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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of earliest event reported: April 16, 1998
AUTONOMOUS TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Florida 0-28278 59-2554729
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
2800 Discovery Drive, Orlando, Florida 32826
(Address of registrant's principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 384-1600
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ITEM 5: OTHER EVENTS.
On April 16, 1998, the Company entered into a Convertible Preferred Stock
Purchase Agreement (the "Stock Purchase Agreement") and a Registration Rights
Agreement with OZ Master Fund, Ltd. (the "Investor"). The Investor is managed by
the Och-Ziff Capital Management Group. Copies of the Stock Purchase Agreement
and the Registration Rights Agreement are attached to this Form 8-K as Exhibits
10.1 and 10.2.
Under the Stock Purchase Agreement, the Investor has agreed to purchase 500
shares of Series I Convertible Preferred Stock (the "Preferred Stock"), with an
option to purchase an additional 400 shares of Preferred Stock and a Stock
Purchase Warrant for 300,000 shares of common stock (the "Option"). That is, if
the Option is exercised, the Investor will purchase an additional 400 shares of
Preferred Stock along with the Stock Purchase Warrant for 300,000 shares of
common stock (the "Warrant"). The purchase price for the initial 500 shares of
Preferred Stock is $5,000,000, and the exercise price for the Option is
$4,000,000. A copy of the Warrant is attached to this Form 8-K as Exhibit 10.3.
The Option has a term of 55 days following the effective date of a resale
registration statement to be filed pertaining to the shares of common stock
underlying the initial 500 shares of Preferred Stock, the 400 shares of
Preferred Stock underlying the Option, and the 300,000 shares of common stock
underlying the Warrant. The Company intends to file a resale registration
statement for these shares as soon as practicable on Form S-3, and will use its
best efforts to have this resale registration statement declared effective by
the Securities and Exchange Commission.
The offering of the 500 shares of Preferred Stock and the Option was
completed upon the execution of the Stock Purchase Agreement and the
Registration Rights Agreement. The closing on the purchase and sale of 500
shares of Preferred Stock is subject to the resale registration statement being
declared effective by the SEC within 70 days from April 16, 1998. In the event
that the resale registration statement has not been declared effective within
this 70-day period, either party has the right to extend the date within which
the resale registration statement must become effective by 45 days, provided
that the requesting party is using its best efforts to have the resale
registration statement declared effective. In the event that the Resale
Registration Statement is not declared effective within such 70-day period (or
an extended period of up to 45 days as previously described), the Investor will
have the right not to close and to terminate the Stock Purchase Agreement.
The Preferred Stock will be issued by the Company out of authorized but
unissued shares of preferred stock, the terms of which have been set by action
by the Company's Board of Directors. In connection with the sale of the
Preferred Stock, the Board of Directors has adopted a Certificate of Designation
of the terms of the Preferred Stock and the Company's Articles of Incorporation
will be amended as soon as practicable to include these terms. A copy of the
Certificate of Designation of Convertible Preferred Stock, Series I, is attached
to this Form 8-K as Exhibit 10.4.
The following is a summary of the terms of the Preferred Stock. This
summary is qualified in its entirety to the terms of the Preferred Stock
contained in the Certificate of Designation of Convertible Preferred Stock,
Series I:
a. Number of Shares of Convertible Preferred Stock, Series I Which May Be
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Issued - A total of 900 shares.
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b. Voting Rights of the Preferred Stock - Except for the matters provided
------------------------------------
below, the holders of the Series I Preferred Stock do not have voting
rights. The Company shall not, without the affirmative vote of the
holders of a majority of the shares of the Series I Preferred Stock then
outstanding, take any of the following actions: (a) so long as any
shares of Series I Preferred Stock are outstanding, amend its
certificate of incorporation, bylaws or other charter documents so as to
materially and adversely affect any conversion or transfer rights of any
holder; (b) so long as 15% of the shares of Series I Preferred Stock are
outstanding, declare, authorize, set aside or pay any dividend or other
distribution with respect to the Common Stock except as permitted under
the Certificate of
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Designation and as would not materially and adversely affect the rights
of any holder hereunder; (c) so long as 30% of the shares of Series I
Preferred Stock are outstanding, repay, repurchase or offer to repay,
repurchase or otherwise acquire shares of its Common Stock, except for
repurchases effected by the Company on the open market, pursuant to a
direct stock purchase plan; (d) so long as 15% of the shares of Series I
Preferred Stock are outstanding, authorize or create any class of equity
or equity equivalent security that ranks senior to or on parity with the
Series I Preferred Stock; (e) so long as 30% of the shares of Series I
Preferred Stock are outstanding, make investments outside the ordinary
course of the Company's business in a cumulative amount in excess of
$500,000; (f) so long as 30% of the shares of Series I Preferred Stock
are outstanding, incur indebtedness for borrowed money, or for the
deferred purchase or acquisition price of property or services, directly
or indirectly, in an amount greater than $500,000, excluding, however,
indebtedness incurred in financing of equipment in connection with the
Company's product sales in the ordinary course; (g) so long as any
shares of Series I Preferred Stock are outstanding, merge or consolidate
with another entity or sell substantially all of the Company's assets if
the proceeds of the transaction are insufficient to redeem the Series I
Preferred Stock then outstanding in full; (h) so long as 15% of the
shares of Series I Preferred Stock are outstanding, pledge or encumber
substantially all of the Company's assets or property; or (i) enter into
any agreement with respect to any of the foregoing. The voting rights
provided in the foregoing clauses (b) - (h) shall expire on the 300th
day following the Original Issue Date. The Original Issue Date is the
date of the initial closing for 500 shares of Preferred Stock, which
will be as soon as practicable after the resale registration statement
referred to above is declared effective by the SEC.
c. Dividends - The holders of the Preferred Stock are not entitled to
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receive dividends. So long as any shares of Preferred Stock remain
outstanding, the Company cannot redeem, purchase or otherwise acquire,
directly or indirectly, any securities which are junior in status to the
Preferred Stock, nor can the Company, directly or indirectly, pay or
declare any dividend or make any distribution upon any securities which
are junior in status to the Preferred Stock.
