recent Prospectus or (ii) if the Violation upon which such
Losses or expenses are based (x) was made in reliance upon and in conformity
with the information provided by or on behalf of any Holder Indemnified Party
specifically for use or inclusion in the registration statement or any
Prospectus, or (y) was made in any Prospectus used after such time as the
Company advised such Holder that the filing of a post-effective amendment or
supplement thereto was required, except the Prospectus as so amended or
supplemented, or (z) was made in any Prospectus used after such time as the
obligation of the Company hereunder to keep the registration statement effective
and current has expired or been suspended hereunder.
(b) To the extent permitted by law, each selling Holder, severally and not
jointly, will indemnify and hold harmless the Company, each of its directors,
each of its officers who have signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act or the Exchange Act
(collectively the "Company Indemnified Parties") against any Losses (joint or
several) to which the Company Indemnified Parties may become subject, under the
Act, the Exchange Act or other federal or state law, insofar as such Losses (or
actions in respect thereto) arise out of or are based upon any (i) Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by or on
behalf of such Holder expressly for use or inclusion in the registration
statement or any Prospectus, or (ii) the use of any Prospectus after such time
as the Company has advised such Holder that the filing of a post-effective
amendment or supplement thereto is required, except the Prospectus as so amended
or supplemented, or (iii) the use of any Prospectus after such time as the
obligation of the Company hereunder to keep the registration statement effective
and current has expired or been suspended hereunder, or (iv) any violation by
such Holder or any person who controls such Holder within the meaning of either
the Act or the
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Exchange Act (or any agent, broker-dealer or underwriter engaged by such Holder
or any such controlling person) of any federal or state securities law or rule
or regulation thereunder or in the case of a non-underwritten offering, any
failure by such Holder to give any purchaser of Registrable Securities at or
prior to the written confirmation of such sale, a copy of the most recent
Prospectus; and subject to Section 11(c), each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company Indemnified Party in
connection with investigating or defending any such Loss or action; provided,
however, that the indemnity agreement contained in this subsection 11(b) shall
not apply to amounts paid in settlement of any such Loss or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 11(b) exceed the net proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 11 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 11, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the indemnified party;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the reasonably incurred fees and expenses of one such counsel
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential conflicting interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 11, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 11.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 11 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each holder of Registrable
Securities agree to contribute to the aggregate Losses to which the Company and
one or more of the holders of Registrable Securities may be subject in such
proportion as is appropriate to reflect the relative fault of the Company and
the Holders in connection with the Violations which resulted in such Losses;
provided, however, that in no case shall any Holder be responsible for any
amount in excess of the net purchase price of securities sold by it under the
registration statement. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Company or by the Holders. The Company and the Holders agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 10 each Holder Indemnified
Party shall have the same rights to contribution as such Holder, and each
Company Indemnified Party shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) The obligations of the Company and Holders under this Section 10 shall
survive the redemption and conversion, if any, of the Preferred Stock, the
completion of any offering of Registrable Securities in a registration statement
under this Agreement, and otherwise.
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12. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration, the Company agrees to use its
best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of Rule 144, the Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed with the SEC by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration.
13. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Registrable
Securities provided that the amendment treats all Holders equally. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
Holder, each future Holder, and the Company.
14. NOTICES. All notices required or permitted under this Agreement shall
be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Chief Financial Officer, Lasertechnics,
Inc., 3208 Commander Drive, Carrollton, TX 75006; Telephone No. (214) 407-6080,
Telecopy No. (214) 407-9805 and (ii) the Holders at their respective last
address as the party shall have furnished in writing as a new address to be
entered on such register. Any notice, except as otherwise provided in this
Agreement, shall be made by fax and shall be deemed given at the time of
transmission of the fax.
15. TERMINATION. This Agreement shall terminate on the earlier to occur of
(a) the date that is three(3) years from the date of this Agreement and (b) the
date the distribution of all Registrable Securities described in any
registration statement filed pursuant to this Agreement is completed; but
without prejudice to (i) the parties' rights and obligations arising from
breaches of this Agreement occurring prior to such termination (ii) other
indemnification obligations under this Agreement or (iii) the Company's
obligation to maintain the effectiveness of a registration statement filed prior
thereto in accordance with the terms hereof, and to fulfill its obligation
hereunder in respect thereof until it is no longer required to maintain the
effectiveness thereof.
16. ASSIGNMENT. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall not have acquired such Registrable Securities pursuant to an
effective registration statement or Rule 144 and such tranferee shall agree in
writing to be bound as a Holder by the terms of this Agreement); and provided
further that the Company may transfer its rights and obligations under this
Agreement to a purchaser of all or a substantial portion of its business if the
obligations of the Company under this Agreement are assumed in connection with
such transfer, either by merger or
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other operation of law (which may include without limitation a transaction
whereby the Registrable Shares are converted into securities of the successor in
interest) or by specific assumption executed by the transferee.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Exchange Act, which matters shall be construed and
interpreted in accordance with such laws.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
LASERTECHNICS, INC.
By: ____________________________________
E.A. Milo Mattorano,
Vice President and Chief Financial Officer
Address:
Lasertechnics, Inc.
3208 Commander Drive
Carrollton, TX 75006
Telephone No. (214) 407-6080
Telecopy No. (214) 407-9805
SWARTZ INVESTMENTS, LLC
By: ____________________________________
Eric Swartz
President
Address: 200 Roswell Summit, Suite 285
1080 Holcomb Bridge Road
Roswell, GA 30076
INVESTOR(S)
_______________________________________
Investor's Name
By:____________________________________
(Signature)
Address:________________________________
_______________________________
_______________________________
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EXHIBIT 10.4
PLACEMENT AGENT AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 29th day of July, 1996,
by and between LASERTECHNICS, INC., a Delaware corporation ("Company"), and
Swartz Investments, LLC, a Georgia limited liability company (the "Agent").
