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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 23, 1998
____________________________________________________________
Date of Report (Date of earliest event reported)
NANOPIERCE TECHNOLOGIES, INC.
____________________________________________________________
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Nevada 33-19598-D 84-0992908
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(State or other jurisdiction (Commission File Number) (IRS Employer
Of incorporation) Identification Number)
</TABLE>
370 17th Street, Suite 3290
Denver, Colorado 80202
____________________________________________________________
(Address of principal executive offices) (Zip Code)
(303) 592-1010
____________________________________________________________
(Registrant's telephone number, including area code)
SUNLIGHT SYSTEMS, LTD.
5222 S. Holly
Greenwood Village, CO 80111
____________________________________________________________
(Former name or former address, if changed since last report)
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ITEM 5 OTHER EVENTS
On July 23, 1998 (the "Closing Date"), Nanopierce Technologies, Inc. (the
"Registrant") completed an offering of up to 150,000 of its Series B Convertible
Preferred Shares ("Series B Shares") and up to 700,000 of its Series C
Convertible Preferred Shares ("Series C Shares") for an aggregate purchase price
of $8,500,000 ($10/share) pursuant to Rule 506 of Regulation D of the Securities
Act of 1933, as amended. Subject to certain conditions, the Registrant can
access staged amounts of the $8,500,000 over the next two (2) years, if, when
and as required. If the Registrant draws down the entire financing, it will
receive net proceeds of approximately $7,450,000.
In connection with the sale of 50,000 Series B Shares on the Closing Date,
the Registrant issued to the purchaser thereof (the "Purchaser") a warrant to
purchase 50,000 shares of the Registrant's par value $0.0001 common stock
("Common Stock") at a price of $3.515625 per share (125% of the closing bid
price on the Closing Date). The warrant expires on July 22, 2001.
In connection with each additional sale of Series B Shares and Series C
Shares, the Registrant must issue to the Purchaser a warrant to purchase the
number of shares of Common Stock that is equal to the number of shares of
preferred stock acquired in such sale. The strike price of such warrants will
be equal to 125% of the closing bid price of the Common Stock on the date of
sale, and each such warrant will be exercisable for three (3) years from the
date of issuance.
If the Registrant fails to sell at least 250,000 Series C Shares to the
Purchaser before July 22, 2000 because certain conditions have not been met by
the Registrant, it must issue to the Purchaser a warrant to purchase the number
of shares of Common Stock that is equal to (a) 250,000 minus (b) the number of
Series C Shares sold to the Purchaser. The strike price of such warrants will
be equal to 100% of the closing bid price of the Common Stock on July 23, 1998,
and such warrant will be exercisable for three (3) years from the date of
issuance.
As payment for their services, the Registrant's investment bankers received
a warrant to purchase 70,000 shares of Common Stock at a price of $2.8125 per
share. The warrant and the shares of Common Stock issuable upon exercise of the
warrant are subject to certain registration rights. The warrant expires on July
22, 2003.
The Series B Shares and the Series C Shares each have a par value of
$0.0001 per share and a deemed value of $10.00 per share. Neither the Series B
Shares nor the Series C Shares have any voting rights other than those expressly
required by the laws of the State of Nevada.
At any time after 20 days from the date of issuance, the Series B Shares
may be converted into the number of shares of Common Stock that equals $10.00
per share tendered for conversion, plus accumulated and unpaid dividends
thereon, divided by the lesser of either (i) 110% of the average of the closing
bid prices per share of the Common Stock on the market on which the Common Stock
is listed for trading for the five (5) trading days preceding the date of
purchase of such Series B Shares or (ii) 80% of the average of the closing bid
prices per share similarly determined for the five (5) trading days preceding
the date such conversion is deemed to have been made.
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At any time after five (5) days from the date of issuance, the Series C
Shares may be converted into the number of shares of Common Stock that equals
$10.00 per share tendered for conversion, plus accumulated and unpaid dividends
thereon, divided by 82.5% of the average of the closing bid prices per share of
the Common Stock on the market on which the Common Stock is listed for trading
for the five (5) trading days preceding the date such conversion is deemed to
have been made.
Pursuant to the Registration Rights Agreement executed in connection with
the sale of the preferred shares, within 60 business days of July 23, 1998, the
Registrant must file a registration statement with the Securities and Exchange
Commission covering the shares of Common Stock into which the Series B Shares
and Series C Shares are convertible and for which the warrants issued to the
Purchaser are exercisable.
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ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
4.1 Articles of Amendment to Articles of Incorporation Regarding
Preferences, Limitations and Relative Rights of Convertible Preferred
Stock, Series B.
4.2 Articles of Amendment to Articles of Incorporation Regarding
Preferences, Limitations and Relative Rights of Convertible Preferred
Stock, Series C.
4.3 Securities Purchase Agreement between the Registrant and Mr. Y. L.
Hirsch, dated July 23, 1998.
4.4 Registration Rights Agreement between the Registrant and Mr. Y. L.
Hirsch, dated July 23, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: August 7, 1998 NANOPIERCE TECHNOLOGIES, INC.
By /s/ Paul Metzinger
------------------------------
Paul Metzinger,
Executive Vice President
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EXHIBIT 4.1
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF
CONVERTIBLE PREFERRED STOCK, SERIES B
OF
NANOPIERCE TECHNOLOGIES, INC.
NANOPIERCE TECHNOLOGIES, INC., a Nevada corporation (the "Corporation"),
does hereby certify that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, as amended, of the Corporation and
pursuant to the Nevada General Corporation Law, said Board of Directors, by
written consent of all directors dated July 13, 1998, duly adopted the following
resolution:
RESOLVED, that, pursuant to the authority expressly granted to and vested
in the Board of Directors of NANOPIERCE TECHNOLOGIES, INC., a Nevada corporation
(the "Corporation"), by the Articles of Incorporation, as amended, of the
Corporation, the Board of Directors hereby creates out of the Corporation's
authorized preferred stock, $0.0001 par value per share, a series of preferred
stock to consist of not more than 150,000 shares, with a deemed value of $10.00
per share, and the Board of Directors hereby fixes the designation and the
powers, preferences and rights, and the qualifications, limitations or
restrictions of the shares of such series as follows:
1. DESIGNATION. This resolution shall provide for a single series of
convertible preferred stock, the designation of which shall be "Preferred Stock-
- -Series B" (hereinafter the "Preferred Series B Shares" or the "Preferred
Shares") and the number of authorized shares constituting the Preferred Series B
Shares is 150,000. The number of authorized Preferred Series B Shares may be
reduced or increased by a further resolution duly adopted by the Board of
Directors of the Corporation and by the filing of an amendment to the
Corporation's Articles of Incorporation pursuant to the provisions of the Nevada
General Corporation Law stating that such reduction or increase has been so
authorized.
2. VOTING. Except as expressly required by the laws of the State of
Nevada, the holders of the Preferred Shares shall have no voting rights and
shall not be entitled to notice of meetings of shareholders, and the exclusive
voting power shall be vested in the holders of the shares of the Corporation's
Common Stock, $.0001 par value per share (the "Common Stock"), and/or in any
other series of the Corporation's preferred stock now or at any time hereafter
issued and outstanding having voting rights. Any corporate action that may
require a vote of the holders of the Preferred Shares as a class shall be deemed
to have been approved by that class upon the affirmative vote by the holders of
a majority of the issued and outstanding Preferred Shares unless a higher voting
requirement is imposed by the Nevada General Corporation Law. If any corporate
action shall require a vote of the holders of the Preferred Shares other than as
a class, the Preferred Shares shall vote as a group with the Common Stock as if
the Preferred Shares had been fully converted three (3) business days prior to
the date of the vote.
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3. DIVIDENDS.
3.1 RATE. Holders of Preferred Shares shall be entitled to receive,
out of any funds of the Corporation legally available for that purpose,
cumulative dividends from the date of issuance at the rate of $.70 per year per
Preferred Share, payable quarterly (pro-rated for partial quarters) in arrears
in cash, or, at the option of the Corporation, in shares of its Free-Trading
Common Stock (as defined herein), on the first day of April, July, October and
January of each year commencing October 1, 1998 (each such date being
hereinafter individually referred to as the "Dividend Payment Date" and
collectively as the "Dividend Payment Dates"). Each such dividend shall be paid
to the holders of record of the Preferred Shares as they appear on the books of
the Corporation on the record date, which shall be not less than 30 days prior
to the related Dividend Payment Date. Dividends on the Preferred Shares shall
be declared and paid to the extent the Corporation is legally able to do so and
shall be cumulative to the extent not declared and paid. Holders of Preferred
Shares shall not be entitled to any dividends, whether payable in cash, property
or stock, in excess of full dividends as herein provided on the Preferred
Shares. "Free-Trading Common Stock" shall mean shares of Common Stock that are
not "restricted securities" as defined in Rule 144 under the Securities Act of
1933 (the "Securities Act").
3.2 DIVIDENDS ON COMMON STOCK. No dividends (other than those
payable solely in Common Stock) shall be paid with respect to the Common Stock
during any fiscal year of the Corporation unless all accumulated and unpaid
dividends and the quarterly dividend on the shares of Preferred Stock for the
then current dividend period shall have been declared and a sum sufficient for
the payment thereof set apart. No shares of Common Stock shall be purchased,
redeemed or acquired by the Corporation, and no funds shall be paid into or set
aside or made available for a sinking fund for the purchase, redemption or
acquisition thereof except (A) in transactions aggregating not more than
$100,000.00 per year, (B) in transactions resulting from a legal obligation of
the Corporation to redeem, purchase or otherwise acquire its securities arising
prior to the date hereof, or (C) pursuant to Section 5.1 herein.
4. REDEMPTION. Except as provided in Section 3.2 herein, the Preferred
Shares shall not be redeemable at any time prior to September 30, 1998.
Thereafter, the Corporation, on the sole authority of its Board of Directors,
may, at its option and at any time prior to notice of conversion of the
Preferred Shares by the holder thereof as hereinafter provided, redeem all or
any part of the Preferred Shares at the time issued and outstanding for an
amount in cash equal to $12.00 per share plus any accumulated and unpaid
dividends. Except as provided in Section 3.2 herein, if less than all the
Preferred Shares are to be redeemed, then such redemption shall be pro rata
based on the number of Preferred Shares owned of record by each Preferred
Shareholder. Written notice of redemption stating the date and place of
redemption and the amount of the redemption price shall be mailed by the
Corporation not less than 30 days nor more than 60 days prior to the redemption
date to the record holders of the shares to be redeemed directed to their last
known address as shown by the Corporation records. During such notice period,
the holder shall have the right to convert all or any portion of the Preferred
Shares being redeemed into shares of Common Stock at the Conversion Price
(defined below), in accordance with Section 5.3 below. Otherwise, if notice of
redemption is given as provided above and if on the redemption date the
Corporation has set apart in trust for the purpose sufficient funds for such
redemption, then from and after the redemption date, notwithstanding that any
certificate for
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such shares has not been surrendered for cancellation (other than duly converted
portions of the Preferred Shares), the Preferred Shares called for redemption
shall no longer be deemed to be outstanding and all rights with respect to such
shares shall forthwith cease and terminate, except only the right of the holders
thereof to receive the redemption price without interest upon surrender of
certificates representing the shares called for redemption. Any monies remaining
in trust after one year from the redemption date shall be returned to the
Corporation and thereafter holders of certificates for such shares shall look
only to the Corporation for the redemption price thereof. Upon conversion of any
Preferred Shares called for redemption into Common Stock, then the portion of
the monies held in trust for redemption of such shares shall forthwith be
returned to the Corporation.
5. CONVERSION.
5.1 PROHIBITION AGAINST SHORT SALES. No holder of Preferred Shares
shall directly or indirectly effect a short sale of the Corporation's Common
Stock for the holder's own account or for the account of a Related Person.
"Short sale" shall mean any sale of a security which the seller does not
beneficially own or any sale which is consummated by the delivery of a security
borrowed by, or for the account of, the seller, in either case whether or not
the seller is the owner of Common Stock at the time of such sale. "Related
Person" shall mean (A) any member of the holder's immediate family; (B) any
entity of which the holder is an officer, director, or holder of a position
having comparable duties or responsibilities; (C) any entity in which the holder
is the owner of an equity interest; and (D) any person which would be deemed to
be an "affiliate" of the holder as that term is defined in the Securities Act of
1933 or the rules and regulations promulgated thereunder.
(a) In the event of any willful violation of this prohibition
against short sales, the Preferred Shares owned by the violating holder shall
cease to be convertible into shares of the Corporation's Common Stock, and the
Corporation shall have the assignable right, exercisable at any time thereafter,
to redeem all Preferred Shares and all shares of Common Stock issued upon
conversion of Preferred Shares beneficially owned by the violating holder for an
amount equal to 90% of the following, whichever is applicable: (i) the par value
of the Preferred Shares, or (ii) the market value of the shares of Common Stock
issued, or which would have been issuable but for such violation, upon full
conversion of such Preferred Shares. In the event a holder of Preferred Shares
effects a short sale and thereafter converts all or any portion of such
Preferred Shares and sells or otherwise disposes of the shares of Common Stock
issued upon such conversion, the Corporation shall be entitled, at any time
thereafter, to recover from such holder the profit made or realized by such
holder upon sale or other disposition of such Common Stock.
(b) In the event of any willful breach of this short sale
prohibition by any holder of Preferred Shares, then such holder agrees to
indemnify and hold harmless the Corporation, its officers, directors,
shareholders, employees, agents, affiliates, and their respective heirs,
personal representatives, successors and assigns, from and against any and all
claims, damages, demands, judgments, liabilities costs and expenses of any
nature whatsoever relating to or arising out of such breach and to promptly
reimburse all such persons for any and all costs and expenses incurred by them
in connection with or relating to such default, including costs of investigation
and reasonable fees of its or their lawyers, accountants and other experts.