d. Liquidation Preference - Upon any liquidation, dissolution or winding up
----------------------
of the Company, the holders of Preferred Stock are entitled to receive
100% of the purchase price per share of the Preferred Stock ahead of any
distribution or payment to the holders of any securities which are
junior to the Preferred Stock (which includes the common stock). Sale,
conveyance or disposition of all, or substantially all, of the assets of
the Company, or the effectuation by the Company of a transaction or a
series of related transactions in which more than 50% of the voting
power of the Company is disposed of, or a consolidation or merger of the
Company with or into any other company or companies will cause the
Company or its successor to have the obligation to repurchase the
outstanding shares of Preferred Stock for cash based on the formula
described below pertaining to the value of the underlying shares of
common stock on an as-converted basis, unless the holders of shares of
Preferred Stock elect to convert their shares into common stock and
receive the consideration that may be applicable in any sale of assets,
consolidation or merger.
e. Conversion of the Preferred Stock - The Preferred Stock is convertible
---------------------------------
into shares of common stock upon the election of the holder of any such
shares based on the formula described below. The Company can require the
holders of the Preferred Stock to convert such stock into shares of
common stock based on the application of the formula described below at
any time after two years from the Original Issue Date. On the third
anniversary of the Original Issue Date, the Company may require the
shares of Preferred Stock to be converted based on the formula described
below, or may redeem for cash the outstanding shares of Preferred Stock
at a price equal to 110% of the purchase price of such shares.
The number of shares of common stock into which each share of Preferred
Stock is convertible is determined by dividing the purchase price per
share of the Preferred Stock ($10,000) by 90% of
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the average of the lowest trading price per share of common stock on the
Nasdaq National Market for the five trading days immediately preceding
the conversion date. This formula is modified in the event that trading
is suspended in the Company's stock for periods in excess of 10 days.
f. Limitation on the Number of Shares into Which the Preferred Stock Can Be
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Converted - The terms of the Preferred Stock contain a formula
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establishing the maximum number of shares of common stock into which the
Convertible Preferred Stock can be converted. This maximum number will
be set at one share less than that number of shares which will
constitute 20% of the outstanding shares of common stock on the day
before the closing for the purchase of the initial 500 shares of
Preferred Stock. As of this date, the maximum number of shares would be
2,111,710. Except for the possibility of the exercise of outstanding
stock options or warrants between this date and the closing date on the
sale of the initial 500 shares of Preferred Stock, the Company has no
plans to issue additional shares of common stock. This maximum
limitation applies to the total number of shares of Series I Convertible
Preferred Stock that are ultimately issued (whether this number is 500
shares or 900 shares, depending on whether or not the Investor exercises
the Option). In the event that all of the shares of Preferred Stock
cannot be converted pursuant to the formula described above because of
the limitation on the maximum number of shares described previously, the
Company will have an obligation to purchase any such shares that cannot
be converted on the same basis as if the Company is required to redeem
such shares due to a merger or consolidation.
g. Permissible Redemption - The Company is not required to redeem any of
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the Preferred Stock except under the circumstances described above if
there are any shares of Preferred Stock that cannot be converted based
on the formula described above due to the limitation on the maximum
number of shares that may be issued for conversion. However, the Company
has the right to redeem the Preferred Stock under two circumstances. One
of the circumstances is described in (f) above. The other circumstance
arises in the event that the price of the common stock at which the
Preferred Stock may be converted falls to less than $4.50 per share, the
Company may redeem all shares that are tendered for conversion at a
conversion price less than $4.50 per share for cash equal to 110% of the
purchase price paid for the Preferred Stock.
h. Limitation on Amount of Preferred Stock That May Be Converted -
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Beginning on the 15th day after the Original Issue Date, 115 shares may
be converted and an additional 115 shares may be converted on each
subsequent monthly anniversary of such date. The purchase price for 115
shares of Preferred Stock is $10,000 per share or $1,150,000 in the
aggregate. For purposes of example only, if the applicable conversion
price is $5.50 per share, 115 shares of Preferred Stock could be
converted into 209,091 shares of common stock.
The Stock Purchase Warrant which will be issued only if the Option is
exercised is for 300,000 shares of common stock and has a term of two years.
The exercise price will be 125% of the per share price determined by taking the
average of the lowest trading prices on the Nasdaq National Market for each of
the five trading days preceding the date of the closing of the purchase of 500
shares of Preferred Stock. The Stock Purchase Warrant may be exercised only
through the payment of cash to the Company.
The Company expects to file the resale registration statement required by
the Stock Purchase Agreement and the Registration Rights Agreement on or about
April 28, 1998. Subject to being able to adequately respond to comments
received from the Securities and Exchange Commission concerning such
registration statement, the Company believes that the resale registration
statement will be effective on or before June 3, 1998.
On April 16, 1998, the Company and a financial institution (the "Lender")
entered into a letter of intent whereby Lender may provide up to $15,000,000 of
lease financing to the Company under a master lease agreement, for placing
LADARVision Systems in the field. Under the proposed master lease agreement,
the Company would receive the approximate manufacturing cost upon the placement
of each system with a full payout of the lease to occur within three years. The
letter of intent provides certain minimum requirements for placement agreements
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between the Company and its customers. The Lender is conducting further due
diligence on the Company at this time. There can be no assurances that the
Company and Lender will enter into definitive agreements regarding this funding
arrangement.
EXHIBITS
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Exhibit Number Exhibit Description
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10.1 Convertible Preferred Stock Purchase Agreement
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10.2 Registration Rights Agreement
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10.3 Warrant
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10.4 Certificate of Designation
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10.5 Financial Statements
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10.6 Consent of Independent Certified
Public Accountants
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Autonomous Technologies Corporation
Date: April 27, 1998 By: /s/ Randy W. Frey
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Randy W. Frey, Chief Executive Officer
INDEX TO EXHIBITS
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Exhibit Number Exhibit Description
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10.1 Convertible Preferred Stock Purchase Agreement
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10.2 Registration Rights Agreement
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10.3 Warrant
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10.4 Certificate of Designation
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10.5 Financial Statements
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10.6 Consent of Independent Certified
Public Accountants
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Exhibit 10.1
[Execution Counterpart]
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"),
dated as of April 16, 1998, between AUTONOMOUS TECHNOLOGIES CORPORATION, a
Florida corporation (the "Company") and OZ MASTER FUND, LTD., a Cayman Islands
exempt company (the "Purchaser").