WITNESSETH:
WHEREAS, the Company proposes to issue and sell Series D Preferred
Stock (the "Securities") resulting in gross proceeds to the Company of a minimum
of Five Million Dollars ($5,000,000) and a maximum of Eight Million Five Hundred
Thousand Dollars ($8,500,000), in an offering (the "Offering") not involving a
public offering under the Securities Act of 1933, as amended (the "Act"),
pursuant to an exemption from the registration requirements of the Act under
Regulation D promulgated under the Act ("Regulation D"), as described below; and
WHEREAS, the Agent has offered to assist the Company in placing the
Securities on a "best efforts, all or none" basis with respect to the Minimum
Shares (as defined below) and on a "best efforts" basis with respect to sales of
Securities thereafter up to the Maximum Shares (as defined below), and the
Company desires to secure the services of the Agent on the terms and conditions
hereinafter set forth;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
promises, conditions and covenants herein contained, the parties hereto do
hereby agree as follows:
1. ENGAGEMENT OF AGENT. The Company on the basis of the
representations and warranties contained herein, but subject to the terms and
conditions herein set forth, hereby appoints the Agent as its exclusive
placement agent for the Offering, to sell a minimum of Five Hundred (500) shares
of the Securities (the "Minimum Shares") on a "best efforts all or none" basis,
and up to a maximum of Eight Hundred (850) shares of the Securities (the
"Maximum Shares") on a "best efforts basis" at a purchase price per share of Ten
Thousand Dollars ($10,000) (the "Offering Price"), resulting in gross proceeds
to the Company of a minimum of Five Million Dollars ($5,000,000) and a maximum
of Eight Million Five Hundred Thousand Dollars ($8,500,000). The 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 Securities. This appointment
shall be irrevocable for the period commencing on the date of the executed
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Letter of Agreement, and ending August 16, 1996 which period maybe extended by
the consent of the Company and the Agent (the "Offering Period").
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to induce the
Agent to enter into this Agreement, the Company hereby represents and warrants
to and agrees with the Agent as follows:
2.1 Offering Documents. The Company (with the assistance of the
Placement Agent) has prepared a Subscription Agreement, certain exhibits
thereto, the Certificate of Designation of Series D Preferred Stock of the
Company ("Certificate of Designation"), and a Registration Rights Agreement,
which documents have been or will be sent to proposed investors. In addition,
proposed investors have received or will receive prior to closing, copies of the
Company's Annual Report on Form 10-KSB/A-3 for the year ended December 31, 1995
and Quarterly Report on Form 10-QSB for the period ended March 31, 1996 ("SEC
Documents"). The SEC Documents were prepared in conformity with the
requirements (to the extent applicable) of the Act and the rules and regulations
("Rules and Regulations") of the Commission promulgated thereunder. As used in
this Agreement, the term "Offering Documents" refer to and mean the SEC
Documents, the Subscription Agreement and all amendments, exhibits and
supplements thereto, together with any other documents which are provided to the
Agent by, or approved for Agent's use by, the Company for the purpose of this
Offering (including but not limited to the Certificate of Designation,
Registration Rights Agreement and Company investor packets).
2.2 Provision of Offering Documents. The Company shall deliver to
the Agent, without charge, as many copies of the Offering Documents as the Agent
may reasonably require for the purposes contemplated by this Agreement. The
Company authorizes the Agent, in connection with the Offering of the Securities,
to use the Offering Documents as from time to time amended or supplemented in
connection with the offering and sale of the Securities and in accordance with
the applicable provisions of the Act and Regulation D.
2.3 Accuracy of Offering Documents. The Offering Documents, at the
time of delivery to subscribers for the Securities, conformed in all material
respects with the requirements, to the extent applicable, of the Act and the
applicable Rules and Regulations and did not 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. On the Closing Date (as hereinafter
defined), the Offering Documents will contain all statements which are required
to be stated therein in accordance with the Act and the Rules and Regulations
for the purposes of the proposed Offering, and all statements of material fact
contained in the Offering documents will be true and correct, and the Offering
Documents will not include any untrue statement of a material fact or omit to
state any material fact
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required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
2.4 Duty to Amend. If during such period of time as in the opinion
of the Agent or its counsel an Offering Document relating to this financing is
required to be delivered under the Act, any event occurs or any event known to
the Company relating to or affecting the Company shall occur as a result of
which the Offering Documents as then amended or supplemented would include an
untrue statement of a material fact, or omit 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 date hereof to amend or supplement the Offering Documents to comply with the
Act or the applicable Rules and Regulations, the Company shall forthwith notify
the Agent thereof and shall prepare such further amendment or supplement to the
Offering Documents as may be required and shall furnish and deliver to the Agent
and to others, whose names and addresses are designated by the Agent, all at the
cost of the Company, a reasonable number of copies of the amendment or
supplement (or of the amended or supplemented Offering Documents) which, as so
amended or supplemented, will not contain an untrue statement of a material fact
or omit to state any material fact necessary in order to make the Offering
Documents not misleading in the light of the circumstances when delivered to a
purchaser or prospective purchaser, and which will comply in all respects with
the requirements (to the extent applicable) of the Act and the applicable Rules
and Regulations.