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5.2 CONVERSION RATE. So long as a holder of Preferred Shares is not
in breach of Section 5 herein and subject to Section 5.8 herein, such holder
shall have the right, exercisable at any time after 20 days from the date of
issuance of the Preferred Shares (the "Hold Period"), and on or before the close
of business on the second full business day preceding the date, if any, fixed
for the redemption of such shares as provided herein, to surrender the
certificate or certificates evidencing such shares and receive in lieu and in
conversion thereof, and in lieu of accumulated and unpaid dividends thereon,
that number of shares of the Corporation's Common Stock as equals $10.00 per
share of Preferred Stock tendered for conversion, plus accumulated and unpaid
dividends thereon, divided by the lesser of either (A) 110% of the average of
the closing bid prices per share of the Corporation's Common Stock on the Nasdaq
Stock Market, any national securities exchange, the OTC Bulletin Board or any
other market on which the Common Stock is listed for trading for the five
trading days preceding the date of purchase of the Preferred Shares by the
holder (which shall be deemed to be the date of execution by the holder of a
securities purchase agreement between the holder and the Company for the
purchase of Preferred Shares, and delivery to the Company of the purchase price
therefor); or (B) 80% of the average of the closing bid prices per share
similarly determined for the five trading days preceding the date such
conversion is deemed to have been made, as subsequently defined herein.
5.3 MECHANICS OF CONVERSION.
(a) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred Shares
into full shares of Common Stock, the holder thereof shall (A) deliver or
transmit by facsimile, for receipt on or prior to 4:00 p.m., New York time (the
"Conversion Notice Deadline") on the date of conversion, a copy of the fully
executed notice of conversion ("Notice of Conversion") to the Corporation at the
office of the Corporation or its designated transfer agent (the "Transfer
Agent"), and (B) surrender to a common carrier for delivery to the office of the
Corporation or the Transfer Agent, the original certificates representing the
Preferred Shares being converted (the "Preferred Stock Certificates"), duly
endorsed for cancellation. The holder of the Preferred Shares shall have the
right to convert fewer than the full number of Preferred Shares held at any
given time, but in no event less than 2,000 Preferred Shares at one time (unless
the total number of Preferred Shares held by such holder is less than 2,000, in
which case the holder may convert such remaining amount).
(b) CORPORATION'S RESPONSE. Upon receipt by the Corporation of a
facsimile copy of such Notice of Conversion, the Corporation shall send, via
facsimile, a confirmation of receipt of such Notice of Conversion to such
holder, which shall specify that the Notice of Conversion has been received and
the name and telephone number of a contact person at the Corporation whom the
holder should contact regarding information related to such conversion. Upon
----
receipt by the Corporation or the Transfer Agent of the Preferred Stock
- ------- ---------------
Certificates to be converted pursuant to a Notice of Conversion (or an
- ------------ --------------------
indemnification undertaking reasonably satisfactory to the Corporation with
respect to such shares in the case of their loss, theft or destruction) together
with the originally executed Notice of Conversion, the Corporation or the
----------------------------------------
Transfer Agent (as applicable) shall, within two business days after the date of
receipt (or the next business day if received before 11:00 a.m. local time of
the Corporation or Transfer Agent, as applicable) (the "Deadline"), issue and
surrender to a common carrier for either overnight or (if delivery is outside
the United States) two (2) day delivery to the address as
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specified in the Notice of Conversion, a certificate for the number of shares of
Common Stock to which the holder shall be entitled as aforesaid. In the case of
a dispute as to the calculation of the conversion rate, the Corporation shall
promptly issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed calculations to its outside accountant
via facsimile within one (1) day of receipt of such holder's Notice of
Conversion. The Corporation shall cause the accountant to perform the
calculations and notify the Corporation and the holder of the results no later
than twenty-four (24) hours from the time it receives the disputed calculations.
Such accountant's calculation shall be deemed conclusive absent manifest error.
Should the Notice of Conversion specify a smaller number of Preferred Shares to
be converted than are represented by the Preferred Stock Certificate surrendered
to the Corporation, then the Corporation shall immediately issue a new Preferred
Stock Certificate representing the number of Preferred Shares not yet converted,
and deliver the same to the holder thereof along with the Common Stock as stated
above.
(c) 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 (A) that the advance copy of the Notice of Conversion is
faxed to the Corporation before 4:00 p.m., New York time, on the Date of
Conversion, and (B) that the original Preferred Stock Certificates representing
the Preferred Shares to be converted, together with the originally executed
Notice of Conversion, are surrendered by depositing such certificates and Notice
with a common carrier, as provided above, and received by the Transfer Agent or
the Corporation on or prior to the second (2nd) business day following the Date
of Conversion. In the event the Preferred Stock Certificates and the originally
executed Notice of Conversion are not received within three (3) business days
after the date of the Notice of Conversion, the Notice of Conversion shall be
deemed null and void and no conversion of Preferred Shares shall be effected
thereby. The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated, as of three (3) business days
after the Date of Conversion, for all purposes as the record holder or holders
of such shares of Common Stock on the Date of Conversion.
(d) Notwithstanding anything contained herein to the contrary, if any
action is required herein to be taken by the Company or the Transfer Agent on a
day which is not a business day, then such action shall be deemed to be timely
if taken on the next following business day.
(e) Notwithstanding anything herein to the contrary, the holder of
Preferred Shares shall have the right to place the original Preferred Share
certificate(s) in trust with the escrow agent responsible for closing the sale
of the Preferred Shares (the "Escrow Agent"), such that, to effect conversion of
such Preferred Shares, the holder thereof shall submit to the Company a
facsimile and then an original Notice of Conversion as described in the
preceding Sections, but the original Preferred Share certificate being converted
shall continue to be held by the Escrow Agent, who will keep a register (along
with the Company and such holder) of the number of Preferred Shares converted.
Such holder shall send a copy of each Notice of Conversion to the Escrow Agent
simultaneously with its transmission to the Company. Upon conversion or
redemption of all of the Preferred Shares so held in trust by the Escrow Agent,
the Escrow Agent shall surrender the certificate(s) representing such converted
Preferred Shares to the Company for cancellation.
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5.4 OPTIONAL CONVERSION. At the option of the Company, if any
Preferred Shares remain outstanding on December 31, 1999, then all or any part
of such Preferred Shares as the Company elects shall be converted in accordance
with Section 5.3 as if the holders of such Preferred Shares had given the Notice
of Conversion effective as of that date, and the Date of Conversion had been
fixed as of December 31, 1999 for all purposes of Paragraph 5.3. Following
notice by the Company to the holders, all holders of Preferred Stock
certificates shall within five (5) business days after receipt of such notice
surrender all Preferred Stock certificates, duly endorsed for cancellation, to
the Corporation or the Transfer Agent, as the Corporation may direct. No person
shall thereafter have any rights in respect of Preferred Shares, except the
right to receive shares of Common Stock on conversion thereof as provided in
this Section 5.
5.5 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of Preferred Shares shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a reorganization, merger, consolidation or sale of assets provided for
below), then and in each such event, the holder of each Preferred Share shall
have the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such Preferred Shares might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
5.6 MERGER OR OTHER TRANSACTIONS. In the event the Corporation, at
any time while any of the Preferred Shares are outstanding, shall be
consolidated with or merged into any other corporation or corporations or shall
sell or lease all or substantially all of its property and business as an
entirety, then lawful provisions shall be made as part of the terms of such
consolidation, merger, sale or lease so that the holder of any Preferred Shares
may thereafter receive in lieu of such Common Stock otherwise issuable to him
upon conversion of his Preferred Shares, but at the conversion rate which would
otherwise be in effect at the time of conversion, as hereinbefore provided, the
same kind and amount of securities or assets as may be issuable, distributable
or payable upon such consolidation, merger, sale or lease with respect to Common
Stock of the Corporation.
5.7 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon conversion of Preferred Shares. With
respect to any fraction of a share called for upon any such conversion, the
Corporation shall pay to the holder of the converted Preferred Share an amount
in cash equal to such fraction multiplied by the current market value of such
fractional share determined by the Board of Directors in good faith, which
determination shall be conclusive and binding upon such holder.
5.8 RESERVATION OF COMMON SHARES. The Corporation shall at all times
reserve and keep available out of its authorized but unissued Common Stock the
number of shares of Common Stock deliverable upon conversion of all the issued
and outstanding Preferred Shares and shall take such action to obtain such
permits or orders as may be necessary to enable the Corporation lawfully to
issue such Common Stock upon the conversion of the Preferred Shares.
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6. RIGHTS ON LIQUIDATION. In the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, resulting in
any distribution of its assets to its shareholders, the holders of the Preferred
Shares then issued and outstanding shall be entitled to receive an amount equal
to $10.00 per Preferred Share plus any accumulated but unpaid dividends, and no
more, before any payment or distribution of the assets of the Corporation is
made to or set apart for the holders of Common Stock. If the assets of the
Corporation distributable to the holders of Preferred Shares are insufficient
for the payment to them of the full preferential amount described above, such
assets shall be distributed ratably among the holders of the Preferred Shares.
The holders of the Common Stock shall be entitled to the exclusion of the
holders of the Preferred Shares to share in all remaining assets of the
Corporation in accordance with their respective interests. For purposes of this
paragraph, a consolidation or merger of the Corporation with any other
corporation or corporations shall not be deemed to be a liquidation, dissolution
or winding up of the Corporation.
7. NOTICE. Any notice required to be given to the holders of Preferred
Shares or any securities issued upon conversion thereof shall be deemed to have
been given upon the earlier of personal delivery or three days after deposit in
the United States mails by registered or certified mail, return receipt
requested, with postage fully prepaid, and addressed to each holder of record at
his address as it appears on the stock transfer records of the Corporation. Any
notice to the Corporation shall be in writing and shall be deemed to have been
given only upon actual receipt thereof.
8. LEGEND. All certificates representing the Preferred Shares, all shares
of Common Stock issued upon conversion thereof and any and all securities issued
in replacement thereof or in exchange therefor shall bear such legends (or not)
as shall be required by law or contract.
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IN WITNESS WHEREOF, NANOPIERCE TECHNOLOGIES, INC. has caused its corporate
seal to be affixed hereto and this certificate to be signed by its President and
Secretary this 13th day of July, 1998.
NANOPIERCE TECHNOLOGIES, INC.
[S E A L] By:________________________________
Gilbert Olachea,
President & Chief Executive Officer
ATTEST:
_________________________________
Kristi J. Kampmann, Secretary
STATE OF COLORADO )
) SS.
COUNTY OF DENVER )
I, Paul H. Metzinger, a Notary Public, hereby certify that on the 14th day
of July, 1998, Gilbert Olachea and Kristi J. Kampmann, the President and
Secretary of Nanopierce Technologies, Inc., respectively, personally appeared
before me, who being by me first duly sworn declared that he is the person who
signed the foregoing, and that the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on the date
hereinbefore mentioned.
My commission expires ______________________
____________________________
Notary Public
8
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EXHIBIT 4.2
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF
CONVERTIBLE PREFERRED STOCK, SERIES C
OF
NANOPIERCE TECHNOLOGIES, INC.
NANOPIERCE TECHNOLOGIES, INC., a Nevada corporation (the "Corporation"),
does hereby certify that pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, as amended, of the Corporation and
pursuant to the Nevada General Corporation Law, by written consent of all
directors dated July 13, 1998, duly adopted the following resolution:
RESOLVED, that, pursuant to the authority expressly granted to and vested
in the Board of Directors of NANOPIERCE TECHNOLOGIES, INC., a Nevada
corporation (the "Corporation"), by the Articles of Incorporation, as amended,
of the Corporation, the Board of Directors hereby creates out of the authorized
preferred stock, $0.0001 par value per shares, a series of preferred stock to
consist of not more than 700,000 shares, with a deemed value of $10.00 per share
and the Board of Directors hereby fixes the designation and the powers,
preferences and rights, and the qualifications, limitations or restrictions of
the shares of such series as follows:
1. DESIGNATION. This resolution shall provide for a single series of
convertible preferred stock, the designation of which shall be "Preferred Stock-
- -Series C" (hereinafter the "Preferred Series C Shares" or the "Preferred
Shares") and the number of authorized shares constituting the Preferred Series C
Shares is 700,000. The number of authorized Preferred Series C Shares may be
reduced or increased by a further resolution duly adopted by the Board of
Directors of the Corporation and by the filing of an amendment to the
Corporation's Articles of Incorporation pursuant to the provisions of the Nevada
General Corporation Law stating that such reduction or increase has been so
authorized.
2. VOTING. Except as expressly required by the laws of the State of
Nevada , the holders of the Preferred Shares shall have no voting rights and
shall not be entitled to notice of meetings of shareholders, and the exclusive
voting power shall be vested in the holders of the shares of the Corporation's
Common Stock, $.0001 par value per share (the "Common Stock"), and/or in any
other series of the Corporation's preferred stock now or at any time hereafter
issued and outstanding having voting rights. Any corporate action that may
require a vote of the holders of the Preferred Shares as a class shall be deemed
to have been approved by that class upon the affirmative vote by the holders of
a majority of the issued and outstanding Preferred Shares unless a higher voting
requirement is imposed by the Nevada General Corporation Law. If any corporate
action shall require a vote of the holders of the Preferred Shares other than as
a class, the Preferred Shares shall vote as a group with the Common Stock as if
the Preferred Shares had been fully converted three (3) business days prior to
the date of the vote.
<PAGE>
3. DIVIDENDS.
3.1 RATE. Holders of Preferred Shares shall be entitled to receive,
out of any funds of the Corporation legally available for that purpose,
cumulative dividends from the date of issuance at the rate of $.70 per year per
Preferred Share, payable quarterly (pro-rated for partial quarters) in arrears
in cash, or, at the option of the Corporation, in shares of its Free-Trading
Common Stock (as defined herein), on the first day of April, July, October and
January of each year commencing January 1, 1999 (each such date being
hereinafter individually referred to as the "Dividend Payment Date" and
collectively as the "Dividend Payment Dates"). Each such dividend shall be paid
to the holders of record of the Preferred Shares as they appear on the books of
the Corporation on the record date, which shall be not less than 30 days prior
to the related Dividend Payment Date. Dividends on the Preferred Shares shall be
declared and paid to the extent the Corporation is legally able to do so and
shall be cumulative to the extent not declared and paid. Holders of Preferred
Shares shall not be entitled to any dividends, whether payable in cash, property
or stock, in excess of full dividends as herein provided on the Preferred
Shares. "Free-Trading Common Stock" shall mean shares of Common Stock that are
not "restricted securities" as defined in Rule 144 under the Securities Act of
1933 (the "Securities Act").
3.2 DIVIDENDS ON COMMON STOCK. No dividends (other than those
payable solely in Common Stock) shall be paid with respect to the Common Stock
during any fiscal year of the Corporation unless all accumulated and unpaid
dividends and the quarterly dividend on the shares of Preferred Stock for the
then current dividend period shall have been declared and a sum sufficient for
the payment thereof set apart. No shares of Common Stock shall be purchased,
redeemed or acquired by the Corporation, and no funds shall be paid into or set
aside or made available for a sinking fund for the purchase, redemption or
acquisition thereof except (A) in transactions aggregating not more than
$100,000.00 per year, (B) in transactions resulting from a legal obligation of
the Corporation to redeem, purchase or otherwise acquire its securities arising
prior to the date hereof, or (C) pursuant to Section 5.1 herein.