WHEREAS: Subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser, and the
Purchaser desires to acquire, shares of the Company's Convertible Preferred
Stock, Series I, par value $.01 per share (the "Preferred Stock", and shares
thereof issued and sold in accordance with this Agreement, the "Shares") and the
Purchaser desires to acquire the right to purchase additional Shares;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Company and the Purchaser agree as follows:
ARTICLE 1
PURCHASE AND SALE OF PREFERRED SHARES
1.1 Initial Purchase and Sale. (a) Subject to the terms and
-------------------------
conditions set forth herein, the Company shall issue, sell, and grant to the
Purchaser, and the Purchaser shall purchase from the Company, five hundred (500)
Shares (the "Initial Shares") and the Option (as defined in Section 13), as
provided below.
(b) The Preferred Stock shall have the respective rights, preferences
and privileges set forth in Exhibit A attached hereto, which shall be
incorporated into a Certificate of Designation to be filed on or prior to the
Initial Closing (as defined below) by the Company with the Secretary of State of
Florida (the "Certificate of Designation").
For purposes of this Agreement, "Conversion Price," "Original Issue
Date," "Conversion Date" "Trading Day" and "Per Share Market Value" shall have
the meanings set forth in the Certificate of Designation. The Shares, the
Warrant (as defined in Section 316) and the Underlying Shares (as defined in
Section 21) are sometimes referred to herein as the "Securities."
1.2 Purchase Price. The aggregate purchase price for the Initial
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Shares and the Option to be issued hereunder is Five Million Dollars
($5,000,000).
1.3 The Option. The Company hereby grants to the Purchaser the right
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(the "Option") to purchase four hundred (400) shares of Series I Convertible
Preferred Stock (the "Option Shares") and the Warrant, on the following terms
and conditions:
(i) The Option must be exercised by the Purchaser on an all-or-none
basis;
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(ii) The exercise price of the Option is $4,000,000, payable in cash
at the Option Closing;
(iii) The Option must be exercised, if at all, within 56 days after
the Initial Closing Date; and
(iv) The Initial Closing shall have occurred or, if it has failed to
occurred, has not failed to occur due to the breach of this Agreement by the
Purchaser.
In order to exercise the Option, the Purchaser shall provide written
notice to the Company of its election to exercise the Option prior to the
expiration of the Option. The Option Closing shall occur within three business
days after receipt of such notice.
1.4 The Closings.
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(a) Initial Closing. (i) Subject to the terms and conditions set
forth herein, the Company shall sell and issue to the Purchaser, and the
Purchaser shall purchase from the Company, at the initial closing (the "Initial
Closing") the Initial Shares and the Option, for an aggregate purchase price of
$5,000,000, as soon as practicable following the effective date of the
Underlying Shares Registration Statement. The Initial Closing shall take place
at the offices of Gregory F.W. Todd, Esq., 888 Seventh Avenue, Suite 4500, New
York, New York 10019, or such other place as the parties may agree. The date of
the Initial Closing is hereinafter referred to as the "Initial Closing Date".
(ii) At the Initial Closing, (a) the Company shall deliver to the
Purchaser (1) one or more stock certificates representing five hundred (500)
Shares, registered in the name of the Purchaser, (2) the legal opinion of Gray,
Harris & Robinson, P.A., and (3) all other documents, instruments and writings
required to have been delivered at or prior to the Initial Closing by the
Company to the Purchaser pursuant to this Agreement; and (b) the Purchaser shall
deliver to the Company (1) the purchase price for the Shares to be purchased at
the Initial Closing and the Option, in United States dollars in immediately
available funds, by wire transfer to an account designated in writing by the
Company for such purpose prior to the Initial Closing Date, and (2) all
documents, instruments and writings required to have been delivered at or prior
to the Initial Closing by the Purchaser pursuant to this Agreement.
(b) The Option Closing. The Option Closing shall take place at the
offices of Gregory F.W. Todd, Esq., 888 Seventh Avenue, Suite 4500, New York,
New York 10019, or such other place as the parties may agree. The date of the
Option Closing is hereinafter referred to as the "Option Closing Date". At the
Option Closing, (a) the Company shall deliver to the Purchaser (1) one or more
stock certificates representing four hundred (400) Shares and the Warrant (as
defined in Section 316), each registered in the name of the Purchaser, (2) the
legal opinion of Gray, Harris & Robinson, P.A., and (3) all other documents,
instruments and writings required to have been delivered at or prior to the
Option Closing by the Company to the Purchaser pursuant to this Agreement; and
(b) the Purchaser shall deliver to the Company
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(1) the exercise price of the Option in United States dollars in immediately
available funds by wire transfer to an account designated in writing by the
Company for such purpose prior to the Option Closing Date, and (2) all
documents, instruments and writings required to have been delivered at or prior
to the Option Closing by the Purchaser pursuant to this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1. Representations, Warranties and Agreements of the Company. The
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Company hereby makes the following representations and warranties to the
Purchaser:
(a) Organization and Qualification. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
State of Florida, with the requisite corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries. The Company is duly qualified to
do business and is in good standing as a foreign corporation or company in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not, individually or in
the aggregate, reasonably be expected to: (x) adversely affect the legality,
validity or enforceability of any of the Transaction Documents (as defined
below) in any material respect, (y) have or result in a material adverse effect
on the results of operations, assets, or financial condition of the Company,
taken as a whole, or (z) adversely impair the Company's ability to perform fully
on a timely basis its obligations under the Transaction Documents (any one of
(x), (y) and (z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and by the Warrant, the Certificate of Designation, the
Registration Rights Agreement, and otherwise to carry out its obligations
hereunder and thereunder. This Agreement, the Certificate of Designation, the
Registration Rights Agreement and the Warrant are collectively referred to as
the "Transaction Documents". The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby has been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company. Each of the Transaction Documents has been duly executed by the
Company and when delivered in accordance with the terms hereof will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its 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 is not in violation of any of the provisions of its certificate of
incorporation, articles, by-laws or other charter documents.