2.5 Corporation Condition. The Company's condition is as described
in its Offering Documents, except for changes in the ordinary course of business
and normal year-end adjustments that are not in the aggregate materially adverse
to the Company. The Offering Documents, taken as a whole, present fairly the
business and financial position of the Company as of the Closing Date.
2.6 No Material Adverse Change. Except as may be reflected in or
contemplated by the Offering Documents, subsequent to the dates as of which
information is given in the Offering Documents, and prior to the Closing Date,
taken as a whole, there has not been any material adverse change in the
condition, financial or otherwise, or in the results of operations of the
Company or in its business.
2.7 No Defaults. Except as disclosed in the Offering Documents or in
writing to the Agent, the Company is not in default in any material respect in
the performance of any obligation, agreement or condition contained in any
material debenture, note or other evidence of indebtedness or any material
indenture or loan agreement of the Company. 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 By-Laws
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of the Company (in any respect that is material to the Company), any material
note, indenture, mortgage, deed of trust, or other agreement or instrument to
which the Company is a party or by which the Company or any property of the
Company is bound, or to the Company's knowledge, any existing law, order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality, agency or body, arbitration tribunal or court, domestic or
foreign, having jurisdiction over the Company or any property of the Company.
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 Blue Sky or securities laws of any state or jurisdiction.
2.8 Incorporation and Standing. The Company is, and at the Closing
Date will be, duly formed and validly existing in good standing as a corporation
under the laws of the State of Delaware and with full power and authority
(corporate and other) to own its properties and conduct its business, present
and proposed, as described in the Offering Documents; the Company, has full
power and authority to enter into this Agreement; and the Company is duly
qualified and in good standing as a foreign entity in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the Company or
its properties.
2.9 Legality of Outstanding Securities. Prior to the Closing Date,
the outstanding securities of the Company have been duly and validly authorized
and issued, and are fully paid and non-assessable, and conform in all material
respects to the statements with regard thereto contained in the Offering
Documents.
2.10 Legality of Securities. The Securities when sold and delivered
in accordance with the Offering Documents, and the Warrants to Agent or its
designees when issued and delivered, will constitute legal, valid and binding
obligations of the Company, enforceable in accordance with the terms thereof,
and the Securities shall be duly and validly issued and outstanding, fully paid
and nonassessable. The Common Stock into which the Securities are convertible,
when issued upon conversion of the Securities in accordance with the Company's
Articles of Incorporation and Certificate of Designation, shall be duly and
validly issued and outstanding, fully paid and non-assessable.
2.11 Litigation. Except as set forth in the Offering Documents, there
is now, 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 not adequately covered by insurance or which collectively might
result in any material adverse change in the condition (financial or otherwise)
or business of the Company or which would materially adversely affect the
properties or assets of the Company.
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2.12 Finders. The Company does not know of any outstanding claims for
services in the nature of a finder's fee or origination fees with respect to the
sale of the Securities hereunder for which the Agent may be responsible, and the
Company will indemnify the Agent from any liability for such fees (including the
payment of attorney's fees incurred by Agent due to any claim by any such finder
or originator) by any party who has a claim for such compensation from the
Company and for which person the Agent is not legally responsible.
2.13 Tax Returns. The Company has filed all federal and state and
local tax returns which are required to be filed, and has paid all material
taxes shown on such returns and on all assessments received by it to the extent
such taxes have become due (except for taxes the amount of which the Company is
contesting in good faith). All 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.
2.14 Authority. The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary action, and this Agreement
is the valid, binding and legally enforceable obligation of the Company except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws, by principles governing
enforcement of equitable remedies and, with respect to indemnification against
liabilities under the Act, matters of public policy.
2.15 Actions by the Company. The Company will not take any action
which will impair the effectiveness of the transactions contemplated by this
Agreement.
3. ISSUE, SALE AND DELIVERY OF THE SECURITIES.
3.1 Deliveries of Securities. Certificates in such form that,
subject to applicable transfer restrictions as described in the Subscription
Agreement, they can be negotiated by the purchasers thereof (issued in such
denominations and in such names as the Agent may direct the Company to issue)
for the Securities, and warrants representing the Agent's warrant compensation
described in Section 3.6 below ("Warrants"), shall be delivered by the Company
to the Escrow Agent, with copies made available to the Agent for checking at
least one (1) full business day prior to the Closing Date, it being understood
that the directions from the Agent to the Company shall be given at least two
(2) full business days prior to the Closing Date. The certificates for the
Securities and the Warrants shall be delivered at the initial Closing and at
each Subsequent Closing (as defined hereinafter).
3.2 Escrow of Funds. Pursuant to the Escrow Agreement, a copy of
which is attached hereto as Exhibit "A" (the "Escrow Agreement"), executed by
the Company, the Agent and the escrow agent (the "Escrow Agent"), the
subscribers shall place all funds for purchase of Securities in an escrow
account set up by the Company.
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The Company shall have the right to approve or object the subscriptions of each
subscriber, as described in the Subscription Agreement. At such time as
subscribers subscribing for at least the Minimum Shares (but not more than the
Maximum Shares, unless otherwise agreed by the Company and Agent, and consented
to by the subscribers) have delivered to the Escrow Agent their signed
subscription documents, those subscribers have been approved by the Company and
all other Closing conditions have been met, Escrow Agent shall release the
subscription funds and signed documents to the Company and release the
certificates representing the Securities to the subscribers (the "Initial
Closing"). In the event that the Initial Closing shall be for an amount of
Securities less than the Maximum Amount, the Offering may be continued, and
additional Closings may be held (each a "Subsequent Closing") throughout the
Offering Period. In no event, however, shall any Closing occur after July
31,1996 or such later date as may be agreed by the Company and the Agent (the
"Termination Date"). In the event that the Escrow Agent is holding funds on the
Termination Date, after completion of any proper Subsequent Closing on the
Termination Date, the Escrow Agent shall return all funds to the subscribers who
deposited them in accordance with the Escrow Agreement.