4. REDEMPTION. Except as provided in Section 3.2 herein, the Preferred
Shares shall not be redeemable at any time prior to November 30, 1998.
Thereafter, the Corporation, on the sole authority of its Board of Directors,
may, at its option and at any time prior to notice of conversion of the
Preferred Shares by the holder thereof as hereinafter provided, redeem all or
any part of the Preferred Shares at the time issued and outstanding for an
amount in cash equal to $11.75 per share plus any accumulated and unpaid
dividends. Except as provided in Section 3.2 herein, if less than all the
Preferred Shares are to be redeemed, then such redemption shall be pro rata
based on the number of Preferred Shares owned of record by each Preferred
Shareholder. Written notice of redemption stating the date and place of
redemption and the amount of the redemption price shall be mailed by the
Corporation not less than 30 days nor more than 60 days prior to the redemption
date to the record holders of the shares to be redeemed directed to their last
known address as shown by the Corporation records. During such notice period,
the holder shall have the right to convert all or any portion of the Preferred
Shares being redeemed into shares of Common Stock at the Conversion Price
(defined below), in accordance with Section 5.3 below. Otherwise, if notice of
redemption is given as provided above and if on the redemption date the
Corporation has set apart in trust for the purpose sufficient funds for such
redemption, then from and after the redemption date, notwithstanding that any
certificate for
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such shares has not been surrendered for cancellation (other than duly converted
portions of the Preferred Shares), the Preferred Shares called for redemption
shall no longer be deemed to be outstanding and all rights with respect to such
shares shall forthwith cease and terminate, except only the right of the holders
thereof to receive the redemption price without interest upon surrender of
certificates representing the shares called for redemption. Any monies remaining
in trust after one year from the redemption date shall be returned to the
Corporation and thereafter holders of certificates for such shares shall look
only to the Corporation for the redemption price thereof. Upon conversion of any
Preferred Shares called for redemption into Common Stock, then the portion of
the monies held in trust for redemption of such shares shall forthwith be
returned to the Corporation.
5. CONVERSION.
5.1 PROHIBITION AGAINST SHORT SALES. No holder of Preferred Shares
shall directly or indirectly effect a short sale of the Corporation's Common
Stock for the holder's own account or for the account of a Related Person.
"Short sale" shall mean any sale of a security which the seller does not
beneficially own or any sale which is consummated by the delivery of a security
borrowed by, or for the account of, the seller, in either case whether or not
the seller is the owner of Common Stock at the time of such sale. "Related
Person" shall mean (A) any member of the holder's immediate family; (B) any
entity of which the holder is an officer, director, or holder of a position
having comparable duties or responsibilities; (C) any entity in which the holder
is the owner of an equity interest; and (D) any person which would be deemed to
be an "affiliate" of the holder as that term is defined in the Securities Act of
1933 or the rules and regulations promulgated thereunder.
(a) In the event of any willful violation of this prohibition
against short sales, the Preferred Shares owned by the violating holder shall
cease to be convertible into shares of the Corporation's Common Stock, and the
Corporation shall have the assignable right, exercisable at any time thereafter,
to redeem all Preferred Shares and all shares of Common Stock issued upon
conversion of Preferred Shares beneficially owned by the violating holder for an
amount equal to 90% of the following, whichever is applicable: (i) the par value
of the Preferred Shares, or (ii) the market value of the shares of Common Stock
issued, or which would have been issuable but for such violation, upon full
conversion of such Preferred Shares. In the event a holder of Preferred Shares
effects a short sale and thereafter converts all or any portion of such
Preferred Shares and sells or otherwise disposes of the shares of Common Stock
issued upon such conversion, the Corporation shall be entitled, at any time
thereafter, to recover from such holder the profit made or realized by such
holder upon sale or other disposition of such Common Stock.
(b) In the event of any willful breach of this short sale
prohibition by any holder of Preferred Shares, then such holder agrees to
indemnify and hold harmless the Corporation, its officers, directors,
shareholders, employees, agents, affiliates, and their respective heirs,
personal representatives, successors and assigns, from and against any and all
claims, damages, demands, judgments, liabilities costs and expenses of any
nature whatsoever relating to or arising out of such breach and to promptly
reimburse all such persons for any and all costs and expenses incurred by them
in connection with or relating to such default, including costs of investigation
and reasonable fees of its or their lawyers, accountants and other experts.
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<PAGE>
5.2 CONVERSION RATE. So long as a holder of Preferred Shares is not
in breach of Section 5 herein and subject to Section 5.8 herein, such holder
shall have the right, exercisable at any time after five days from the date of
issuance of the Preferred Shares (the "Hold Period"), and on or before the close
of business on the second full business day preceding the date, if any, fixed
for the redemption of such shares as provided herein, to surrender the
certificate or certificates evidencing such shares and receive in lieu and in
conversion thereof, and in lieu of accumulated and unpaid dividends thereon,
that number of shares of the Corporation's Common Stock as equals $10.00 per
share of Preferred Stock tendered for conversion, plus accumulated and unpaid
dividends thereon, divided by 82.5% of the average of the closing bid prices per
share of the Corporation's Common Stock on the Nasdaq Stock Market, any national
securities exchange, the OTC Bulletin Board or any other market on which the
Common Stock is listed for trading for the five trading days preceding the date
such conversion of the Preferred Shares by the holder is deemed to have been
made, as subsequently described herein.
5.3 MECHANICS OF CONVERSION.
(a) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred Shares
into full shares of Common Stock, the holder thereof shall (A) deliver or
transmit by facsimile, for receipt on or prior to 4:00 p.m., New York time (the
"Conversion Notice Deadline") on the date of conversion, a copy of the fully
executed notice of conversion ("Notice of Conversion") to the Corporation at the
office of the Corporation or its designated transfer agent (the "Transfer
Agent"), and (B) surrender to a common carrier for delivery to the office of the
Corporation or the Transfer Agent, the original certificates representing the
Preferred Shares being converted (the "Preferred Stock Certificates"), duly
endorsed for cancellation. The holder of the Preferred Shares shall have the
right to convert fewer than the full number of Preferred Shares held at any
given time, but in no event less than 2,000 Preferred Shares at one time (unless
the total number of Preferred Shares held by such holder is less than 2,000, in
which case the holder may convert such remaining amount).
(b) CORPORATION'S RESPONSE. Upon receipt by the Corporation of a
facsimile copy of such Notice of Conversion, the Corporation shall send, via
facsimile, a confirmation of receipt of such Notice of Conversion to such
holder, which shall specify that the Notice of Conversion has been received and
the name and telephone number of a contact person at the Corporation whom the
holder should contact regarding information related to such conversion. Upon
receipt by the Corporation or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to a Notice of Conversion (or an
indemnification undertaking reasonably satisfactory to the Corporation with
respect to such shares in the case of their loss, theft or destruction) together
with the originally executed Notice of Conversion, the Corporation or the
Transfer Agent (as applicable) shall, within two business days after the date of
receipt (or the next business day if received before 11:00 a.m. local time of
the Corporation or Transfer Agent, as applicable) (the "Deadline"), issue and
surrender to a common carrier for either overnight or (if delivery is outside
the United States) two (2) day delivery to the address as specified in the
Notice of Conversion, a certificate for the number of shares of Common Stock to
which the holder shall be entitled as aforesaid. In the case of a dispute as to
the calculation of the conversion rate, the Corporation shall promptly issue to
the holder the number of shares of Common Stock that is not disputed and shall
submit the disputed calculations to its outside accountant via facsimile within
one (1) day of receipt of such holder's Notice of Conversion. The
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<PAGE>
Corporation shall cause the accountant to perform the calculations and notify
the Corporation and the holder of the results no later than twenty-four (24)
hours from the time it receives the disputed calculations. Such accountant's
calculation shall be deemed conclusive absent manifest error. Should the Notice
of Conversion specify a smaller number of Preferred Shares to be converted than
are represented by the Preferred Stock Certificate surrendered to the
Corporation, then the Corporation shall immediately issue a new Preferred Stock
Certificate representing the number of Preferred Shares not yet converted, and
deliver the same to the holder thereof along with the Common Stock as stated
above.
(c) 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 (A) that the advance copy of the Notice of Conversion is
faxed to the Corporation before 4:00 p.m., New York time, on the Date of
Conversion, and (B) that the original Preferred Stock Certificates representing
the Preferred Shares to be converted, together with the originally executed
Notice of Conversion, are surrendered by depositing such certificates and Notice
with a common carrier, as provided above, and received by the Transfer Agent or
the Corporation on or prior to the second (2nd) business day following the Date
of Conversion. In the event the Preferred Stock Certificates and the originally
executed Notice of Conversion are not received within three (3) business days
after the date of the Notice of Conversion, the Notice of Conversion shall be
deemed null and void and no conversion of Preferred Shares shall be effected
thereby. The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated, as of three (3) business days
after the Date of Conversion, for all purposes as the record holder or holders
of such shares of Common Stock on the Date of Conversion.
(d) Notwithstanding anything contained herein to the contrary, if
any action is required herein to be taken by the Company or the Transfer Agent
on a day which is not a business day, then such action shall be deemed to be
timely if taken on the next following business day.
(e) Notwithstanding anything herein to the contrary, the holder
of Preferred Shares shall have the right to place the original Preferred Share
certificate(s) in trust with the escrow agent responsible for closing the sale
of the Preferred Shares (the "Escrow Agent"), such that, to effect conversion of
such Preferred Shares, the holder thereof shall submit to the Company a
facsimile and then an original Notice of Conversion as described in the
preceding Sections, but the original Preferred Share certificate being converted
shall continue to be held by the Escrow Agent, who will keep a register (along
with the Company and such holder) of the number of Preferred Shares converted.
Such holder shall send a copy of each Notice of Conversion to the Escrow Agent
simultaneously with its transmission to the Company. Upon conversion or
redemption of all of the Preferred Shares so held in trust by the Escrow Agent,
the Escrow Agent shall surrender the certificate(s) representing such converted
Preferred Shares to the Company for cancellation.
5.4 OPTIONAL CONVERSION. At the option of the Company, if any
Preferred Shares remain outstanding on December 31, 2000, then all or any part
of such Preferred Shares as the Company elects shall be converted in accordance
with Section 5.3 as if the holders of such Preferred Shares had given the Notice
of Conversion effective as of that date, and the Date of
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<PAGE>
Conversion had been fixed as of December 31, 2000 for all purposes of Paragraph
5.3. Following notice by the Company to the holders, all holders of Preferred
Stock certificates shall within five (5) business days after receipt of such
notice surrender all Preferred Stock certificates, duly endorsed for
cancellation, to the Corporation or the Transfer Agent, as the Corporation may
direct. No person shall thereafter have any rights in respect of Preferred
Shares, except the right to receive shares of Common Stock on conversion thereof
as provided in this Section 5.
5.5 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of Preferred Shares shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a reorganization, merger, consolidation or sale of assets provided for
below), then and in each such event, the holder of each Preferred Share shall
have the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such Preferred Shares might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
5.6 MERGER OR OTHER TRANSACTIONS. In the event the Corporation, at
any time while any of the Preferred Shares are outstanding, shall be
consolidated with or merged into any other corporation or corporations or shall
sell or lease all or substantially all of its property and business as an
entirety, then lawful provisions shall be made as part of the terms of such
consolidation, merger, sale or lease so that the holder of any Preferred Shares
may thereafter receive in lieu of such Common Stock otherwise issuable to him
upon conversion of his Preferred Shares, but at the conversion rate which would
otherwise be in effect at the time of conversion, as hereinbefore provided, the
same kind and amount of securities or assets as may be issuable, distributable
or payable upon such consolidation, merger, sale or lease with respect to Common
Stock of the Corporation.
5.7 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon conversion of Preferred Shares. With
respect to any fraction of a share called for upon any such conversion, the
Corporation shall pay to the holder of the converted Preferred Share an amount
in cash equal to such fraction multiplied by the current market value of such
fractional share determined by the Board of Directors in good faith, which
determination shall be conclusive and binding upon such holder.
5.8 RESERVATION OF COMMON SHARES. The Corporation shall at all times
reserve and keep available out of its authorized but unissued Common Stock the
number of shares of Common Stock deliverable upon conversion of all the issued
and outstanding Preferred Shares and shall take such action to obtain such
permits or orders as may be necessary to enable the Corporation lawfully to
issue such Common Stock upon the conversion of the Preferred Shares.
6. RIGHTS ON LIQUIDATION. In the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, resulting in
any distribution of its assets to its shareholders, the holders of the Preferred
Shares then issued and outstanding shall be entitled
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<PAGE>
to receive an amount equal to $10.00 per Preferred Share plus any accumulated
but unpaid dividends, and no more, before any payment or distribution of the
assets of the Corporation is made to or set apart for the holders of Common
Stock. If the assets of the Corporation distributable to the holders of
Preferred Shares are insufficient for the payment to them of the full
preferential amount described above, such assets shall be distributed ratably
among the holders of the Preferred Shares. The holders of the Common Stock shall
be entitled to the exclusion of the holders of the Preferred Shares to share in
all remaining assets of the Corporation in accordance with their respective
interests. For purposes of this paragraph, a consolidation or merger of the
Corporation with any other corporation or corporations shall not be deemed to be
a liquidation, dissolution or winding up of the Corporation.
7. NOTICE. Any notice required to be given to the holders of Preferred
Shares or any securities issued upon conversion thereof shall be deemed to have
been given upon the earlier of personal delivery or three days after deposit in
the United States mails by registered or certified mail, return receipt
requested, with postage fully prepaid, and addressed to each holder of record at
his address as it appears on the stock transfer records of the Corporation. Any
notice to the Corporation shall be in writing and shall be deemed to have been
given only upon actual receipt thereof.
8. LEGEND. All certificates representing the Preferred Shares, all shares
of Common Stock issued upon conversion thereof and any and all securities issued
in replacement thereof or in exchange therefor shall bear such legends (or not)
as shall be required by law or contract.
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<PAGE>
IN WITNESS WHEREOF, NANOPIERCE TECHNOLOGIES, INC. has caused its corporate
seal to be affixed hereto and this certificate to be signed by its President and
Secretary this ______ day of July, 1998.