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(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company is set forth in Schedule 2.1(c). Except as set forth in
Schedule 2.1(c), no shares of Common Stock are entitled to preemptive or similar
rights, nor is any holder of the Common Stock entitled to preemptive or similar
rights, or any rights to receive Common Stock at a price which is less than the
current market price thereof, arising out of any agreement or understanding with
the Company by virtue of any of the Transaction Documents. Except as disclosed
in Schedule 2.1(c), there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or,
except as a result of the purchase and sale of the Shares and the Warrant
hereunder, securities, rights or obligations convertible into or exchangeable
for, or giving any person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of Common
Stock. To the knowledge of the Company, except as specifically disclosed in the
SEC Documents (as defined below) or Schedule 2.1(c), no Person beneficially owns
(as determined pursuant to Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
more than 5% of the Common Stock. A "Person" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of Shares and Warrant. The Shares, the Option and the
Warrant are duly authorized, and when issued and paid for in accordance with the
terms hereof, shall be validly issued, fully paid and nonassessable. The
Company, as at the Initial Closing Date and Option Closing Date as the case may
be, will have, and at all times while the Shares, the Option and the Warrant are
outstanding, will maintain an adequate reserve of duly authorized shares of
Preferred Stock and Common Stock to enable it to perform its obligations under
this Agreement (including the Option), the Warrant and the Certificate of
Designation with respect to the number of Shares and the Warrant issued and
outstanding at such Closing Date. The shares of Common Stock issuable upon
conversion of the Shares (including the Shares underlying the Option) or
exercise of the Warrant are collectively referred to herein as the "Underlying
Shares". Upon issuance in accordance with the Certificate of Designation and
the Warrant, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, free and clear of all liens, claims, encumbrances
or defects of any kind.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its Certificate of Incorporation or bylaws (each as
amended through the date hereof) 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 is
a party, or (iii) to the knowledge of the Company, result in a violation of any
law, rule, regulation, order,
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judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any material property or asset of
the Company is bound or affected, except in the case of each of clauses (ii) and
(iii), such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not reasonably be expected to,
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority to which the Company is
subject, except for violations which, individually or in the aggregate, do not
have a Material Adverse Effect.
(f) Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local or other governmental authority
or other person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, except for (i) the filings of the
Certificate of Designation with respect to the Shares with the Secretary of
State of Florida, which filings shall be effected prior to the Initial Closing
Date and the Option Closing Date, as appropriate, (ii) the filing of the
Underlying Shares Registration Statement(s) with the Securities and Exchange
Commission (the "Commission"), which shall be filed in the time periods set
forth in the Registration Rights Agreement, (iii) the application(s) or any
letter(s) acceptable to the Nasdaq National Market for the listing of the
Underlying Shares with the Nasdaq National Market (and with any other national
securities exchange or market on which the Common Stock is then listed), (iv)
any filings, notices or registrations under applicable state securities laws,
and other than, in all other cases, where the failure to obtain such consent,
waiver, authorization or order, or to give or make such notice or filing, would
not materially impair or delay the ability of the Company to effect the Initial
Closing or the Option Closing and to deliver to the Purchaser the Shares and the
Warrant (and, upon conversion of the Shares and exercise of the Warrant, the
Underlying Shares) in the manner contemplated hereby and by the Registration
Rights Agreement free and clear of all liens and encumbrances of any nature
whatsoever (the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed in the
Disclosure Materials (as hereinafter defined) there is no action, suit, notice
of violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or its properties before or
by any court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which could reasonably be expected
to, individually or in the aggregate, have or result in a Material Adverse
Effect.
(h) No Default or Violation. The Company (i) is not in default under
or in violation of any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) in violation of any order
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of any court, arbitrator or governmental body applicable to its property or
assets, or (iii) in violation of any statute, rule or regulation of any
governmental authority to which it is subject, except as could not reasonably be
expected to, in any such case (individually or in the aggregate), have or result
in a Material Adverse Effect.
(i) Schedules. The Schedules to this Agreement do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
(j) Private Offering. Neither the Company nor any Person acting on
its behalf has taken or will take any action which might subject the offering,
issuance or sale of the Securities to the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act").
(k) SEC Documents. The Company has filed all reports required to be
filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the three years preceding the date hereof (the foregoing materials
being collectively referred to herein as the "SEC Documents" and, together with
the Schedules to this Agreement furnished by or on behalf of the Company, the
"Disclosure Materials") on a timely basis, or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, 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. All material
agreements to which the Company is a party or by which the property or assets of
the Company is subject have been filed as exhibits to the SEC Documents as
required; the Company is not in breach of any such agreement where such breach
may have or result in a Material Adverse Effect. The financial statements of
the Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles as in effect at the time of filing applied on a consistent
basis during the periods involved, except as may be otherwise indicated in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since the date of the financial statements included in the
Company's last filed Quarterly Report on Form 10-Q, there has been no event,
6
<PAGE>
occurrence or development that has had a Material Adverse Effect which has not
been specifically disclosed in writing to the Purchaser by the Company. The
Company last filed audited financial statements with the Commission on March 31,
1998, and has not received any comments from the Commission in respect thereof.
(l) Seniority. No class of equity securities of the Company is senior
to the Shares in right of payment, whether upon liquidation, dissolution or
otherwise.
(m) Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(n) Certain Fees. Other than fees and expenses due and payable to
Everen Securities, Inc. by the Company, no fees or commissions will be payable
by the Company to any broker, financial advisor, finder, investment banker, or
bank with respect to the transactions contemplated by this Agreement. The
Purchaser shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement. The Company shall indemnify and hold harmless each of the
Purchaser, its employees, officers, directors, agents, and partners, and their
respective affiliates (as such term is defined under Rule 405 promulgated under
the Securities Act, an "Affiliate"), from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees.