3.3 Closing Date. The Initial Closing and any Subsequent Closing
shall take place at the offices of Escrow Agent at such time and date ("Closing
Date") as will be fixed either orally or in writing by notice to be given by the
Agent to the Company after consultation with the Company, such Closing Date to
be not less than one (1) full business day after the date on which such notice
shall have been given and not less than one (1)) and not more than ten (10) full
business days after the date on which the Escrow Agent shall have given written
notice to the Company and the Agent that funds deposited with the Escrow Agent
total at least the Minimum Proceeds. The Closing Date may be changed by mutual
agreement of the Agent and the Company.
3.4 Agent's Compensation. The Company shall pay the Agent:
(a) (i) For amounts placed up to and including Six Million Dollars
($6,000,000), a placement fee equal to six percent (6%) of the gross
subscription proceeds of the Offering; or (ii) for amounts placed in excess of
Six Million Dollars ($6,000,000), a placement fee equal to (x) six percent (6%)
of the gross subscription proceeds up to and including Six Million Dollars
($6,000,000); plus (y) five percent (5%) of the gross subscription proceeds in
excess of Six Million Dollars ($6,000,000); and
(b) In the event at least the Minimum Shares are sold, the Agent shall
be reimbursed on a non-accountable basis for its expenses in a sum equal to one
and one-half percent (1.5%) of the aggregate gross proceeds resulting from the
sale of the Securities (the "Non-Accountable Expense Allowance"); and
(c) In addition to the fees and reimbursement of costs set forth in
Sections 3.4(a) and 3.4(b) of this Agreement, the Company shall also issue to
Agent
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warrants ("Warrants") to purchase shares of the Company's Common Stock, in an
amount equal to five percent (5%) multiplied times the dollar amount of
securities placed/fixed conversion price (as defined in the Letter of
Agreement). The term of the Warrants shall be five years. The exercise price for
the Warrants shall be $2.1406 (100% of the Fixed Conversion Price, as that term
is defined in the Certificate of Designation). The Warrants shall have cashless
exercise provisions. The shares of Common Stock issuable upon exercise of the
Warrants shall have the rights set forth in the Registration Rights Agreement,
dated on or about July 29, 1996, by and among the Company, the Agent, and the
Subscribers. The Warrants shall be delivered by the Company to the Escrow Agent
prior to each Closing, and the Escrow Agent shall deliver to the Agent the
Warrants applicable to each Closing simultaneous with the respective Closing.
3.5 Payment of Fees. The Escrow Agent shall be instructed to pay all
fees and cost reimbursements and Warrants pursuant to section 3.4 of this
Agreement, directly to the Agent from the proceeds of the Closing and all
Subsequent Closings, simultaneous with the transfer of proceeds to the Company.
4. OFFERING OF THE SECURITIES ON BEHALF OF THE COMPANY.
4.1 In offering the Securities for sale, the Agent shall offer them
solely as an agent for the Company, and such offer shall be made upon the terms
and subject to the conditions set forth in the Offering Documents. The Agent
shall commence making such offer as an agent for the Company as soon as possible
following delivery of the final Company approved Offering Documents to Agent (or
notification by Company or its Counsel the latest version of any Offering
Documents on Agent's computer system is acceptable for faxing to subscribers).
4.2 The Agent will only make offers to sell the Securities to, or
solicit offers to subscribe for any Securities from, persons or entities that
are "accredited investors" as defined in Regulation D.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Agent that:
5.1 After the date hereof, the Company will not at any time, prepare
and distribute any amendment or supplement to the Offering Documents, of which
amendment or supplement the Agent shall not previously have been advised and the
Agent and its counsel furnished with a copy within a reasonable time period
prior to the proposed adoption thereof, or to which the Agent shall have
reasonably objected in writing on the ground that it is not in compliance with
the Act or the Rules and Regulations (if applicable).
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5.2 The Company will pay, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented from
becoming effective or is terminated, all costs and expenses incident to the
performance of its obligations under this Agreement, including all expenses
incident to the authorization of the Securities and their issue and delivery to
the Agent, any original issue taxes in connection therewith, all transfer taxes,
if any, incident to the initial sale of the Securities, the fees and expenses of
the Company's counsel (except as provided below) and accountants, the cost of
reproduction and furnishing to the Agent copies of the Offering Documents as
herein provided; provided, however, that the Company shall not be responsible
for the direct payment of fees and costs incurred by Agent, including attorney's
fees of or any costs incurred by the Agent's counsel.
5.3 As a condition precedent to the Initial Closing, the Company will
deliver to the Agent a true and correct copy of all documents requested by Agent
included in Agent's due diligence request, including but not limited to the
Articles of Incorporation of the Company, and all amendments and certificates of
designation of preferences of preferred stock, including without limitation the
Certificate of Designation regarding the Securities, certified by the Secretary
of State of the State of Delaware.
5.4 Prior to the Closing Date, the Company will cooperate with the
Agent in such investigation as it may make or cause to be made of all of the
properties, business and operations of the Company in connection with the
Offering of the Securities. The Company will make available to it in connection
therewith such information in its possession as the Agent may reasonably request
and will make available to the Agent such persons as the Agent shall deem
reasonably necessary and appropriate in order to verify or substantiate any such
information so supplied.