NANOPIERCE TECHNOLOGIES, INC.
[S E A L] By:____________________________________
Mr. Gilbert Olachea, President & CEO
ATTEST:
_________________________________
Kristi J. Kampmann, Secretary
STATE OF COLORADO )
) SS.
COUNTY OF DENVER )
I, Paul H. Metzinger, a Notary Public, hereby certify that on the 14th day
of July, 1998, Gilbert Olachea and Kristi J. Kampmann, the President and
Secretary of Nanopierce Technologies, Inc., respectively, personally appeared
before me, who being by me first duly sworn declared that he is the person who
signed the foregoing, and that the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on the date
hereinbefore mentioned.
My commission expires ______________________
____________________________
Notary Public
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<PAGE>
EXHIBIT 4.3
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), is made as of July
23, 1998, by and between Nanopierce Technologies, Inc., a corporation organized
under the laws of the State of Nevada, U.S.A., with headquarters located at 370
Seventeenth Street, Suite 3290, Denver, Colorado (the "Company") and the buyer
set forth on the execution page hereof (the "Buyer").
RECITALS
A. The Company and the Buyer are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Buyer desires to purchase from the Company, and the Company desires
to sell to the Buyer, for the amounts and upon the terms and conditions stated
in this Agreement, in a closing or closings (each a "Closing") as herein
described, certain shares of the Company's preferred stock as listed in Recitals
B(i) and B(ii) immediately below, along with certain warrants of the Company as
listed in Recital B(iii) below.
(i) At the first Closing (the "First Closing"), 50,000 shares of the
Company's Series B Convertible Preferred Stock (the "Series B
Shares"), which may be converted into common stock of the
Company, $.0001 par value per share ("Common Stock"), upon the
terms hereof and upon the terms of the Articles of Amendment to
Articles of Incorporation - Certificate of Designations,
Preferences, Limitations and Relative Rights of Series B
Convertible Preferred Stock of Nanopierce Technologies, Inc.,
attached hereto as Exhibit A (the "Series B Articles"). At the
second Closing (the "Second Closing"), 50,000 Series B Shares;
and at the third Closing (the "Third Closing"), 50,000 Series B
Shares. The price per Series B Share is US$10.00. The aggregate
number of Series B Shares to be issued and sold by the Company is
150,000 Series B Shares, for an aggregate purchase price of One
Million Five Hundred Thousand United States Dollars
($1,500,000.00).
(ii) At each additional Closing (if any) (each, an
"Additional Closing") as further described in Section 4(1) below,
shares of the Company's Series C Convertible Preferred Stock (the
"Series C Shares"), which may be converted into Common Stock upon
the terms hereof and upon the terms of the Articles of Amendment
to Articles of Incorporation - Certificate of Designations,
Preferences, Limitations and Relative Rights of Series C
Convertible Preferred Stock of Nanopierce Technologies, Inc.,
attached hereto as Exhibit B (the "Series C Articles"). The price
per Series C Share is US$10.00. The minimum number of Series C
Shares to
<PAGE>
be issued and sold by the company is two hundred fifty thousand
Series C Shares, and the maximum number of Series C Shares to be
issued and sold by the Company is seven hundred thousand Series C
Shares, all in accordance with the terms hereof.
(iii) At each Closing, as additional consideration for
Buyer's purchase of the Preferred Shares (defined below) a
warrant (each a "Warrant" and collectively the "Warrants") to
purchase Common Stock at a purchase price equal to one hundred
twenty-five percent (125%) of the closing bid price for the
Common Stock on the date of such Closing, which Warrants must be
exercised if at all within three (3) years after the date of
issuance. The Warrants shall be substantially in the form
attached hereto as Exhibit E. The number of shares into which
each Warrant shall be exercisable shall be equal to the number of
Preferred Shares purchased at such Closing.
The Common Stock into which the Series B Shares and the Series C Shares may
(in accordance with the terms of the Series B Articles and the Series C
Articles, respectively) be convertible shall be collectively referred to herein
as the "Conversion Shares." The Common Stock received upon exercise of the
Warrants shall be referred to as the "Warrant Shares." Certain shares of Common
Stock may (at the Company's option as described in the Series B Articles or the
Series C Articles, as applicable) be issued to the Buyer in payment of dividends
(the "Dividend Shares"). Together the Series B Shares and the Series C Shares
may be referred to herein as the "Preferred Shares." The Preferred Shares, the
Conversion Shares, the Warrant Shares and the Dividend Shares (if any) may be
collectively referred to herein as the "Securities." Together the Series B
Articles and the Series C Articles may be referred to herein as the "Articles of
Amendment."
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
(the "Registration Rights Agreement") substantially in the form of Exhibit C
attached hereto pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, the Company and the Buyer hereby
agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
a. Purchase. The Buyer hereby agrees to purchase from the Company, and
--------
the Company agrees to sell to the Buyer, (I) 50,000 Series B Shares at the First
Closing, (II) 50,000 Series B Shares at the Second Closing, and (III) 50,000
Series B Shares at the Third Closing; and at each Additional Closing, the number
of Series C Shares described in Section 4(1) below. The
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<PAGE>
purchase price for the Preferred Shares purchased at each Closing shall be as
specified in Recitals B(i) and B(ii) above (with respect to each Closing, the
"Purchase Price").
b. The Closings. The date of the First Closing shall be July 23, 1998;
------------
the date of the Second Closing shall be the date which is one calendar month
after the date of the First Closing; the date of the Third Closing shall be the
date which is one calendar month after the date of the Second Closing; and the
date of each Additional Closing (if any) shall be as specified in Section 4(l)
below, or, in each case on such earlier or later date as is mutually agreed to
in writing by the Company and the Buyer. The Purchase Price for the Securities
being purchased at each Closing shall be delivered to the Escrow Agent (as
defined in the Escrow Agreement substantially in the form of Exhibit D attached
hereto (the "Escrow Agreement")) on behalf of the Company on or before the date
specified herein for such Closing. At each Closing, the Company shall deliver
certificates representing the Preferred Shares and the Warrants being sold at
such Closing, duly issued and executed by the authorized officers on behalf of
the Company, to the Escrow Agent (as defined in the Escrow Agreement) on behalf
of the Buyer.
c. Form of Payment. The Buyer shall pay the Purchase Price for the
---------------
Preferred Shares and Warrants purchased at each Closing by wire transfer of
immediately available funds in United States Dollars, to be deposited into the
Escrow Account as defined in the Escrow Agreement, against delivery to the
Escrow Agent of duly executed Preferred Shares and Warrants being purchased by
the Buyer hereunder at such Closing. The Escrow Agent shall be responsible for
delivery of the Purchase Price to the Company and the Preferred Shares to the
Buyer in accordance with the terms of the Escrow Agreement and with the
instructions of the said parties.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer understands, agrees with, and represents and warrants to the
Company with respect to its purchase hereunder, that:
a. Investment Purposes; Compliance With 1933 Act. The Buyer is purchasing
---------------------------------------------
the Securities for its own account for investment only and not with a view
towards, or in connection with, the public sale or distribution thereof, except
pursuant to sales registered under or exempt from the 1933 Act. The Buyer is
not purchasing the Securities for the purpose of covering short sale positions
in the Common Stock established on or prior to the date of the relevant Closing.
The Buyer agrees to offer, sell or otherwise transfer the Securities only (i) in
accordance with the terms of this Agreement and the Articles of Amendment, as
applicable, and (ii) pursuant to registration under the 1933 Act or to an
exemption from registration under the 1933 Act and any other applicable
securities laws. The Buyer does not by its representations contained in this
Section 2(a) agree to hold the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time pursuant to a
registration statement or in accordance with an exemption from registration
under the 1933 Act, in all cases in accordance with applicable state and federal
securities laws. The Buyer understands that it shall be a condition to the
issuance of the Conversion Shares, the Warrant Shares and the Dividend Shares
(if any) that the Conversion Shares, the Warrant Shares and the Dividend Shares
(if any) be and are subject to the representations set forth in this Section
2(a).
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b. Accredited Investor Status. The Buyer is an "accredited investor" as
--------------------------
that term is defined in Rule 501 (a) of Regulation D. The Buyer has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment made pursuant to this
Agreement. The Buyer is aware that it may be required to bear the economic risk
of an investment made pursuant to this Agreement for an indefinite period of
time, and is able to bear such risk for an indefinite period.
c. Reliance on Exemptions. The Buyer understands the Securities are being
----------------------
offered and sold to it in reliance on specific exemptions from the registration
requirements of the applicable United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, acknowledgments,
understandings, agreements and covenants of the Buyer set forth herein in order
to determine the availability of such exemptions and the eligibility of the
Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been furnished
-----------
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by the Buyer, and specifically (but without limitation) the
Company's 1997 Form 10-K as filed with the SEC for the fiscal year ended June
30, 1997 (the "1997 10-K"). The Buyer and its advisors, if any, have been
afforded the opportunity to ask all such questions of the Company as they have
in their discretion deemed advisable. The Buyer understands that its investment
in the Securities involves a high degree of risk. The Buyer has sought such
accounting, legal and tax advice as it has considered necessary to an informed
investment decision with respect to the investment made pursuant to this
Agreement.
e. No Government Review. The Buyer understands that no United States
--------------------
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. The Buyer understands that: (i) except as provided
------------------
in the Registration Rights Agreement, the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless either (a) subsequently
registered thereunder or (b) the Buyer shall have delivered to the Company an
opinion by counsel reasonably satisfactory to the Company, in form, scope and
substance reasonably satisfactory to the Company, to the effect that the
securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, (ii) any sale of
such securities made in reliance on Rule 144 (as hereafter defined) may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which the
seller (or the person though whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder, and (iii) neither the Company nor any other person is under any
obligation to register such securities under the 1933 Act or any state
4
<PAGE>
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to this Agreement or the
Registration Rights Agreement).
g. Legend. The Buyer understands that the Preferred Shares, and until
------
such time as the Conversion Shares, the Warrant Shares and the Dividend Shares
(if any) (collectively, the "Registrable Securities"), have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement or
otherwise may be sold by the Buyer pursuant to Rule 144 (as amended, or any
applicable rule which operates to replace said Rule) promulgated under the 1933
Act ("Rule 144"), the stock certificates representing the Registrable Securities
will bear a restrictive legend (the "Legend") in substantially the following
form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE LAWS.
The Legend shall be removed and the Company will issue certificates without
the Legend to the holder of the applicable Preferred Shares or any Registrable
Securities upon which the Legend is stamped, in accordance with Section 5(b).
h. Authorization; Enforcement. This Agreement, the Registration Rights
--------------------------
Agreement and the Escrow Agreement have been duly and validly authorized,
executed and delivered by the Buyer and are each and collectively valid and
binding agreements of the Buyer enforceable in accordance with their terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally. Buyer (and Buyer's counsel) has examined this
Agreement and is satisfied in its sole discretion that this Agreement and the
accompanying Exhibits, Schedules and the Addenda, if any, are in accordance with
Regulation D and are effective to accomplish the purposes set forth herein and
therein.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company understands, agrees with, and represents and warrants to the
Buyer that:
a. Organization and Qualification: Reporting Company Status. The Company
--------------------------------------------------------
and its subsidiaries are corporations duly organized and existing in good
standing under the laws of the respective jurisdictions in which they are
incorporated, except as would not have a Material Adverse Effect (as defined
below), and have the requisite corporate power to own their properties and to
carry on their business as now being conducted. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in
5
<PAGE>
every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
effect on the operations, properties or financial condition of the Company and
its subsidiaries taken as a whole. The Company has registered its Common Stock
pursuant to Section 12 of the 1934 Act, and the Common Stock is eligible for
trading on the OTC Bulletin Board Market. The Company has received no notice,
either written or oral, with respect to the continued eligibility of the Common
Stock for such eligibility for trading, and the Company has maintained all
applicable requirements for the continuation of such eligibility for trading,
and the Company does not reasonably anticipate that the Common Stock will be
declared ineligible to trade on the OTC Bulletin Board Market for the
foreseeable future. Seller shall use its best efforts to continue to keep its
stock eligible for trading on the OTC Bulletin Board Market or a comparable
stock market or exchange. The Company has complied with all applicable
requirements (if any) of the National Association of Securities Dealers and the
OTC Bulletin Board Market with respect to the issuance of the Securities.
b. Authorization; Enforcement. (i) The Company has the requisite
--------------------------
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement and the Escrow Agreement, to issue and sell the
Preferred Shares and all of the Registrable Securities in accordance with the
terms hereof, and to perform its obligations under the Series B Articles and the
Series C Articles in accordance with the requirements of the same, (ii) the
execution, delivery and performance of this Agreement, the Registration Rights
Agreement and the Escrow Agreement by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized by
the Company's Board of Directors and no further consent or authorization of the
Company, its Board of Directors, or its stockholders is required, (iii) this
Agreement, the Registration Rights Agreement, the Escrow Agreement and, on the
date of the applicable Closing, the Preferred Shares and Warrants sold at such
Closing, have been duly and validly authorized, executed and delivered by the
Company, (iv) the Series B Articles and the Series C Articles have been duly
authorized by the Company's Board of Directors to be filed with the Secretary of
State for the State of Nevada, and the Series B Articles and the Series C
Articles will be filed with the Secretary of State for the State of Nevada prior
to the date of the First Closing, and (v) this Agreement, the Registration
Rights Agreement and the Escrow Agreement constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting, generally, the enforcement of creditors'
rights and remedies or by other equitable principles of general application. The
Company (and its legal counsel) has examined this Agreement and is satisfied in
its sole discretion that this Agreement and the accompanying Exhibits, Schedules
and the Addenda, if any, are in accordance with Regulation D and are effective
to accomplish the purposes set forth herein and therein.
c. Capitalization. As of June 30, 1998, the authorized capital stock of
--------------
the Company consists of 45,000,000 shares of Common Stock of which 12,175,000
shares were issued and outstanding; as of June 30, 1998, the authorized
preferred stock of the Company consists of 5,000,000 shares, of which 100 shares
were issued and outstanding. As of June 30, 1998, the Company has authorized one
class of common stock, and one class of preferred stock. All of such outstanding
shares have been validly issued and are fully paid and nonassessable. Except as
disclosed in the 1997 10-K or otherwise in writing to the Buyer, no shares of
Common Stock or
6
<PAGE>
Preferred Stock are subject to preemptive rights or any other similar rights or
any liens or encumbrances. Except as disclosed in Schedule 3(c) attached, no
shares of Common Stock or Preferred Stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, (ii) there are no outstanding debt securities, and
(iii) there are no agreements or arrangements under which the Company or any of
its subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act (except as provided herein and in the Registration
Rights Agreement). If requested by the Buyer, the Company has furnished to the
Buyer, and the Buyer acknowledges receipt of same by its signature hereafter,
true and correct copies of the Company's Certificate of Incorporation, as
amended, as in effect on the date hereof ("Certificate of Incorporation"), and
the Company's Bylaws, as in effect on the date hereof (the "Bylaws").
d. Issuance of Securities. The Series B Shares, the Series C Shares and
----------------------
the Registrable Securities are all duly authorized and reserved for issuance,
and in all cases upon issuance shall be validly issued, fully paid and non-
assessable, free from all taxes, liens and charges with respect to the issue
thereof, and will not be subject to preemptive rights or other similar rights of
stockholders of the Company.
e. Acknowledgment Regarding Buyer's Purchase of the Securities. The
-----------------------------------------------------------
Company acknowledges and agrees that the Buyer is not acting as financial
advisor to or fiduciary of the Company (or in any similar capacity with respect
to this Agreement or the transactions contemplated hereby), that this Agreement
and the transactions contemplated hereby, and the relationship between the Buyer
and the Company, are and will be considered "arms-length" notwithstanding any
other or prior agreements or nexus between the Buyer and the Company, whether or
not disclosed, and that any statement made by the Buyer, or any of its
representatives or agents, in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to the Buyer's purchase of the Securities and has not been relied
upon in any way by the Company, its officers or directors. The Company further
represents to the Buyer that the Company's decision to enter into this Agreement
and the transactions contemplated hereby have been based solely upon an
independent evaluation by the Company, its officers and directors.
f. No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances which would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the 1933 Act and specifically in accordance with the
provisions of Regulation D. The transactions contemplated hereby are exempt from
the registration requirements of the 1933 Act, assuming the accuracy of the
representations and warranties contained herein of the Buyer.