(o) Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Shares, the
Option, the Warrant or the Underlying Shares other than the Disclosure Materials
or (ii) solicited any offer to buy or sell the Shares, the Warrant or the
Underlying Shares by means of any form of general solicitation or advertising.
None of the Disclosure Materials or any other information provided to the
Purchaser by or on behalf of the Company contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(p) Form S-3 Eligibility. The Company is, and at each Closing Date
will be, eligible to register securities for resale with the Commission under
Form S-3 promulgated under the Securities Act.
(q) Listing and Maintenance Requirements Compliance. The Company has
not in the two years preceding the date hereof received notice (written or oral)
from any stock exchange or market on which the Common Stock is or has been
listed (or on which it has been quoted) to the effect that the Company is not in
compliance with the listing or maintenance requirements of such exchange or
market.
7
<PAGE>
(r) Patents and Trademarks. To the Company's knowledge, except as
otherwise specifically disclosed in the Disclosure Materials, (i) the Company
has, or has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights and licenses
(collectively, the "Intellectual Property Rights") which are necessary for use
in connection with its business as presently conducted and which the failure to
do so would have a Material Adverse Effect and (ii) there is no existing
infringement by another Person of any of the Intellectual Property Rights which
are necessary for use in connection with the Company's business as presently
conducted, which infringement would have a Material Adverse Effect.
(s) Registration Rights; Rights of Participation. Except as described
on Schedule 2.1(s) hereto, (A) the Company has not granted or agreed to grant to
any Person any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority which has not been satisfied and (B) no Person,
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any other Transaction Document
which has not been waived.
(t) Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Shares in
accordance with the Certificate of Designation and (ii) exercise of the Warrant
may result in dilution of the outstanding shares of Common Stock. The Company
further acknowledges that its obligation to issue Underlying Shares upon (x)
conversion of the Shares in accordance with the Certificate of Designation and
(y) upon exercise of the Warrant is unconditional and absolute, subject to such
limitations set forth herein, in the Certificate of Designation or pursuant to
the Warrant, regardless of the effect of any such dilution.
2.2 Representations and Warranties of the Purchaser. The Purchaser
-----------------------------------------------
hereby represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser is a company duly formed,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation with the requisite corporate power and authority to enter into and
to consummate the transactions contemplated hereby and by the Registration
Rights Agreement and otherwise to carry out its obligations hereunder and
thereunder. The purchase by the Purchaser of the Shares and the Warrant
hereunder has been duly authorized by all necessary action on the part of the
Purchaser. Each of this Agreement and the Registration Rights Agreement has been
duly executed and delivered by the Purchaser and constitutes the valid and
legally binding obligation of the Purchaser, enforceable against the Purchaser,
in accordance with its terms, subject to
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<PAGE>
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the Shares, the
Warrant and the Underlying Shares for its own account for investment purposes
only and not with a view to or for distributing or reselling such Shares, the
Warrant or Underlying Shares or any part thereof or interest therein, without
prejudice, however, to the Purchaser's right, subject to the provisions of this
Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Shares, Underlying Shares or the
Warrant pursuant to an effective registration statement under the Securities Act
and in compliance with applicable state securities laws or under an exemption
from such registration.
(c) Purchaser Status. At the time the Purchaser was offered the
Shares and the Warrant, it was, and at the date hereof, it is, and at each
Closing Date and each exercise date under the Warrant, it will be, an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (4) under the
Securities Act.
(d) Experience of Purchaser. The Purchaser either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Shares, the Warrant and the
Underlying Shares, and has so evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The Purchaser is
able to bear the economic risk of an investment in the Shares, the Warrant and
the Underlying Shares and, at the present time, is able to afford a complete
loss of such investment.
(f) Access to Information. The Purchaser acknowledges receipt of the
Disclosure Materials and further acknowledges that it has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Shares and the Warrant, and the merits and risks of
investing in the Shares and the Warrant; (ii) access to information about the
Company and the Company's financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information
which the Company possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision with respect
to the investment and to verify the accuracy and completeness of the information
contained in the Disclosure Materials.
(g) Reliance. The Purchaser understands and acknowledges that (i) the
Shares and the Warrant are being offered and sold to the Purchaser without
registration under the
9
<PAGE>
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act under Section 4(2) of the Securities Act or
Regulation D promulgated thereunder and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and the Purchaser hereby consents to such
reliance. The Company acknowledges and agrees that the Purchaser make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 22.
ARTICLE 3
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) If the Purchaser should decide to
---------------------
dispose of Shares or any portion of the Warrant (and upon conversion or exercise
thereof, as the case may be, any of the Underlying Shares) held by it, the
Purchaser understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act, to the Company, to an
Affiliate, pursuant to Rule 144 under the Securities Act ("Rule 144"), or
pursuant to an available exemption from the registration requirements of the
Securities Act. In connection with any transfer of Shares, Warrant or any
Underlying Shares other than pursuant to an effective registration statement, to
the Company, to an Affiliate of the Purchaser or pursuant to Rule 144, the
Company may require the transferor thereof to provide to the Company a written
opinion of counsel experienced in the area of United States securities laws
selected by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred securities under the Securities
Act. Notwithstanding anything to the contrary contained herein, any transfer
hereunder shall be for a minimum of 50 Shares or the Warrant to purchase at
least 50,000 shares of Common Stock.
(b) The Purchaser agrees to the imprinting, so long as is required by
this Section 31, of the following legend on the Shares, the Warrant and the
Underlying Shares:
[NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]] [[THE SECURITIES REPRESENTED HEREBY]
HAVE [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
10
<PAGE>
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR SHARES ONLY] THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND CONVERSION SET FORTH IN A
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF APRIL 16, 1998,
EXECUTED BY THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF AUTONOMOUS TECHNOLOGIES CORPORATION.