5.5 The Company shall be responsible for making any and all filings
required by the Blue Sky authorities of the State of Delaware and filings
required by the laws of the jurisdictions in which the subscribers who are
accepted for purchase of Securities are located, if any. Agent shall assist
Company in this respect, but such filings shall be the responsibility of
Company.
6. NON-CIRCUMVENTION & CONFIDENTIALITY OF PROPRIETARY AGENT INFORMATION
6.1. Non-Circumvention. The investors who are listed on the schedule
attached hereto as Exhibit B shall be considered, for purposes of this
Agreement, the property of Agent. The Company on behalf of itself, its parent
or its subsidiaries (collectively hereinafter referred to as "Company") agree
not to circumvent, directly or indirectly, Agent's relationship with these
investors, their parents or any of the investors' subsidiaries (collectively
hereinafter referred to as "Investors") and Company will not directly or
indirectly contact or negotiate with any of these Investors regarding an
investment in the Company, or any other company, and will
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not enter into any agreement or transaction with Investors, or disclose the
names of Investors, for a period of five (5) years from the date hereof
without the prior written approval of Agent; provided, however, that
notwithstanding the above, nothing contained in this Agreement shall prevent
Company from, directly or indirectly, selling securities to the Investors
through a public offering or from, directly or indirectly, contacting or
negotiating with the Investors in satisfaction of Company's obligations under
the Subscription Agreements entered into in connection herewith. In the event
that the Company accepts an investment from an Investor or Investors (other
than in a public offering) in a placement being arranged through an agent
other than Swartz Investments, during the 180 day "Capital Raising Limitation"
period described in Section 5 of the Subscription Agreement, the Company
agrees to pay to Swartz Investments a fee equal to three and three-fourths
percent (3.75%) of all amounts invested by such Investor(s). In the event that
the Company accepts an investment from an Investor or Investors (other than in
a public offering) in a placement being arranged through an agent other than
Swartz Investments, at any time after the 180 day "Capital Raising Limitation"
period described in Section 5 of the Subscription Agreement and prior to the
fifth (5th) anniversary date hereof, the Company agrees to pay to Swartz
Investments a fee equal to seven and one-half percent (7.5%) of all amounts
invested by such Investor(s).
6.2 Protection of Proprietary Customer Information. Furthermore,
Company agrees to safeguard in strict confidence and will not disclose to any
other person, business, partnership, corporation, fiduciary, agent or any
entity of any type whatsoever the names of any Investors introduced by Agent
to Company or information concerning any Investor (including the names of any
individual, employee, representative, fiduciary or agent of or related to such
Investor) except as such disclosure may be required by any law, rule,
regulation, regulatory body, court or administrative agency, and upon prior
notice to Agent before disclosing such information under such compulsion of
law.
6.3 Specific Performance and Attorneys Fees. The Company
acknowledges and agrees that, if either breaches its obligations under
Sections 6.1 or 6.2, damages at law will be an insufficient remedy to Agent
and that Agent would suffer irreparable damage as a result of such violation.
Accordingly, it is agreed that Agent shall be entitled, upon application to a
court of competent jurisdiction, to obtain injunctive relief against the
breaching party to enforce the provisions of such sections, which injunctive
relief shall be in addition to any other rights or remedies available to
Agent. The Company agrees to pay to Agent (severably and not jointly) all
costs and expenses incurred by Agent relating to the enforcement of the terms
of sections 6.1 and 6.2 hereof due to its own actions, whether by injunction,
a suit for damages or both, including reasonable fees and disbursements of
counsel (both at trial and in appellate proceedings).
9
<PAGE>
7. INDEMNIFICATION.
7.1 The Company agrees to indemnify and hold harmless the Agent, each
person who controls the Agent within the meaning of Section 15 of the Act and
the Agent's employees, accountants, attorneys and agents (the "Agent's
Indemnitees") against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act or any
other statute or at common law for any legal or other expenses (including the
costs of any investigation and preparation) incurred by 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 untrue statement of material fact contained in the Offering
Documents or any amendment or supplement thereto or any application or other
document filed in any state or jurisdiction in order to qualify the Securities
under the Blue Sky or securities laws thereof, or the omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, under the circumstances under which they were made, not
misleading, all as of the date of the Offering Documents or of such amendment as
the case may be; provided, however, that the indemnity agreement contained in
this Section 7.1 shall not apply to amounts paid in settlement of any such
litigation, if such settlements are made without the consent of the Company, nor
shall it apply to the Agent's Indemnitees in respect to any such losses, claims,
damages or liabilities 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 the Agent specifically for use in connection with the
preparation of the Offering Documents or any such amendment or supplement
thereto or any application or other document filed in any state or jurisdiction
in order to qualify the Securities under the Blue Sky or securities law thereof.