7
<PAGE>
g. No Conflicts. The execution, delivery and performance of this
------------
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation or Bylaws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation or other
organizational documents, and neither the Company nor any of its/subsidiaries is
in default (and no event has occurred which, with notice or lapse of time or
both, would put the Company or any of its subsidiaries in default) under, nor
has there occurred any event giving others (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, except for possible defaults or rights as would not, in
the aggregate or individually, have a Material Adverse Effect. The business of
the Company and its subsidiaries is not being conducted, and shall not be
conducted so long as the Buyer owns any of the Securities, in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations which neither singly or in the aggregate would have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement or the Escrow Agreement in
accordance with the terms hereof and thereof, or to perform its obligations with
respect to the Preferred Shares exactly as described in the applicable Articles
of Amendment.
h. SEC Documents; Financial Statements. Since at least June 1, 1997, the
-----------------------------------
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules hereto and documents (other than
exhibits) incorporated by reference therein, being hereinafter referred to as
the "SEC Documents"). The Company has delivered to the Buyer as requested by the
Buyer true and complete copies of the SEC Documents, except for exhibits,
schedules and incorporated documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in
8
<PAGE>
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer (including the
information referred to in Section 2(d) of this Agreement) contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which they are or were made, not misleading. Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to the date of such financial
statements and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in such financial statements, in each case of clause
(i) and (ii) next above which, individually or in the aggregate, are not
material to the financial condition, business, operations, properties, operating
results or prospects of the Company. The SEC Documents contain a complete and
accurate list of all material undischarged written and oral contracts,
agreements, leases or other instruments to which the Company or any subsidiary
is a party or by which the Company or any subsidiary is subject (each a
"Contract"), if any. None of the Company, its subsidiaries or, to the best of
the Company's knowledge, any of the other parties thereto, is in breach or
violation of any Contract, which breach or violation would have a Material
Adverse Effect. No event, occurrence or condition exists which, with the lapse
of time, the giving of notice, or both, or the happening of any further event or
condition, would become a default by the Company or its subsidiaries thereunder
which would have a Material Adverse Effect.
i. Absence of Certain Changes. Except as disclosed in the Company's 1997
--------------------------
10-K, since July 1, 1997, there has been no material adverse change and no
material adverse development in the business, properties, operation, financial
condition, results of operations or prospects of the Company. The Company has
not taken any steps, and does not currently have any reasonable expectation of
taking any steps, to seek protection pursuant to any bankruptcy law nor does the
Company have any knowledge that its creditors intend to initiate involuntary
bankruptcy proceedings. The Company shall, at least until Buyer no longer holds
any of the Securities, maintain its corporate existence in good standing and
shall pay all taxes when due except for taxes it reasonably disputes.
j. Absence of Litigation. Except as set forth in the 1997 10-K or
---------------------
disclosed in Schedule 3(j) attached, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending
or, to the knowledge of the Company, threatened against or affecting the
Company, wherein an unfavorable decision, ruling or finding would have a
Material Adverse Effect or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein.
k. Foreign Corrupt Practices. Neither the Company nor any of its
-------------------------
subsidiaries, nor any officer, director or other person acting on behalf of the
Company or any subsidiary has, in
9
<PAGE>
the course of his actions for or on behalf of the Company, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity, made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
l. Acknowledgment of Dilution. The number of Conversion Shares issuable
--------------------------
upon conversion of the Preferred Shares may increase substantially in certain
circumstances, including the circumstance wherein the trading price of the
Common Stock declines. The Company's executive officers and directors have
studied and fully understand the nature of the securities being sold hereunder
and recognize they have a potential dilutive effect. The board of directors of
the Company has concluded in its good faith business judgment that such issuance
is in the best interests of the Company. The Company acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares
and Warrant Shares upon exercise of the Warrants is binding upon it and
enforceable regardless of the dilution that such issuance may have on the
ownership interests of other stockholders.
m. Eligibility to File Registration Statement. The Company is currently
------------------------------------------
eligible to file a registration statement with the SEC on Form S-3 under the
1933 Act.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely to satisfy
------------
each of the conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.
b. Securities Laws. The Company agrees to timely file a Form D (and any
---------------
equivalent form required by applicable state law) with respect to the Securities
if and as required under Regulation D and applicable state securities laws and
to provide a copy thereof to the Buyer promptly after such filing. The Company
shall, on or before the date of the First Closing, the Second Closing, the Third
Closing and on or before the date of each Additional Closing, as applicable,
take such action as is necessary to sell the Securities being sold to the Buyer
at each such Closing under applicable securities laws of the United States, and
shall if specifically so requested provide evidence of any such action so taken
to the Buyer on or prior to the First Closing date, the Second Closing date, the
Third Closing date or each Additional Closing date, as applicable.
c. Reporting Status. So long as the Buyer beneficially owns any of the
----------------
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations hereunder would permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the sale of
---------------
the Securities to pay off certain outstanding obligations of the Company and for
the Company's internal working capital purposes, including costs and expenses of
the Company's business operations, and to the extent deemed advisable by the
Company, for the purchase of new
10
<PAGE>
technologies for use by the Company and its subsidiaries, and for the purchase
of additional subsidiaries and the development and marketing of their
technologies.
e. Financial Information. At the request of the Buyer, until such time as
---------------------
the Buyer no longer beneficially owns or is entitled to purchase Preferred
Shares, the Company agrees to send the following reports to the Buyer: (i)
after filing with the SEC, a copy of each of its Annual Reports on Form 10-K,
its quarterly Reports on Form 10-Q, and any reports filed on Form 8-K; and (ii)
as soon as practicable after release thereof, copies of all press releases
issued by the Company or any of its subsidiaries.
f. Reservation of Shares. The Company shall at all times have authorized,
---------------------
and reserved for the purpose of issuance, a sufficient number of shares of
Common Stock to provide for the issuance of all of the Conversion Shares and the
Dividend Shares (if any). Prior to complete conversion of the Preferred Shares,
the Company shall not reduce the number of shares reserved for issuance
hereunder without the written consent of the Buyer except for a reduction
proportionate to a reverse stock split effected for a business purpose other
than affecting the requirements of this Section, which reverse stock split
affects all shares of Common Stock equally.
g. Listing. Upon the First Closing, the Second Closing, the Third Closing
-------
and upon each Additional Closing, the Company shall promptly secure the listing
of the Registrable Securities then underlying the Preferred Shares purchased by
the Buyer upon each national securities exchange or automated quotation system,
if any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of shares of Registrable Securities from
time to time issued under the terms of this Agreement and the Registration
Rights Agreement. If at the relevant time the Company's Common Stock trades on
the OTC Bulletin Board Market, then the Company shall take any steps necessary
to ensure that the Registrable Securities are eligible to trade on the OTC
Bulletin Board Market. The Company shall at all times comply in all respects
with the Company's reporting, filing and other obligations under the by-laws or
rules of the National Association of Securities Dealers and the OTC Bulletin
Board Market (and such other national exchange on which the Common Stock may be
listed, as applicable), if any.
h. Prospectus Delivery Requirement. The Buyer understands that the 1933
-------------------------------
Act requires delivery of a prospectus relating to the Common Stock in connection
with any sale thereof pursuant to a registration statement under the 1933 Act
covering any resale by the Buyer of the Common Stock being sold, and the Buyer
shall comply with any applicable prospectus delivery requirements of the 1933
Act in connection with any such sale. The Company shall deliver a copy of the
required prospectus to the Buyer immediately upon registration of the
Registrable Securities.
i. (Intentionally Omitted).
j. Intentional Acts or Omissions. Neither party shall intentionally
-----------------------------
perform any act which if performed, or omit to perform any act which if omitted
to be performed, would prevent or excuse the performance of this Agreement or
any of the transactions contemplated hereby.
11
<PAGE>
k. No Shorting. As a material inducement for the Company to enter into
-----------
this Agreement, the Buyer represents that it has not as of the date hereof, and
covenants on behalf of itself and its affiliates that neither Buyer nor any
affiliate of Buyer will at any time in which the Buyer or any affiliate of the
Buyer beneficially owns any of the Securities, engage in any short sales of, or
hedging or arbitrage transactions with respect to, the Common Stock, or sell
"put" options or similar instruments with respect to the Common Stock.
1. Purchase of Series C Shares. Until the date which is twenty-four (24)
---------------------------
months from the date hereof, the Buyer agrees to purchase, and the Company
agrees to sell, in accordance with and subject to the terms of this Agreement
and the Series C Articles, a minimum of 250,000 Series C Shares and, at the
Company's option, up to a maximum of 700,000 Series C Shares, in each case in a
series of tranches, each of which tranches shall be for the purchase and sale of
a minimum of 25,000 Series C Shares and a maximum of 50,000 Series C Shares in
any given tranche.
No such tranche shall be closed before the date which is thirty (30) days
after the date on which the registration statement contemplated by the
Registration Rights Agreement and covering all of the Registrable Securities is
declared effective by the SEC and the Registrable Securities may thus be freely
sold by Buyer without restriction, and Buyer has been so informed in writing
(and any prospectus needed to sell such Registrable Securities has been
delivered to Buyer). The Series C Shares to be issued in each such tranche shall
be issued and sold upon the terms and conditions of this Agreement and the
Series C Articles. The obligations of the Company to sell and the Buyer to
purchase Series C Shares at each Additional Closing (each of which Additional
Closings (other than the first) shall occur no less than thirty (30) days after
the date of the previous Additional Closing), shall be contingent upon
satisfaction of the following conditions:
(i) The Company shall give the Buyer and the Escrow Agent ten (10) days
prior written notice of its intent to sell Series C Shares;
(ii) On the date of each Additional Closing:
(a) The registration statement required to be filed under the
Registration Rights Agreement has been declared effective by the
SEC and is as of such date still effective with respect to (i)
all Conversion Shares into which the Preferred Shares may be
convertible, (ii) all Warrant Shares receivable upon exercise of
the Warrants, and (iii) any Dividend Shares to be issued in
payment of dividends, such that all such Conversion Shares,
Warrant Shares and Dividend Shares applicable to such Additional
Closing may be freely traded on the OTC Bulletin Board Market by
Buyer at any time after receipt thereof.
(b) Each of the representations and warranties of each of the parties
contained in this Agreement, the Registration Rights Agreement
and the Escrow Agreement (the "Transaction Documents") shall be
true and correct in all material respects as if made on the date
of such Additional Closing, and each of the parties shall have
performed all of its obligations under the
12
<PAGE>
Transaction Documents required to be performed by it prior to
the date of such Additional Closing.
(c) For the purchase and sale of 25,000 Series C Shares, the average
daily dollar volume for the Common Stock (that is, the last trade
price for the Common Stock for a given trading day multiplied by
that day's trading volume) for the previous sixty (60) trading
days must equal or exceed US$60,000 per trading day. For the
purchase and sale of more than 25,000 Series C Shares, the
average daily dollar volume for the Common Stock for the previous
sixty (60) trading days must equal or exceed US$75,000 per
trading day, and the average daily trading volume for the Common
Stock must equal or exceed 25,000 shares per day for the previous
thirty (30) days.
(d) The average daily share price for the Common Stock for the ten
(10) trading days prior thereto, must equal or exceed $1.75 per
share.
(e) The number of shares issuable upon conversion of the Series C
Shares then being purchased, together with the shares of Common
Stock issued prior thereto pursuant to the Transaction Documents
and the Articles of Amendment, shall not exceed twenty percent
(20%) of the outstanding shares of the Company's Common Stock.
This condition shall be waived by the Buyer should the Company
obtain any required shareholder or other consent to the issuance
of more than twenty percent (20%) of the outstanding shares of
the Company's Common Stock prior to such Additional Closing. This
condition shall not apply if not mandated by the rules and
regulations of the NASD at such time.
(f) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which restricts or prohibits
the consummation of any of the transactions contemplated by the
Transaction Documents or the Articles of Amendment.