The Underlying Shares issuable upon conversion of Shares or exercise
of the Warrant, as the case may be, shall not contain the legend set forth above
if the conversion of such Shares or exercise of the Warrant, as the case may be,
occurs at any time while the Underlying Shares Registration Statement is
effective under the Securities Act or in the event there is not an effective
Underlying Shares Registration Statement at such time, if the Underlying Shares
are eligible for resale under, or have been sold pursuant to, Rule 144, or if in
the written opinion of counsel to the Company experienced in the area of United
States securities laws such legend is not required under applicable requirements
of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The Company agrees that it will provide
the Purchaser, upon request, with a certificate or certificates representing
Underlying Shares, free from such legend at such time as such legend is no
longer required hereunder.
3.2 Stop Transfer Instruction. The Company may not make any notation
-------------------------
on its records or give instructions to any transfer agent of the Company which
expand the scope of the restrictions on transfer set forth in Section 31.
3.3 Furnishing of Information. As long as the Purchaser owns Shares,
-------------------------
Underlying Shares or the Warrant, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to Section 13(a) or 15(d) of the Exchange Act and, upon the request of
the Purchaser, to promptly furnish the Purchaser with true and complete copies
of all such filings. If the Company is not at the time required to file reports
pursuant to such sections, it will prepare and furnish to the Purchaser and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act.
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<PAGE>
3.4 Copies and Use of Disclosure Materials. The Company consents to
--------------------------------------
the use of the SEC Documents, and any amendments and supplements thereto, by the
Purchaser in connection with resales of the Shares, the Warrant or the
Underlying Shares other than pursuant to an effective registration statement.
3.5 Blue Sky Laws. In accordance with the Registration Rights
-------------
Agreement, the Company shall qualify the Underlying Shares under the securities
or Blue Sky laws of such jurisdictions as the Purchaser may request and shall
continue such qualification at all times through the third anniversary of the
last Closing Date; provided, that the Company shall not be required in
connection therewith to qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject the Company to general
service of process in any such jurisdiction where it is not then so subject or
subject the Company to any material tax in any such jurisdiction where it is not
then so subject.
3.6 Integration. The Company shall not and shall use its best
-----------
efforts to ensure that no Affiliate of the Company shall sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Shares, the Warrant or the Underlying Shares in a manner
that would require the registration under the Securities Act of the sale of the
Shares, the Warrant or the Underlying Shares to the Purchaser.
3.7 Purchaser Ownership of Common Stock. The Purchaser may not use
-----------------------------------
its ability to convert Shares hereunder or under the terms of the Certificate of
Designation or use its ability to acquire shares of Common Stock upon exercise
of the Warrant, to the extent that such conversion or exercise would result in
the Purchaser beneficially owning (for purposes of Rule 13d-3 under the Exchange
Act) more than 9.99% of the outstanding shares of the Common Stock; provided,
that if ten days shall have elapsed since the Purchaser has declared a default
by the Company under any Transaction Document, such default shall cause the
Purchaser to exceed such 9.99% limit and such default shall not have been cured
to the Purchaser's satisfaction prior to the expiration of such ten-day period,
the provisions of this Section 37 shall be null and void ab initio as to the
Purchaser. Notwithstanding anything to the contrary contained herein, the
provisions of this Section 37 shall have no effect on the Company's obligation
to issue shares of Common Stock to the Purchaser upon receipt or delivery of any
conversion or exercise notice. The terms and conditions of this Section shall
not apply to any conversion of Shares at the option of the Company pursuant to
Section 5(a)(ii) of the Certificate of Designation.
3.8 Listing and Reservation of Underlying Shares. (a) The Company
--------------------------------------------
shall (i) not later than the fifth Trading Day following the applicable Closing
Date prepare and file with the Nasdaq National Market (as well as any other
national securities exchange or market on which the Common Stock is then listed)
an additional shares listing application or a letter acceptable to the Nasdaq
Market System covering and listing all Underlying Shares of Common Stock, (ii)
take all reasonable steps necessary to cause the Underlying Shares to be
approved for listing in the Nasdaq Market System (as well as on any other
national securities exchange or
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<PAGE>
market on which the Common Stock is then listed) as soon as possible thereafter,
and (iii) provide to the Purchaser evidence of such listing, and the Company
shall take all steps reasonably necessary to maintain the listing of its Common
Stock on such exchange.
(b) The Company shall reserve for issuance upon conversion of the
Shares and upon exercise of the Warrant in accordance with their terms the
number of shares to be listed on the Nasdaq National Market (and such other
national securities exchange or market on which the Common Stock is then listed
or traded) as set forth in Section 38. In the event that the Company shall fail
to comply with this Section 38, then the Company shall redeem all Shares and
Underlying Shares, in cash, then held by the Purchaser, as set forth in Section
310 below.
3.9 Conversion Procedures. Exhibit C attached hereto sets forth the
---------------------
procedures with respect to the conversion of the Preferred Stock, including the
forms of conversion notice to be provided upon conversion, instructions as to
the procedures for conversion, the form of legal opinion, if necessary, that
shall be rendered by the Company to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to exercise its right of conversion smoothly and expeditiously.
3.10 Purchaser's Rights if Trading in Common Stock is Suspended or
-------------------------------------------------------------
Delisted. If at any time while the Purchaser (or any assignee thereof) owns any
- --------
Shares, the Warrant or Underlying Shares, trading in the shares of the Common
Stock is suspended on or delisted from the Nasdaq National Market or any other
principal market or exchange for such shares (other than as a result of the
suspension of trading in securities on such market or exchange generally or
temporary suspensions pending the release of material information) for more than
five Trading Days in the aggregate, at the option of the Purchaser exercisable
by written notice to the Company delivered after such suspension or delisting,
the Company shall redeem all Shares and Underlying Shares, in cash, then held by
the Purchaser, at an aggregate purchase price equal to the sum of (I) the number
of Shares then held by the Purchaser multiplied by the product of (1) the
average Per Share Market Value for the five (5) Trading Days immediately
preceding (a) the day of such notice or (b) the date of payment in full of the
redemption price calculated under this Section, whichever is greater and (2) the
Conversion Ratio on the date of the repurchase notice, and (II) the number of
Underlying Shares then held by the Purchaser multiplied by the average Per Share
Market Value for the five (5) Trading Days immediately preceding (A) the date of
the notice or (B) the date of payment in full by the Company of the redemption
price calculated under this Section, whichever is greater, provided, that the
Company shall only be required to redeem Underlying Shares pursuant to this
clause (II) if there is not an effective Underlying Shares Registration
Statement covering such Underlying Shares or if the Company has failed to tender
certificates for shares of Common Stock after a Conversion Notice and an
original certificate representing the Shares to be converted has been delivered,
and (IV) interest on the amounts set forth in (I) - - (II) above accruing from
the 5th Trading Day after such notice until the repurchase price under this
Section is paid in full at the rate of 15% per annum. The Company shall provide
written notice of any redemption demand made pursuant to this Section to each
other holder of Securities within 24 hours of its receipt thereof.