This indemnity agreement is in addition to any other liability which the Company
may otherwise have to the Agent's Indemnitees. The Agent's Indemnitees agree,
within ten (10) days after the receipt by them of written notice of the
commencement of any action against them in respect to which indemnity may be
sought from the Company under this Section 7.1, to notify the Company in writing
of the commencement of such action; provided, however, that the failure of the
Agent's Indemnitees to notify the Company of any such action shall not relieve
the Company from any liability which it may have to the Agent's Indemnitees on
account of the indemnity agreement contained in this Section 7.1, and further
shall not relieve the Company from any other liability which either may have to
the Agent's Indemnitees, and if the Agent's Indemnitees shall notify the Company
of the commencement thereof, the Company shall be entitled to participate in
(and, to the extent that the Company shall wish, to direct) the defense thereof
at its own expense, but such defense shall be conducted by counsel of recognized
standing and reasonably satisfactory to the Agent's Indemnitees, defendant or
defendants, in such litigation. The Company agrees to notify the Agent's
Indemnitees promptly of the commencement of any litigation or proceedings
against the Company or any of the Company's officers or directors of which the
Company may be advised in connection with the issue and sale of
10
<PAGE>
any of the Securities and to furnish to the Agent's Indemnitees, at their
request, and to provide copies of all pleadings therein and to permit the
Agent's Indemnitees to be observers therein and apprise the Agent's Indemnitees
of all developments therein, all at the Company's expense.
7.2 The Agent agrees, in the same manner and to the same extent as
set forth in Section 7.1 above, to indemnify and hold harmless the Company, and
the Company's and Company's employees, accountants, attorneys and agents (the
"Company's Indemnitees") with respect to (i) any statement in or omission from
the Offering Documents or any amendment or supplement thereto or any application
or other document filed by the Company in any state or jurisdiction in order for
the Company to qualify the Securities under the Blue Sky or securities laws
thereof, or any information furnished pursuant to Section 3.4 hereof, if such
statement or omission was made in reliance upon information furnished in writing
to the Company by the Agent on its behalf specifically for use in connection
with the preparation thereof or supplement thereto, or (ii) any untrue statement
of a material fact made by the Agent or its agents not based on statements in
the Offering Documents or authorized in writing by the Company, or with respect
to any misleading statement made by the Agent or its agents resulting from the
omission of material facts which misleading statement is not based upon the
Offering Documents, or information furnished in writing by the Company or, (iii)
any breach of any representation, warranty or covenant made by the Agent in this
Agreement. The Agent shall not be liable for amounts paid in settlement of any
such litigation if such settlement was effected without its consent. In case
of the commencement of any action in respect of which indemnity may be sought
from the Agent, the Company's Indemnitees shall have the same obligation to give
notice as set forth in Section 7.1 above, subject to the same loss of indemnity
in the event such notice is not given, and the Agent shall have the same right
to participate in (and, to the extent that it shall wish, to direct) the defense
of such action at its own expense, but such defense shall be conducted by
counsel of recognized standing reasonably satisfactory to the Company. The Agnt
agrees to notify the Company's Indemnitees, at their request, and to provide
copies of all pleadings therein and to permit the Company's Indemnitees to be
observers therein and appraise them of all the developments therein, all at the
Agent's expense.
8. EFFECTIVENESS OF AGREEMENT. This Agreement shall become effective
(i) at 9:00 A.M., Atlanta, Georgia time, on the date hereof or (ii) upon release
by the Agent of the Securities for offering after the date hereof, whichever
occurs first. The Agent agrees to notify the Company immediately after the
Agent shall have taken any action by such release or otherwise wherein this
Agreement shall have become effective.
9. CONDITIONS OF THE AGENT'S OBLIGATIONS. The Agent's obligations to act
as agent of the Company hereunder and to find purchasers for the Securities
shall be subject to the accuracy, as of the Closing Date, of the representations
and warranties on the part of the Company herein contained, to the fulfillment
of or compliance by the
11
<PAGE>
Company with all covenants and conditions hereof, and to the following
additional conditions:
9.1 Counsel to the Agent shall not have objected in writing or shall
not have failed to give his consent to the Offering Documents (which objection
or failure to give consent shall not have been done unreasonably).
9.2 The Agent shall not have disclosed to the Company that the
Offering Documents, or any amendment thereof or supplement thereto, contains an
untrue statement of fact, which, in the opinion of counsel to the Agent, is
material, or omits to state a fact, which, in the opinion of such counsel, is
material and is required to be stated therein, or is necessary to make the
statements therein, under the circumstances in which they were made, not
misleading.
9.3 Between the date hereof and the 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 would materially adversely
affect its business or property considered as an entire entity, whether or not
such loss is covered by insurance.
9.4 Between the date hereof and the 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, license,
permits, operations or financial condition or income of the Company considered
as an entity.
9.5 Except as contemplated herein or as set forth in the Offering
Documents, during the period subsequent to the most recent financial statements
contained in the Offering Documents, if any, and prior to the Closing Date, the
Company (i) shall have conducted its business in the usual and ordinary manner
as the same is being conducted as of the date hereof and (ii) except in the
ordinary course of business, the Company shall not have incurred any liabilities
or obligations (direct or contingent) or disposed of any assets, or entered into
any material transaction or suffered or experienced any substantially adverse
change in its condition, financial or otherwise. At the Closing Date, the
equity account of the Company shall be substantially the same as reflected in
the most recent balance sheet contained in the Offering Documents except for
reductions for matters discussed in Exhibit G of the Subscription Agreements and
without considering the proceeds from the sale of the Securities other than as
may be set forth in the Offering Documents.
9.6 The authorization of the Securities by the Company and all
proceedings and other legal matters incident thereto and to this Agreement shall
be
12
<PAGE>
reasonably satisfactory in all respects to counsel to the Agent, who shall have
furnished the Agent on the Closing Date with such favorable opinion with respect
to the sufficiency of all corporate proceedings and other legal matters relating
to this Agreement as the Agent may reasonably require, and the Company shall
have furnished such counsel such documents as he may have requested to enable
him to pass upon the matters referred to in this subparagraph.