If the Company does not sell to the Buyer, within the twenty-four (24)
month period specified in this Section 4(l), at least the minimum number of
Series C Shares and the corresponding number of Warrants to have been sold
pursuant to this Section 4(l), other than as a result of a breach of this
Agreement by the Buyer, then unless the Buyer agrees in writing to extend the
time in which the Company may sell Series C Shares to the Buyer, the Company
shall issue to the Buyer a warrant (a "Penalty Warrant") to purchase a number of
shares of Common Stock equal to the minimum number of Series C Shares to have
been sold less the number of Series C Shares actually sold to the Buyer. The
Penalty Warrant shall be exercisable if at all within three (3) years after
issuance at a price per share of Common Stock equal to the closing bid price of
the Common Stock on the date of the First Closing. The Penalty Warrant shall
contain both demand and "piggyback" registration rights. Thus, for example, if
-----------
the Buyer
13
<PAGE>
purchased 150,000 Series B Shares (or 100% of those offered for sale, so that
there is no other buyer in the transaction), and if the closing bid price for
the Common Stock on the date of the First Closing were US$2.00, and if the
Company at the end of the period which is twenty-four (24) months after the date
of the First Closing shall have sold the Buyer only 100,000 Series C Shares,
then the Company shall issue a Penalty Warrant with an exercise price per share
of US$2.00 for 150,000 shares of Common Stock (the minimum number of Series C
Shares to have been sold to the Buyer would have been 250,000, so 250,000 less
100,000 equals 150,000). No Penalty Warrant shall be issued if the reason the
Company did not sell the minimum number of Series C Shares was due to a breach
of this Agreement by Buyer.
Conversely, if the Buyer does not purchase all 150,000 of the Series B
Shares to be purchased by it under and in accordance with this Agreement, or
does not purchase its pro-rata portion of the Series C Shares offered for sale
by the Company (other than for a breach of this Agreement by the Company, or as
the result of the death or legal incapacity of the Buyer) when such Series C
Shares are so offered for sale in accordance with the terms of this Agreement,
then at such time as the Buyer refuses to purchase such Series B Shares or
Series C Shares being offered for sale, unless waived by the Company, all
Warrants previously issued to the Buyer, to the extent not already exercised by
the Buyer, shall be null and void.
m. Restriction on Below Market Issuance of Securities. Until the date
--------------------------------------------------
which is twenty-four (24) months from the date hereof, the Company shall not
issue or agree to issue {other than (i) to the Buyer or other buyers pursuant to
the transactions contemplated herein, (ii) pursuant to any employee stock option
plan or employee stock purchase plan of the Company in effect on June 30, 1998,
(iii) pursuant to any existing (as of the date of this Agreement) security,
option, warrant, scrip, call or commitment or right, or (iv) with the consent of
the Buyer, not to be unreasonably withheld} any equity securities of the Company
(or any security convertible into or exercisable or exchangeable, directly or
indirectly, for equity securities of the Company) or debt securities of the
Company if such securities are issued at a price (or provide for a conversion,
exercise or exchange price) which may be less than the current market price for
the Common Stock on the date of issuance (in the case of Common Stock) or the
date of conversion, exercise or exchange (in the case of securities convertible
into or exercisable or exchangeable, directly or indirectly, for Common Stock).
Except as provided with respect to the transactions contemplated herein and in
subsections (i), (ii), (iii), or (iv) above of this Section 4(m), the Company
shall not grant any additional so-called "registration rights."
5. LEGEND AND TRANSFER INSTRUCTIONS.
a. Transfer Agent Instructions. The Company shall instruct its transfer
---------------------------
agent to issue certificates, registered in the name of the Buyer or its nominee,
for the Conversion Shares, the Warrant Shares and the Dividend Shares (if any)
in accordance with the terms of the applicable Articles of Amendment and in such
amounts as specified from time to time by the Buyer to the Company, upon
conversion of the Preferred Shares and exercise of the Warrants. All such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement only to the extent required by applicable law and as specified in the
Transaction Documents. The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof in the case of the Conversion Shares and the
Dividend Shares (if any) prior to the registration of same under the 1933 Act,
will
14
<PAGE>
be given by the Company to its transfer agent and that the Conversion Shares,
the Warrant Shares and the Dividend Shares (if any) shall otherwise be freely
transferable on the books and records of the Company as and to the extent
permitted by applicable law and provided by this Agreement and the Registration
Rights Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the Conversion Shares, the Warrant Shares and/or the Dividend Shares
(if any). If the Buyer (x) provides the Company with an opinion of counsel
reasonably satisfactory to the Company, that is reasonably satisfactory in form,
substance and scope to the Company, that registration by the Buyer of the
Preferred Shares, the Conversion Shares, the Warrant Shares and/or the Dividend
Shares (if any) is not required under the 1933 Act, or (y) transfers Securities
to an affiliate which is an accredited investor (in accordance with the
provisions of this Agreement) or in compliance with Rule 144, then in either
instance the Company shall permit the said transfer, and if applicable promptly
(and in all events within two (2) trading days after receipt by the Company of
each of the original documents and things to be delivered by the Buyer to effect
a conversion of the applicable Preferred Shares) instruct its transfer agent to
issue one or more certificates in such name and in such denominations as
specified by the Buyer.
b. Removal of Legends. The Legend shall be removed and the Company shall
------------------
issue a certificate without such Legend to the holder of any Security upon which
it is stamped, and a certificate for a security shall be originally issued
without the Legend, if, unless otherwise required by state securities laws, (x)
the sale of such Security is registered under the 1933 Act, or (y) such holder
provides the Company with an opinion by counsel reasonably satisfactory to the
Company, that is in form, substance and scope reasonably satisfactory to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act or (z) such holder provides the
Company with assurances reasonably satisfactory to the Company and its counsel,
that such Security can be sold pursuant to Rule 144. The Buyer agrees that its
sale of all Securities, including those represented by a certificate(s) from
which the Legend has been removed, or which were originally issued without the
Legend, shall be made only pursuant to an effective registration statement (and
to deliver a prospectus in connection with such sale) or in compliance with an
exemption from the registration requirements of the 1933 Act. In the event the
Legend is removed from any Security or any Security is issued without the Legend
and thereafter the effectiveness of a registration statement covering the sales
of such Security is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to the holder of such Security, the Company shall be
entitled to require that the Legend be placed upon any such Security which
cannot then be sold pursuant to an effective registration statement or Rule 144
or with respect to which the opinion referred to in clause (y) next above has
not been rendered, which Legend shall be removed when such Security may be sold
pursuant to an effective registration statement or Rule 144 (or such holder
provides the opinion with respect thereto described in clause (y) next above.
c. Conversion of Preferred Shares. The Buyer shall have the right to
------------------------------
convert the Preferred Shares sold hereunder by delivering via facsimile an
executed and completed Notice of Conversion (as defined in the Articles of
Amendment) to the Company and delivering within two (2) business days thereafter
the original Notice of Conversion and the certificate representing the Preferred
Shares being converted by express courier to the Company. Each date on which a
Notice of Conversion is telecopied to the Company in accordance with the
provisions hereof
15
<PAGE>
shall be deemed a "Conversion Date," unless the original Notice of Conversion is
received more than two (2) business days after the facsimile Notice of
Conversion, in which case the Conversion Date shall be the date on which such
original Notice of Conversion is delivered to the Company. The Company will
transmit a certificate or certificates (collectively the "Certificate")
representing the shares of Common Stock issuable upon conversion of any
Preferred Shares converted pursuant to such Notice of Conversion (along with a
replacement certificate representing the number of Preferred Shares not so
converted) to the Buyer via express courier, within three (3) business days
after the relevant Conversion Date (the third business day after the relevant
Conversion Date shall be referred to hereinafter as the "Deadline"). With the
mutual agreement of the Company and the Buyer, the Company or a third party may
(until and unless the Buyer in a particular instance requests otherwise) hold
the Preferred Shares in trust, such that, to effect a conversion of the
Preferred Shares, the Buyer shall deliver to the Company via facsimile and
express courier only the original Notice of Conversion as described in this
Section and the Company and the Buyer shall keep a record of the number of
Preferred Shares so converted. If either the Company or a third party holds the
certificates representing the Preferred Shares in trust as described in the
preceding sentence, the Company will deliver the Certificates directly to the
Buyer via express courier on or before the Deadline.
d. Injunctive Relief for Breach. The Company acknowledges that the remedy
----------------------------
at law for a breach of its obligations under Sections 5(a), 5(b) and 5(c) above
will cause irreparable harm to the Buyer by vitiating the intent and purpose of
the transactions contemplated hereby. Accordingly the Company agrees that the
remedy at law for a breach of its obligations under such Sections would be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of such Sections, the Buyer shall be entitled, in
addition to all other remedies at law or in equity (including without limitation
those remedies specified in Section 5(e) below), to an injunction restraining
any breach and requiring immediate issuance and transfer, without the necessity
of showing economic loss and without any bond or other security being required.
e. Liquidated Damages for Non-Delivery of Certificates. In addition to the
---------------------------------------------------
provisions of Section 5(d) above, the Company understands and agrees that a
delay in the issuance of the Certificates beyond the Deadline could result in
economic loss and other damages to the Buyer. As partial compensation to the
Buyer for such loss, the Company agrees to pay liquidated damages (and which the
Company acknowledges is not a penalty) to the Buyer for issuance and delivery of
the Certificates after the Deadline, in accordance with the following schedule
(where "No. Business Days Late" is defined as the number of business days beyond
seven (7) business days from the relevant Conversion Date):
16
<PAGE>
<TABLE>
<CAPTION>
No. Business Days Late Liquidated Damages
- ---------------------- ------------------
(in US$)
<S> <C>
1 $100
2 $200
3 $200
4 $300
5 $300
6 $400
7 $400
8 $500
9 $500
10 $500
11+ $750 + $250 for
each Business Day Late
beyond 11 days
</TABLE>
The Company shall pay the Buyer any liquidated damages incurred as called
for under this Section 5(e) by certified or cashier's check upon the earlier of
(i) issuance of the Certificates to the Buyer or (ii) each monthly anniversary
of the receipt by the Company of the Buyer's Notice of Conversion. Nothing
herein shall limit the Buyer's right to pursue actual damages for the Company's
failure to issue and deliver the Certificates to the Buyer in accordance with
the terms of this Agreement or for breach by the Company of this Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to sell Preferred Shares at the
applicable Closing is subject to the satisfaction, on or before the date of the
applicable Closing as described herein, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
a. The parties shall have executed this Agreement, the Registration Rights
Agreement and the Escrow Agreement, and the parties shall have delivered the
respective documents or signature pages thereof (via facsimile or otherwise as
permitted in the Escrow Agreement) to the Escrow Agent.
b. The Buyer shall have delivered to the Escrow Agent on behalf of the
Company the Purchase Price in full for the Series B Shares purchased at the
First Closing, the Second Closing or the Third Closing, or the Purchase Price in
full for the Series C Shares being purchased at each Additional Closing, as
applicable, by wire transfer of immediately available funds pursuant to the
wiring instructions provided by the Escrow Agent.
c. The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date made and as of the date of the
applicable Closing as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
17
<PAGE>
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the date of the applicable Closing.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
e. Neither Buyer nor any affiliate of Buyer shall have (I) taken any short
position in the Common Stock, nor (II) entered any hedging or arbitrage
transactions with respect to the Common Stock, nor (III) sold "put" options or
similar instruments with respect to the Common Stock
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer to purchase Preferred Shares is subject to the
satisfaction, on or before the date of the applicable Closing, of each of the
following conditions, provided that these conditions are for the sole benefit of
the Buyer and may be waived by the Buyer at any time in its sole discretion:
a. The Series B Articles and the Series C Articles shall have been duly
authorized and filed with the Secretary of State of the state of Nevada; the
parties shall have executed this Agreement, the Registration Rights Agreement
and the Escrow Agreement, and the parties shall have delivered the respective
documents or signature pages thereof (via facsimile or otherwise as permitted in
the Escrow Agreement), to the Escrow Agent on behalf of each other.
b. The representations and warranties of the Company shall be true and
correct in all material respects as of the date made and as of the date of the
applicable Closing as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the date of the applicable
Closing. The Buyer may require (by written request at least five (5) days prior
to the applicable Closing) a certificate, executed by the Chief Executive
Officer of the Company, dated as of the date of such Closing, to the foregoing
effect and as to such other matters as may be reasonably requested by the Buyer.
c. With respect to each Closing called for herein, the Company shall have
issued and have duly executed by the authorized officers of the Company, and
delivered to the Escrow Agent on behalf of the Buyer, the original Preferred
Shares being sold at such Closing.
d. The Common Stock shall be authorized for quotation on the OTC Bulletin
Board Market and trading in the Common Stock on such market shall not have been
suspended by the SEC or other relevant regulatory agency.
e. The Company shall not have received, as of the date of the applicable
Closing, from the National Association of Securities Dealers or any other
relevant regulatory agency, any
18
<PAGE>
written or oral communication as to its actual or potential ineligibility for
the Common Stock to continue trading on the OTC Bulletin Board Market.
f. With respect to each Additional Closing, the conditions for closing
listed in Section 4(1) above shall have been met by the Company, including
without limitation the condition that the Common Stock into which the Series C
Shares then being sold is convertible, the Warrant Shares receivable upon
exercise of the Warrants then being sold, and the Common Stock representing any
Dividend Shares to be issued in payment of dividends (if any), have all been
registered with the SEC pursuant to the registration statement required under
the Registration Rights Agreement, and such registration statement is still
effective as of the date of such Additional Closing.
g. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
herein.
h. The Escrow Agent shall have received on behalf of the Buyer the opinion
of Company counsel, dated as of the date of the First Closing, in the form
attached hereto as Exhibit F.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. In the event of any litigation regarding the
interpretation or application of this Agreement, the parties irrevocably consent
to jurisdiction in any of the state or federal courts located in the State of
Delaware and waive their respective rights to object to venue in any such court,
regardless of the convenience or inconvenience thereof to any party. Service of
process in any civil action relating to or arising out of this Agreement
(including also all Exhibits or Addenda hereto) or the transaction(s)
contemplated herein may be accomplished in any manner provided by law. The
parties hereto agree that a final, non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more identical
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
signature pages from such counterparts have been delivered to the Escrow Agent
on behalf of the other party. In the event any signature page is delivered by
facsimile transmission (which the parties agree is an acceptable form of
delivery), the party using such means of delivery shall cause three (3)
additional originally executed signature pages to be physically delivered to the
Escrow Agent on behalf of the other party within two (2) business days after the
execution and delivery hereof.
c. Headings; Gender, Etc. The headings of this Agreement are for
----------------------
convenience of reference and shall not form a part of, or affect the
interpretation of this Agreement. As used
19
<PAGE>
herein, the masculine shall refer to the feminine and neuter, the feminine to
the masculine and neuter, and the neuter to the masculine and feminine, as the
context may require. As used herein, unless the context clearly requires
otherwise, the words "herein," "hereunder" and "hereby," shall refer to this
entire Agreement and not only to the Section or paragraph in which such word
appears. If any date specified herein falls upon a Saturday, Sunday or public or
legal holidays, the date shall be construed to mean the next business day
following such Saturday, Sunday or public or legal holiday. For purposes of this
Agreement, a "business day" is any day other than a Saturday, Sunday or public
or legal holiday.
d. Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
----------------------------
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the terms
-------
of this Agreement shall be sent by U.S. Mail or delivered personally or by
courier or via facsimile (if via facsimile, to be followed within three (3)
business days by an original of the notice document via U.S. Mail or courier)
and shall be effective five (5) days after being placed in the mail, if mailed,
certified or registered, return receipt requested, or upon receipt, if delivered
personally or by courier or by facsimile, in each case properly addressed to the
party to receive the same. The addresses for such communications shall be:
If to the Company: Nanopierce Technologies, Inc.