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3.11 No Violation of Applicable Law. Notwithstanding any provision of
------------------------------
this Agreement to the contrary, if the redemption of Shares or Underlying Shares
otherwise required under this Agreement or the Registration Rights Agreement
would be prohibited by the relevant provisions of Florida corporation law, such
redemption shall be effected as soon as it is permitted under such law;
provided, that interest payable by the Company with respect to any such
redemption shall continue to accrue in accordance with Section 310.
3.12 Sale Restrictions. For so long as the Purchaser holds Shares or
-----------------
Underlying Shares, the Purchaser agrees that it shall not (i) offer for public
sale any Underlying Shares at a price below the then-quoted bid market price
therefor, or (ii sell short Underlying Shares unless such sale is at a price
higher than the bid market price at the time of such short sale or unless such
sale is for more than 25,000 shares to a single buyer (or group of affiliated
buyers) other than a market maker.
3.13 Notice of Breaches. Each of the Company and the Purchaser shall
------------------
give prompt written notice to the other of any breach of any representation,
warranty or other agreement contained in this Agreement or in the Registration
Rights Agreement, as well as any events or occurrences arising after the date
hereof and prior to either Closing Date which would reasonably be likely to
cause any representation or warranty or other agreement of such party, as the
case may be, contained herein to be incorrect or breached as of such Closing
Date. However, no disclosure or failure to make such disclosure by any party
pursuant to this Section 313 shall be deemed to cure any breach of any
representation, warranty or other agreement contained herein or in the
Registration Rights Agreement.
3.14 Conversion Obligations of the Company. The Company covenants to
-------------------------------------
convert Shares and to deliver Shares and Underlying Shares in accordance with
the terms and conditions and time period set forth in the respective Certificate
of Designation, and to deliver Shares and the Warrant upon exercise of the
Option and Underlying Shares upon exercise of Warrant in accordance with the
terms and conditions and time periods set forth in the Option and the Warrant.
3.15 Subsequent Registrations and Issues of Company Securities; Right
----------------------------------------------------------------
of First Refusal. (a) Other than Underlying Shares and other "Registrable
- ----------------
Securities" (as defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, the Company shall not, for
a period of not less than 60 Trading Days after the Initial Closing Date,
without the prior written consent of Purchaser, register for resale any
securities of the Company. Any days that the Purchaser (or its successors,
permitted assigns or other successors in interest) is unable to sell Underlying
Shares under an Underlying Shares Registration Statement due to circumstances
within the Company's control, which may include among other things, suspension
of the effectiveness of the Underlying Shares Registration Statement by the
Commission or a suspension imposed by the Company's board of directors pending
any release of material non-public information, shall be added to such 60
Trading Day period for the foregoing purposes.
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<PAGE>
(b) So long as the Purchaser owns at least 25% of the Shares purchased
by the Purchaser or until 300 days after the Initial Closing, whichever occurs
first, if the Company proposes to issue any equity or equity-related securities
in a transaction which is not a firm underwritten public offering, it shall give
the Purchaser written notice of its intention, describing the securities, the
price and the substantive terms and conditions upon which the Company proposes
to issue the same. The Purchaser shall have five (5) business days from the
giving of such notice to agree to purchase (but need not actually consummate
such purchase within such 5-day period) all of such securities for the price and
upon the terms and conditions specified by giving written notice to the Company.
In the event the Purchaser is restricted in its right to convert Shares, or to
sell shares of Underlying Shares, due to the filing of a registration statement
by the Company as provided for in the Registration Rights Agreement, the 300-day
period set forth in this Section 315(b) shall be extended by the period(s) of
such restriction.
3.16 The Warrant. At the Option Closing, the Company shall issue and
-----------
deliver to the Purchaser a Common Stock purchase warrant (the "Warrant"),
substantially in the form of Exhibit B, entitling the Purchaser to purchase, on
the terms and conditions set forth therein, 300,000 shares of Common Stock at a
price per share equal to the Warrant Exercise Price (as defined below). The
"Warrant Exercise Price" shall be equal to 125% of the Per Share Market Value
for the Common Stock on the Initial Closing Date.
3.17 Use of Proceeds. The Company shall use all of the net proceeds
---------------
from the placement of the Shares and the Warrant for working capital purposes
and not for the satisfaction of any portion of Company debt, to redeem Company
equity or equity-equivalent securities or to pay down trade accounts, other than
in the ordinary course of business, consistent with past practices. Pending
application of the proceeds of this placement in the manner permitted hereby,
the Company will invest such proceeds in interest bearing accounts and short-
term, investment grade, interest bearing securities.