9.7 The Company shall have furnished to the Agent the opinion,
dated the Closing Date, addressed to the Agent, from counsel to the Company, as
required by the Subscription Agreement.
10. TERMINATION.
10.1 This Agreement may be terminated by the Agent by notice to the
Company in the event that the Company shall have failed or been unable to comply
with any of the material terms, conditions or provisions of this Agreement on
the part of the Company to be performed, complied with fulfilled within the
respective times, if any, herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by the
Agent in writing. However, if any material breach by Company can be cured
within a reasonable period of time, Agent shall provide Company such reasonable
period to cure.
10.2 This Agreement may be terminated by the Company by notice to the
Agent in the event that the Agent shall have failed or been unable to comply
with any of the terms, conditions or provisions of this Agreement on the part of
the Agent to be performed, complied with or fulfilled within the respective
times, if any, herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by the Company in
writing. However, if any material breach by Agent can be cured within a
reasonable period of time, Company shall provide Agent such reasonable period to
cure.
10.3 This Agreement may be terminated by the Agent by notice to the
Company at any time, if, in the reasonable, good faith judgment of the Agent,
payment for and delivery of the Securities is rendered impracticable or
inadvisable because: (i) additional material governmental restrictions not in
force and effect on the date hereof shall have been imposed upon trading in
securities generally; (ii) a war or other national calamity shall have occurred;
or (iii) the condition of the market (either generally or with reference to the
sale of the Securities to be offered hereby) or 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 Agent, to
proceed with this Agreement or with the Offering.
13
<PAGE>
10.4 Any termination of this Agreement pursuant to this Section 11
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 shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 3 and 5; and the
Company and the Agent shall be obligated to pay, respectively, all losses,
claims, damages or liabilities, joint or several, under Section 7.1 in the case
of the Company and Section 7.2 in the case of the Agent.
11. AGENT'S REPRESENTATIONS, WARRANTIES AND COVENANTS. The Agent
represents and warrants to and agrees with the Company that:
11.1 Agent is a limited liability company duly incorporated and
existing under the laws of the state of Georgia. Agent is an OSJ branch office
of Dunwoody Brokerage, a licensed NASD broker-dealer, and a member of SIPC.
11.2 There is not now pending or threatened against the Agent any
action or proceeding of which the Agent has been advised, either in any court of
competent jurisdiction, before the Commission or before any state securities
commission or the NASD, concerning the Agent's activities which would impair the
ability of the Agent to conduct the Offering as contemplated by this Agreement.
11.3 In the event any action or proceeding of the type referred to in
Section 11.2 above shall be instituted or threatened against the Agent at any
time prior to the Closing Date or, in the event there shall be filed by or
against the 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 Agent
makes an assignment for the benefit of creditors, the Company shall have the
right, on three (3) days' written notice to the Agent, to terminate this
Agreement without any liability to the Agent of any kind, except for the payment
of all expenses provided herein.
11.4 Agent understands and acknowledges that prior to issuance, the
Securities are not being registered under the Act, and that the Offering is to
be conducted pursuant to Regulation D. Accordingly, in conducting its
activities under this Agreement:
(a) Agent has not offered or sold and will not offer or sell any
Securities to any investor which Agent does have reasonable grounds to believe,
or does not believe, is an "Accredited Investor," within the meaning of
Regulation D under the Act.
(b) Agent has not offered or sold and will not offer or sell any
Securities by means of any form of general solicitation or general advertising,
including, but not limited to, the following:
14
<PAGE>
(1) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar medium or
broadcast over television or radio; and
(2) any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising.
(c) Agent will not solicit or accept the subscription of any person
unless immediately before accepting such subscription Agent has reasonable
grounds to believe and does believe that (i) such person is an Accredited
Investor and (ii) all representations made and information furnished by such
person in the Subscription Agreement and related documents are true and correct
in all material respects.
(d) Agent will not solicit any purchasers of any Securities unless
the Offering Documents are furnished to such prospective purchaser.
(g) Upon notice from the Company that the Offering Documents are
required to be amended or supplemented, Agent will immediately cease use of the
Offering Documents until Agent has received such amendment or supplement and
thereafter will make use of the Offering Documents only as so amended or
supplemented, and Agent will deliver a copy of such amendment or supplement to
each prospective investor to whom a copy of the Offering Documents had
previously been delivered (and who has not returned such copy).
(h) Agent will conduct the offering of the Securities in a manner
that will allow the availability of the private offering exemption from federal
securities regulation provided by Regulation D promulgated under the Securities
Act of 1933, as amended.
(i) Agent will notify the Company in writing promptly when any event
shall have occurred during the Offering Period as a result of which any
representation or warranty of the Agent herein would not be true.
11.5 Neither the Agent nor any of its Affiliates will take any action
which will impair the effectiveness of the transactions contemplated by this
Agreement.
11.6 All corporate actions by Agent required for the execution,
delivery and performance of this Agreement have been taken. The execution and
delivery of this Agreement by the Agent, the observance and performance thereof,
and the consummation of the transactions contemplated herein or in the Offering
Documents do not and will not constitute a material breach of, or a material
default under, any instrument or agreement by which the Agent is bound, and does
not and will not, to the best of the Agent's
15
<PAGE>
knowledge, contravene any existing law, decree or order applicable to it. This
Agreement constitutes a valid and binding agreement of Agent, enforceable in
accordance with its terms.
11.7 Agent understands that the Company is relying upon Agent's
representations and warranties in connection with the Offering and the sale of
the Securities contemplated by this Agreement.
11.8 Agent's representations and warranties under this Section 11
shall be true and correct as of the Closing, and shall survive the Closing
indefinitely.