370 Seventeenth Street, Suite 3290
Denver, Colorado 80202
Telephone: (303) 592.1054
Facsimile: (303) 592.1010
Attention: Mr. Gilbert Olachea, President & CEO
If to the Buyer, at the address on the signature page of this Agreement. Each
party shall provide written notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the parties and their respective successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other (which
consent shall not be unreasonably withheld), and in any event any assignee of
the Buyer shall be an accredited investor (as defined in Regulation D), in the
written opinion of counsel who is reasonably satisfactory to Seller and in form,
substance and scope reasonably satisfactory to the Seller. Notwithstanding the
foregoing, if applicable, any of the entities constituting the Buyer (if greater
than one (1) entity) may assign its rights hereunder
20
<PAGE>
to any of its "affiliates," as that term is defined under the 1934 Act, without
the consent of the Company; provided, however, that any such assignment shall
not release such assigning entity from its obligations hereunder unless such
obligations are assumed by such affiliate and the Company has prior to such
assignment and assumption consented in writing to the same; and no such
assignment shall be made unless it is made in accordance with any applicable
securities laws of any applicable jurisdiction. Any request for an assignment
made hereunder by the Buyer shall be accompanied by an opinion by counsel
reasonably satisfactory to the Company, that is in form, substance and scope
reasonably satisfactory to the Company, that such assignment is proper under
applicable law.
h. No Third Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section 8(1), the
--------
representations and warranties of the Company and the Buyer contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
8 shall survive the final Closing of the purchase and sale of Securities
purchased and sold hereby for a period of twelve (12) months after such final
Closing.
j. Publicity. The Company and the Buyer shall have the right to review
---------
before issuance by the other, any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without prior consultation with or approval of
the Buyer, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations.
k. Further Assurance. Each party shall do and perform, or cause to be
-----------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the First Closing shall not have
-----------
occurred on or before ten (10) business days from the date hereof, this
Agreement shall terminate at the close of business on such date. Neither party
may unilaterally terminate this Agreement after the First Closing for any reason
other than a material breach of this Agreement by the non-terminating party.
Such termination shall not be the sole remedy for a breach of this Agreement by
the non-terminating party, and each party shall retain all of its rights
hereunder at law or in equity. Notwithstanding anything herein to the contrary,
a party whose breach of a covenant or representation and warranty or failure to
satisfy a condition prevented the First Closing or an Additional Closing shall
not be entitled to terminate this Agreement.
m. Remedies. No provision of this Agreement providing for any specific
--------
remedy to a party shall be construed to limit such party to the specific remedy
described, and any other remedy that would otherwise be available to such party
at law or in equity shall be so available.
21
<PAGE>
Nothing in this Agreement shall limit any rights a party may have with any
applicable federal or state securities laws with respect to the transactions
contemplated hereby.
IN WITNESS WHEREOF, the Buyer and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
[SIGNATURE PAGE FOLLOWS]
22
<PAGE>
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT DATED
JULY 23, 1998]
COMPANY:
NANOPIERCE TECHNOLOGIES, INC.
By:___________________________________________
Mr. Gilbert Olachea, President and CEO
Attest: ____________________________
____________________________ Secretary
BUYER:
______________________________________________
Mr. Y. L. Hirsch
BUYER'S ADDRESS:
259 Batai Ungarin
Jerusalem, ISRAEL
Telephone: 011 972 2 582 7883
Facsimile: 011 972 2 582 7883
Cellular: 011 972 52 868 689
Copy to: Portfolio Investment Strategies Corp.
6 Lake Street, Suite 1800
Monroe, New York 10950
ATTN: MR. HARRY SCHWARTZ
Telephone: 914.774.7949
Facsimile: 914.774.7275
23
<PAGE>
SECURITIES PURCHASE AGREEMENT
Exhibits
Exhibit A Series B Articles
Exhibit B Series C Articles
Exhibit C Registration Rights Agreement
Exhibit D Escrow Agreement
Exhibit E Warrant to Purchase Common Stock
Exhibit F Opinion of Counsel for Nanopierce Technologies, Inc.
24
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of July
23, 1998, by and between Nanopierce Technologies, Inc., a corporation organized
under the laws of the State of Nevada, U.S.A., with headquarters located at 370
Seventeenth Street, Suite 3290, Denver, Colorado (the "Company") and the buyer
set forth on the execution page hereof (the "Buyer").
RECITALS
A. In connection with the Securities Purchase Agreement by and between the
parties of even date herewith (the "Securities Purchase Agreement"), the Company
has agreed, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to issue and sell to the Buyer (i) a number of shares of the
Company's Series B Convertible Preferred Stock of Nanopierce Technologies, Inc.
(the "Series B Shares"); (ii) a number of shares of the Company's Series C
Convertible Preferred Stock of Nanopierce Technologies, Inc. (the "Series C
Shares") and (iii) a number of warrants (each a "Warrant" and collectively the
"Warrants") to purchase a number of shares of the Company's common stock, $.0001
par value per share ("Common Stock"). The Series B Shares and the Series C
Shares (collectively, the "Preferred Shares") are each convertible in accordance
with the terms of the Articles of Amendment (as defined in the Securities
Purchase Agreement) into Common Stock. The Common Stock into which the Preferred
Shares are convertible may be referred to herein as the "Conversion Shares." In
accordance with the terms of the Articles of Amendment, shares of Common Stock
may be issued in payment of dividends on the Preferred Shares ("Dividend
Shares").
B. The Buyer has agreed to purchase and pay for the Series B Shares, the
Series C Shares and the Warrants as provided in the Securities Purchase
Agreement. Upon each Closing (as defined in the Securities Purchase Agreement),
the Company will issue its certificate representing the Preferred Shares, along
with the Warrants, purchased at such Closing by the Buyer.
C. To induce the Buyer to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.
AGREEMENTS
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by all parties hereto, the Company
and the Buyer hereby agree as follows:
<PAGE>
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the following
meanings:
i. "Investor" or "Investors" means the Buyer and any permitted
transferee(s) or assignee(s) thereof to whom the Buyer assigns this Agreement
and who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 hereof.
ii. "Register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any
successor rule providing for offering securities on a continuous basis ("Rule
415"), and the declaration or ordering of effectiveness of such Registration
Statement by the United States Securities and Exchange Commission (the "SEC").
iii. "Registrable Securities" means the Conversion Shares, the Warrant
Shares and the Dividend Shares (if any), underlying the certificates
representing the Series B Shares and the Series C Shares, and receivable upon
exercise of the Warrants, and any shares of capital stock issued or issuable,
from time to time (with any adjustments) on or in exchange for or otherwise with
respect to either of the foregoing (including without limitation any shares
issued pursuant to Section 2(b) hereinafter).
iv. "Registration Statement" or "Registration Statements" means a
registration statement or statements of the Company filed under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. (i) The Company shall use its best efforts to
----------------------
prepare, and, on or before the date that is sixty (60) business days after the
date of the First Closing, file with the SEC a Registration Statement or
Registration Statements (as necessary) on Form S-3 (or, if such form is
unavailable for such a registration, on such other form as is available for such
a registration of all of the Registrable Securities) (any of which may contain a
combined prospectus with other registrations by the Company), covering the
resale of all of the Registrable Securities, which Registration Statement(s), to
the extent allowable under the 1933 Act and the rules promulgated thereunder
(including without limitation Rule 416), shall state that such Registration
Statement(s) also covers such indeterminate number of additional shares (the
"Indeterminate Shares") of Common Stock as may become issuable upon conversion
of the Preferred Shares to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
(ii) To the extent the Indeterminate Shares for any reason can not be
registered under the Registration Statement(s) required under Section 2(a)(i)
above, then with respect to such Indeterminate Shares, the Company shall use its
best efforts to prepare, and, on or before the date that is fifteen (15) days
after the Indeterminate Shares become issuable, file with the SEC a Registration
Statement or Registration Statements (as necessary) on Form S-3 (or, if such
form is unavailable for such a registration, on such other form as is available
for such a registration of all of the Indeterminate Shares) (any of which may
contain a combined prospectus with other registrations by the Company), covering
the resale of all of the Indeterminate Shares.
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A copy of the Registration Statement(s) (and each amendment or supplement
thereto, and each request for acceleration of effectiveness thereof) shall be
provided to (and subject to the approval of the Buyer, which approval shall not
be unreasonably withheld or denied) the Buyer and its counsel prior to its
filing or other submission.
b. Liquidated Damages. The Company shall use its best efforts to
------------------
obtain effectiveness of the Registration Statement as soon as practicable. If
(i) the Registration Statement(s) covering the Registrable Securities required
to be filed by the Company pursuant to Section 2(a) hereof is not declared
effective by the SEC within one hundred twenty (120) days after the date of the
First Closing (other than by reason of any act or failure to act in a timely
manner by the Investor or its counsel) (the "Registration Deadline") or if,
after the Registration Statement has been declared effective by the SEC, sales
cannot be made pursuant to the Registration Statement (by reason of a
suspension, a stop order, the Company's failure to update the Registration
Statement, or any other reason outside the control of the Investor), or (ii) the
Common Stock is not listed or included for quotation on either the OTC Bulletin
Board Market or the National Association of Securities Dealers Automated
Quotation system Small Cap Market ("NASDAQ Small Cap"), or another United States
national exchange; then in either case (in either case, a "Delay") the Company
will make payments to the Investors, as liquidated damages and in such amounts
and at such times as shall be determined pursuant to this Section 2(b) as relief
and as the sole remedy for the damages to the Investor by reason of any such
delay in or reduction of its ability to sell the Registrable Securities (which
remedy shall be exclusive of any other remedies available at law or in equity),
an amount to be determined as follows. The Company shall pay to the Investor an
amount equal to the purchase price for the Series B Shares purchased at the
First Closing, the Second Closing and the Third Closing (including, without
limitation, any Preferred Shares that have been converted into Conversion Shares
then held by such Investors) (the "Aggregate Share Price") multiplied by: one
and one-half hundredths (.015) times the sum of: (i) the number of months
(prorated for partial months) beginning the day after the Registration Deadline
and ending on the date the Registration Statement is declared effective by the
SEC, provided, however, that there shall be excluded from such period any delays
which are solely attributable to changes required by the Investor in the
Registration Statement with respect to information relating to the Investor,
including, without limitation, changes to the plan of distribution, or to the
failure of the Investor to conduct its review of the registration statement
pursuant to Section 2(a) above in a reasonably prompt manner; (ii) the number of
months (prorated for partial months) that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective; and (iii) the number of months (prorated for partial months) that the
Common Stock is not listed or included for quotation on the OTC Bulletin Board
Market, the NASDAQ Small Cap or another United States national exchange after
the Registration Statement has been declared effective.
For example, if the Registration Statement becomes effective two
-----------
months after the end of the Registration Deadline, the Company would pay
US$22,500 for each month (assuming the Buyer purchases the 150,000 Series B
Shares required under the Securities Purchase Agreement, such that the Aggregate
Share Price equals US$1,500,000.00) until the Registration Statement becomes
effective.
Such amounts shall be paid in cash or, at the Investor's option such
amounts may be convertible into Common Stock at the "Conversion Price" for the
Series B Shares, as defined in
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the Series B Articles. Any shares of Common Stock issued upon conversion of such
amounts shall be Registrable Securities. If the Investor desires to convert the
amounts due hereunder into Registrable Securities it shall so notify the Company
in writing within two (2) business days of the date on which such amounts are
first payable in cash and such amounts shall be so convertible (pursuant to the
mechanics set forth in the Articles of Amendment), beginning on the last day
upon which the cash amount would otherwise be due in accordance with the
following sentence. Payments of cash pursuant hereto shall be made within five
(5) days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
interim payments shall be made for the full amount owed up to the date of such
interim payment at the end of each thirty (30) day period. At any time after one
(1) year from the date of the First Closing, upon delivery by legal counsel for
the Company to the Buyer and the Company's transfer agent a legal opinion to the
effect that the Conversion Shares may be sold without restriction pursuant to
Rule 144, and so long as the Company permits the conversion of the Preferred
Shares into Common Stock in accordance with the terms of the Securities Purchase
Agreement and the Series B Articles, liquidated damages as called for in this
paragraph shall cease and the Investor may rely upon Rule 144 for conversion of
the Series B Preferred into Common Stock and subsequent sales thereof.
c. Piggy-Back Registrations. If at any time prior to the expiration of
------------------------
the Registration Period (as hereinafter defined) the Company shall file with the
SEC a Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans) the Company shall send to the Investor written notice of such
determination and, if within twenty (20) days after receipt of such notice, such
Investor shall so request in writing, the Company, to the extent permitted by
law, shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' reasonable good faith judgment,
marketing or other factors dictate such limitation is necessary to facilitate
public distribution, then only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion hereunder
will be included in the Registration Statement; provided that no portion of the
equity securities which the Company is offering for its own account shall be
excluded; provided, further that the Company shall be entitled to exclude
Registrable Securities to the extent necessary to avoid breaching obligations
existing prior to the date hereof to other stockholders of the Company.
Any exclusion of Registrable Securities shall be made pro rata among the
Investors seeking to include Registrable Securities, in proportion to the number
of Registrable Securities sought to be included by such Investors; provided,
however, that the Company shall not exclude any Registrable Securities unless
the Company has first excluded all outstanding securities, the holders of which
are not entitled to inclusion of such securities in such Registration Statement
or are not entitled to pro rata inclusion with the Registrable Securities; and
provided, further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights or whose registration rights existed prior
to the date hereof. No right of the Investor to registration of Registrable
Securities under this Section 2(c) shall be construed to limit any
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<PAGE>
registration required under Section 2(a) hereof. If an offering in connection
with which an Investor is entitled to registration under this Section 2(c) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering.
d. Eligibility for Form S-3. The Company represents and warrants that it
------------------------
meets the requirements for the use of Form S-3 for registration of the sale by
the Buyer of the Registrable Securities and the Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
maintain such eligibility for the use of Form S-3. In the event that Form S-3
is not available for registration of the Registrable Securities, the Company
shall register the securities on another appropriate form.
3. RELATED OBLIGATIONS. In connection with the registration of the
Registrable Securities, the Company shall have the following obligations:
a. The Company shall use its best efforts to cause such Registration
Statement(s) relating to Registrable Securities to become effective as soon as
possible after such filing, but in no event later than the Registration
Deadline, and keep the Registration Statement(s) effective pursuant to Rule 415
at all times until the earlier of (i) the date on which all of the Registrable
Securities have been sold (and no further Registrable Securities may be issued
in the future), (ii) the date as of which the Investors may immediately sell
all of the Registrable Securities without restriction pursuant to Rule 144
promulgated under the 1933 Act (or successor thereto) or otherwise, or (iii)
the date on which none of the Preferred Shares or Warrant Shares is outstanding
(the "Registration Period"), which Registration Statement(s) (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement. In the event
the number of shares available under a Registration Statement filed pursuant to
this Agreement is insufficient to cover all of the Registrable Securities issued
or issuable upon conversion of the Preferred Shares, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover all of the
Registrable Securities, in each case, as soon as practicable, but in any event
within fifteen (15) days after the need therefor arises (based on the market
price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof.
c. The Company shall furnish to each Investor whose Registrable Securities
are included in the Registration Statement(s) promptly after the same is
prepared and publicly distributed, filed with the SEC, or received by the
Company, (i) one copy of the Registration
5
<PAGE>
Statement and any amendment thereto, each preliminary prospectus and prospectus
and each amendment or supplement thereto in each case relating to such
Registration Statement (other than any portion thereof which contains
information for which the Company has sought confidential treatment) and, in the
case of the Registration Statement referred to in Section 2(a), each letter
written by or on behalf of the Company to the SEC or the staff of the SEC, and
each item of correspondence from the SEC or the staff of the SEC, in each case
relating to such Registration Statement; and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned (or to be owned) by such Investor.
d. The Company shall use reasonable efforts to (i) register and qualify
the Registrable Securities covered by the Registration Statement(s) under such
other securities or "blue sky" laws of such jurisdictions in the United States
as each Investor who holds (or has the right to hold) Registrable Securities
being offered reasonably requests, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause more than nominal expense
or burden to the Company, or (e) make any change in its charter or bylaws,
which in each case the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its stockholders.
e. As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor of the happening of any event, of which the
Company has knowledge, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request.
f. The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof.
g. [Intentionally omitted.]
h. At the request of the Investor, but no more than three (3) times in any
one ninety (90) day period, the Company shall furnish, on the date of
effectiveness of the Registration Statement and thereafter from time to time on
such dates as the Investor may reasonably request an opinion, dated as of such
requested date, of counsel representing the Company for purposes of
6
<PAGE>
such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the Company's transfer
agent and/or to the Investors. Such opinion shall be substantially as set forth
in Exhibit I attached hereto.
i. The Company shall make available for inspection by (i) any Investor,
(ii) any underwriter participating in any disposition pursuant to a Registration
Statement, (iii) one firm of attorneys and one firm of accountants or other
agents retained by the Investors, and (iv) one firm of attorneys retained by all
such underwriters (collectively, the "Inspectors") all pertinent financial and
other records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
Inspector to enable each Inspector to exercise its due diligence responsibility,
and cause the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes of such due
diligence; provided, however, that each Inspector shall hold in strict
confidence and shall not make any disclosure (except to an Investor) or use of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance reasonably satisfactory to the
Company) with the Company with respect thereto, substantially in the form of
this Section 3(i). Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential.
j. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to such
Investor and allow such Investor, at the Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
k. The Company shall cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, the
Investors may reasonably request and registered in such names as the Investors
may request. Not later than the date on which any Registration Statement
registering the resale of
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<PAGE>
Registrable Securities is declared effective, the Company shall deliver (at its
expense) to its transfer agent instructions, accompanied by any required opinion
of counsel, that permit sales of unlegended securities in a timely fashion that
complies with then mandated securities settlement procedures for regular way
market transactions.
l. Upon the First Closing, the Second Closing, the Third Closing and upon
each Additional Closing, the Company shall promptly secure the listing of the
Registrable Securities then underlying the Preferred Shares and the Warrants
purchased by the Buyer (or, if at such time the Common Stock trades on the OTC
Bulletin Board Market, make such Registrable Securities eligible to trade) upon
each national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed or eligible to trade (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed or eligible to trade, such listing or
eligibility of shares of Registrable Securities from time to time issued under
the terms of this Agreement and the Registration Rights Agreement. As
applicable, the Company shall at all times comply in all respects with the
Company's reporting, filing and other obligations under the by-laws or rules of
the OTC Bulletin Board Market, National Association of Securities Dealers and if
applicable the NASDAQ SmallCap Market (and such other national exchange on which
the Common Stock may be listed or elibible to trade, as applicable).
m. The Company shall provide a transfer agent and registrar, which may be
a single entity, for the Registrable Securities not later than the effective
date of the Registration Statement.
n. The Company shall comply with all applicable laws relating to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including without limitation the 1933 Act and the Securities Exchange Act of
1934, as amended, and all the rules and regulations promulgated by the SEC).
o. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
4. OTHER OBLIGATIONS. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
a. At least fifteen (15) days prior to the first anticipated filing date
of the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor if such Investor elects
to have any of such Investor's Registrable Securities included in the
Registration Statement. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the
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<PAGE>
preparation and filing of the Registration Statement(s) hereunder, unless such
Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the Registration
Statement.
c. In the event Investors holding a majority of the Registrable Securities
being registered determine to engage the services of an underwriter, each
Investor agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor notifies the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement(s).
d. Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement(s) covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(e) or 3(f) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration hereunder
unless such Investor (i) agrees to sell such Investor's Registrable Securities
on the basis provided in any underwriting arrangements approved by the Investors
entitled hereunder to approve such arrangements, (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses incurred by the Company pursuant to
Section 5 below.
5. EXPENSES OF REGISTRATION. The Company agrees to pay all reasonable
expenses, other than underwriting discounts and commissions, incurred in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company. If Investors who hold a majority of Registrable
Securities undertake to resell the Registrable Securities in an underwritten
public offering, the Company will reasonably cooperate as is customarily
required in an underwritten public offering. The Investors who participate in
such a public offering shall pay all expenses incurred in connection with such
registration, whether incurred by them or the Company, including without
limitation, underwriting discounts and commissions, all registration, listing
and qualification fees, printing charges, and fees and disbursements of
accountants and counsel for the Company.
6. 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, hold
harmless and defend each Investor who holds such Registrable Securities, the
directors, officers and each person who controls any Investor within the meaning
of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), if any, and any underwriter (as defined in the 1933
9
<PAGE>
Act) for the Investors, and the directors and the officers of, and each person,
if any, who controls, any such underwriter within the meaning of the 1933 Act or
the 1934 Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) (collectively, together with
actions, proceedings or inquiries by any regulatory or self regulatory
organization, whether commenced or threatened, in respect thereof, "Claims") to
which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or the omission or alleged omission to
state a material fact therein required to be stated or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 6(d) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (ii) with respect to any preliminary prospectus, shall not inure to the
benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of the material fact contained in the preliminary prospectus was
corrected in the prospectus, as then amended or supplemented, if such prospectus
was timely made available by the Company pursuant to Section 3(c) hereof; (iii)
shall not be available to the extent such Claim is based on a failure of the
Investor to deliver or to cause to be delivered the prospectus made available by
the Company or the failure of the Investor to comply with federal or state law
relating to the offering or sale of the Registrable Securities; and (iv) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to indemnify, hold harmless and defend,
to the same extent and in the same manner as is set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the 1933 Act or the 1934 Act, any underwriter and any other stockholder selling
securities pursuant to the Registration Statement or any of its directors or
officers or any person who controls such stockholder or underwriter within the
meaning of the
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1933 Act or the 1934 Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation, in each case to the extent (and
only to the extent) that such violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement or to the
extent such Claim is based upon any violation or alleged violation by the
Investor of the 1933 Act, 1934 Act or any other law; and such Investor will
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim as does not exceed the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in any distribution, to the same extent as provided above, with
respect to information such persons so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The Company shall pay reasonable fees for only one separate legal
counsel for the Investors, and such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable Securities included
in the Registration Statement to which the Claim relates; provided, that the
Company shall have the right to approve the selection of counsel and legal fees
and expenses of such firm shall be reasonable. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by
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periodic payments of the amount thereof during the course of the investigation
or defense, as such expense, loss, damage or liability is incurred and is due
and payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (i) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6, (ii) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any seller of Registrable Securities
who was not guilty of fraudulent misrepresentation, and (iii) contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE 1934 ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the 1933 Act or any other
similar rule or regulation of the SEC that may at any time permit the investors
to sell securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements (it being understood that nothing
herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the 1933 Act and
the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investor to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assignable by the Investors to any transferee of all or any
portion of Registrable Securities if: (i) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment,
(ii) the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned, (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws,
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein, (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement, (vi) such transferee shall
submit evidence
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reasonably satisfactory to the Company that the Transferee is an "accredited
investor" as that term is defined in Rule 501 of Regulation D promulgated under
the 1933 Act; and (vii) in the event the assignment occurs subsequent to the
date of effectiveness of the Registration Statement required to be filed
pursuant to Section 2(a), the transferee agrees to pay all reasonable expenses
of amending or supplementing such Registration Statement to reflect such
assignment. Notwithstanding anything herein to the contrary, no assignment of
the rights represented by this Agreement shall be effective unless in compliance
with any applicable securities laws of any applicable jurisdiction.
10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a majority of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
b. Any notices required or permitted to be given under the terms of this
Agreement shall be sent by registered or certified mail, return receipt
requested, or delivered personally or by courier and shall be effective five
days after being placed in the mail, if mailed, or upon receipt, if delivered
personally or by courier or facsimile, in each case properly addressed to the
party to receive such notice. The addresses for such communications shall be:
If to the Company: Nanopierce Technologies, Inc.
370 Seventeenth Street, Suite 3290
Denver, Colorado 80202
Telephone: (303) 592.1054
Facsimile: (303) 592.1010
Attention: Mr. Gilbert Olachea, President & CEO
If to the Buyer, at the address on the signature page of the Securities
Purchase Agreement. Each party shall provide written notice to the other party
of any change in address.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in accordance with
the laws of the state of Delaware without regard to the principles of conflict
of laws. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. The parties each irrevocably consent to
the jurisdiction of the state and federal courts of the state of Delaware in any
suit or proceeding arising out of or based on this
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Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The parties each irrevocably waive
the defense of inconvenient forum to the maintenance of such suit or proceeding.
Service of process in any civil action relating to or arising out of this
Agreement (including also all Exhibits or Addenda hereto) or the transaction(s)
contemplated herein may be accomplished in any manner provided by law.
e. This Agreement, the Escrow Agreement, the Articles of Amendment, the
Warrants, and the Securities Purchase Agreement (including all exhibits and
addenda thereto) constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement and the other agreements previously
identified supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of the signature
page of this Agreement bearing the signature of the party so delivering this
Agreement to the Escrow Agent, with the original executed Agreement to be
delivered to the Escrow Agent via overnight delivery.
i. Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
[SIGNATURE PAGE FOLLOWS]
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[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT DATED
JULY 23, 1998]
COMPANY:
NANOPIERCE TECHNOLOGIES, INC.
By:___________________________________________
Mr. Gilbert Olachea, President and CEO
BUYER:
_____________________________________________
Mr. Y. L. Hirsch, an individual
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EXHIBIT I TO REGISTRATION RIGHTS AGREEMENT
[DATE]
[NAME AND ADDRESS OF BUYER]
[NAME AND ADDRESS OF COMPANY'S TRANSFER AGENT]
Re: Registration of Certain Securities of Nanopierce Technologies, Inc.
Ladies and Gentlemen:
We are counsel to Nanopierce Technologies, Inc., a Nevada Corporation (the
"Company"), whose stock is eligible for trading on the OTC Bulletin Board Market
utilizing the symbol "NPCT." We understand that Mr. Y.L. Hirsch (the "Holder")
has purchased from the Company (a) a number of shares of the Company's Series B
Convertible Preferred Stock of Nanopierce Technologies, Inc. (the "Series B
Shares"), (b) a number of shares of the Company's Series C Convertible Preferred
Stock of Nanopierce Technologies, Inc. (the "Series C Shares"), and (c) a number
of warrants (the "Warrants") to purchase common stock of the Company, $.0001 par
value per share ("Common Stock"). The Series B Shares and the Series C Shares
(collectively, the "Preferred Shares") are each convertible in accordance with
the terms of the Articles of Amendment (as defined in the Securities Purchase
Agreement, as defined below) into Common Stock. The Warrants are exercisable
into Common Stock. The Series B Shares, Series C Shares and the Warrants were
purchased pursuant to a Securities Purchase Agreement between the Company and
the Holder dated as of July 23, 1998 (including all Exhibits and Addenda
thereto, the "Securities Purchase Agreement").
Pursuant to a Registration Rights Agreement between the Company and the Holder
dated as of July ___, 1998, the Company agreed with the Holder, among other
things, to register the Common Stock into which the Series B Shares and the
Series C Shares (and, as applicable, Common Stock issued (i) in payment of
dividends on the Preferred Shares and/or (ii) in payment of certain penalties
for late or non-registration of the said Common Stock) are convertible and the
Common Stock into which the Warrants are exercisable (collectively, the
"Registrable Securities") under the Securities Act of 1933, as amended (the
"1933 Act"), upon the terms provided in the Registration Rights Agreement. In
connection with the Company's obligations under the Registration Rights
Agreement, the Company filed a registration statement on Form S-3, No. 333-
_________, on [DATE S-3 WAS FILED] (the "Registration Statement") with the
United States Securities and Exchange Commission relating to the Registrable
Securities, which names the Holder as a selling stockholder thereunder.
[OTHER INTRODUCTORY AND SCOPE OF EXAMINATION LANGUAGE TO BE INSERTED, AS IS
USUAL AND CUSTOMARY FOR SUCH OPINION LETTERS.]
Based upon the foregoing, we are of the opinion that the Registrable
Securities have been registered under the 1933 Act.
Very truly yours,
______________________
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