12. NOTICES. Except as otherwise expressly provided in this Agreement:
12.1 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, at:
If to Company: Attn: E. A. Milo Mattorano
Lasertechnics, Inc.
3208 Commander Drive
Carrollton, TX 75006
Phone: (214) 407-6080
Fax: (214) 407-9085
with a copy to: Kenneth Siegel, Esq.
Baker & Botts, LLP
599 Lexington Avenue, 28th Floor
New York, NY 10022
Phone: (212) 705-5023
Fax: (212) 705-5125
12.2 Whenever notice is required by the provisions of this Agreement
to be given to the Agent, such notice shall be given in writing, addressed to
the Agent, at:
If to the Agent: Swartz Investments, LLC
1080 Holcomb Bridge Road
200 Roswell Summit, Suite 285
Roswell, Georgia 30076
Attn: Eric Swartz, President
with a copy to: David Kern Peteler, Esq.
Tisdale & Nicholson
2049 Century Park East, Suite 755
16
<PAGE>
Los Angeles, California 90067
Phone: (310) 286-1260
Fax: (310) 286-2351
12.3 Any notice instructing the Escrow Agent to distribute monies or
Securities held in Escrow must be signed by authorized agents of both the
Company and the Placement Agent in order to be valid.
13. MISCELLANEOUS.
13.1 Benefit. This Agreement is made solely for the benefit of the
Agent and the Company, their respective officers and directors and any
controlling person referred to in Section 15 of the Act and their respective
successors and assigns, and no other person may acquire or have any right under
or by virtue of this Agreement, including, without limitation, the holders of
any Securities. 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
Securities.
13.2 Survival. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company and
the Agent, or the officers, directors or controlling persons of the Company and
the Agent as set forth in or made pursuant to this Agreement and the indemnity
agreements of the Company and the Agent shall survive and remain in full force
and effect, regardless of (i) any investigation made by or on behalf of the
Company or the Agent or any such officer, director or controlling person of the
Company or of the Agent; (ii) delivery of or payment for the Securities; or
(iii) the Closing Date, and any successor of the Company or the Agent or any
controlling person, officer or director thereof, as the case may be, shall be
entitled to the benefits hereof.
13.3 Governing Law, Jurisdiction and Venue. The validity,
interpretation and construction of this Agreement and of each party hereof will
be governed by the Laws of the State of Georgia. The parties to this Agreement
consent to the jurisdiction of the state and federal courts of the State of
Georgia with respects to any action arising from this Agreement and said courts
of the State of Georgia shall have sole and exclusive jurisdiction over any
action arising from this Agreement. Venue shall lie in Fulton County.
13.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
13.5 Confidential Information. All confidential financial or
business information (except publicly available or freely usable material
otherwise obtained from
17
<PAGE>
another source) respecting either party will be used solely by the other party
in connection with the within transactions, be revealed only to employees or
contractors of such other party who are necessary to the conduct of such
transactions, and be otherwise held in strict confidence.
13.6 Public Announcements. Neither party hereto will issue any public
announcement concerning the within transactions without the approval of the
other party. The Agent shall have the right to approve any press release issued
by the Company in connection with the Offering which approval shall not be
unreasonably withheld.
13.7 Finders. Company represents that it is not obligated to pay
any compensation or other fees, costs or related expenditures in cash or
securities to any underwriter, broker, agent, finder or other representative
other than Agent. Company agrees to indemnify the Agent with respect to any
other claim for a fee in connection with the Offering. Agent agrees to
indemnify the Company with respect to any claim for a finder's fee which arises
because of Agent's agreement to pay a fee to the person or entity making such
claim.
13.8 Recitals. The recitals to this Agreement are a material part
hereof, and each recital is incorporated into this Agreement by reference and
made a part of this Agreement.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly caused this Placement
Agent Agreement to be executed as of the day and year first above written.
"THE COMPANY"
LASERTECHNICS, INC.
By: _______________________________
E. A. Milo Mattorano, Vice President
"THE AGENT"
SWARTZ INVESTMENTS, LLC
By:______________________________
Eric Swartz, President
19
<PAGE>
Exhibit 11
Lasertechnics, Inc. and Subsidiaries
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------------ -----------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Shares outstanding:
Weighted average shares outstanding: 32,127,285 26,219,110 33,008,899 26,285,831
Net loss applicable to common stock $ (6,078,333) $ (4,350,767) $ (3,929,965) $ (2,575,240)
Net loss per share $ (0.19) $ (0.17) $ (0.12) $ (0.10)
=============== =============== =============== ==============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 426,560
<SECURITIES> 0
<RECEIVABLES> 5,110,917
<ALLOWANCES> 264,177
<INVENTORY> 6,572,587
<CURRENT-ASSETS> 12,582,376
<PP&E> 3,058,645
<DEPRECIATION> 259,683
<TOTAL-ASSETS> 16,452,579
<CURRENT-LIABILITIES> 8,932,755
<BONDS> 5,810,640
0
4,069,880
<COMMON> 318,674
<OTHER-SE> (1,682,210)
<TOTAL-LIABILITY-AND-EQUITY> 16,452,579
<SALES> 7,565,923
<TOTAL-REVENUES> 7,565,923
<CGS> 4,830,876
<TOTAL-COSTS> 4,830,876
<OTHER-EXPENSES> 43,114
<LOSS-PROVISION> 128,883
<INTEREST-EXPENSE> 968,703
<INCOME-PRETAX> (5,876,955)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,876,955)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,078,333)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> 0
</TABLE>