3.18 Press Release. The Company shall make timely disclosure of the
-------------
Initial Closing Date and the Option Closing Date, relating to the issue and sale
of the Shares, the Option and the Warrant to the Purchaser, which such press
release shall be approved by the Purchaser's Special Counsel.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Conditions Precedent to Initial Closing. The obligation of the
---------------------------------------
Purchaser to acquire and pay for the Shares to be issued at the Initial Closing
is subject to the satisfaction or waiver by the Purchaser of each of the
following conditions:
(a) Accuracy of the Company's Representations and Warranties. The
Company shall have delivered to the Purchaser a certificate or certificates,
dated the Initial
15
<PAGE>
Closing Date, of the Chief Financial Officer of the Company, certifying that the
representations and warranties of the Company contained herein and in the
Registration Rights Agreement are true and correct in all material respects as
of such date, as though made on and as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Company at or prior to the Initial Closing Date;
(c) Underlying Shares Registration Statement. The Underlying Shares
Registration Statement with respect to the Underlying Shares issuable on
conversion of the Shares and the Warrant to be sold hereunder shall have been
declared effective under the Securities Act by the Commission within seventy
(70) days of the date hereof (unless such period is extended by either the
Company or the Purchaser for up to 45 days, provided the party requesting the
extension is using its best efforts to cause the Registration Statement to be
declared effective), and shall not be subject to any stop order and no stop
order shall be pending or threatened as at the Initial Closing Date;
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement relating to the issuance or
conversion of any of the Shares or exercise of the Warrant;
(e) No Suspensions of Trading in Common Stock. The trading in the
Common Stock shall not have been suspended by the Commission or on the Nasdaq
Market System (except for any suspension of trading of securities on such market
generally or of limited duration solely to permit dissemination of material
information regarding the Company);
(f) Listing of Common Stock. The Common Stock on the Initial Closing
Date shall be listed for trading on the Nasdaq Market System;
(g) Change of Control. No Change of Control in the Company shall have
occurred. "Change of Control" means the occurrence of any of (i) an acquisition
after the date hereof by an individual or legal entity of in excess of 45% of
the voting securities of the Company, (ii) a replacement of more than one-half
of the members of the Company's board of directors which is not approved by
those individuals who are members of the board of directors on the date hereof
in one or a series of related transactions, (iii) the merger of the Company with
or into another entity (provided, that in the event that a majority of the
Company's Board of Directors will constitute a majority of the board of
directors of the surviving entity and more than 65% of the capital stock of the
surviving entity will be held by the same shareholders of the Company, such
transaction shall not be considered a Change of Control with respect to this
Section 4142(h)), consolidation or sale of all or substantially all of the
assets of the Company in one or a series of related transactions or (iv) the
execution by the Company of an agreement
16
<PAGE>
to which the Company is a party or by which it is bound, providing for any of
the events set forth above in (i), (ii) or (iii);
(h) Legal Opinion. The Company shall have delivered to the Purchaser
an opinion of legal counsel to the Company, covering the matters set forth in
Exhibit D hereto, dated the Initial Closing Date;
(i) Required Approvals. All Required Approvals shall have been
obtained;
(j) Shares of Common Stock. On or prior to the Initial Closing Date,
the Company shall have reserved for issuance to the Purchaser an adequate number
of Underlying Shares which would be issuable upon conversion in full of the
Shares to be purchased on the Initial Closing Date, assuming such conversion
occurred on the Original Issue Date for such Shares;
(k) Delivery of Stock Certificates. The Company shall have delivered
to the Purchaser or the Purchaser' designee the stock certificate(s)
representing the Shares being purchased at the Initial Closing, registered in
the name of the Purchaser, each in form satisfactory to the Purchaser;
(l) Management. Each of (i) the Chief Executive Officer and (ii)
either (A) the Chief Operating Officer or (B) the Chief Financial Officer, shall
have at all times retained such position with the Company and shall not have
suffered a voluntary or involuntary material lessening of their respective
responsibilities.
4.2 Conditions Precedent to Option Closing. The obligation of the
--------------------------------------
Purchaser to acquire and pay for the Shares and the Warrant to be purchased at
the Option Closing is subject to the satisfaction or waiver by the Purchaser, at
or before the Option Closing, of each of the conditions applicable to the
Initial Closing but as of the date of such Option Closing.
ARTICLE 5
MISCELLANEOUS
5.1 Fees and Expenses. Each party shall pay the fees and expenses of
-----------------
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement; provided, that whether or
not the Initial Closing is effected, the Company shall pay the reasonable fees
and expenses of legal counsel to the Purchaser incurred in connection with the
negotiation, documentation and closing of the financing pursuant to this
Agreement, up to an aggregate of $20,000, which fees shall be payable on
presentation of invoices therefor.
17
<PAGE>
5.2 Entire Agreement; Amendments. This Agreement, together with the
----------------------------
Exhibits and Schedules hereto, the Registration Rights Agreement, the
Certificate of Designation and the Warrant contain the entire understanding of
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
5.3 Notices. Any notice or other communication required or permitted
-------
to be given hereunder shall be in writing and shall be deemed to have been
received (a) upon hand delivery (receipt acknowledged) or delivery by telecopy
or facsimile (with transmission confirmation report) at the address or number
designated below (if delivered on a Trading Day during normal business hours
where such notice is to be received), or the first Trading Day following such
delivery (if delivered on a Trading Day after normal business hours where such
notice is to be received) or (b) upon receipt of mailing by express courier
service, fully prepaid, addressed to such address. The addresses for such
communications shall be:
If to the Company:
Autonomous Technologies Corporation
2800 Discovery Drive
Orlando, Florida 32826
Attn: Monty K. Allen, CFO
Facsimile: 407-384-1699
with a copy to:
Gray, Harris & Robinson, P.A.
201 East Pine Street, Suite 1200
Orlando, Florida 32801
Attn: William A. Grimm, Esq.
Facsimile: 407-244-5690
If to the Purchaser:
OZ Management, L.L.C.
153 East 53rd Street, 43rd Floor
New York, New York 10022
Attn: Joel Frank, CFO
Facsimile: 212-292-5950
18
<PAGE>
with a copy to:
Gregory F.W. Todd, Esq.
888 Seventh Avenue, Suite 4500
New York, New York 10106
Facsimile: 212-246-5454
If to or such other address as may be designated in writing hereafter, in the
same manner, by such person.
5.4 Amendments; Waivers. No provision of this Agreement may be
-------------------
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver
of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
5.5. Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. The Purchaser may not
assign this Agreement (other than to an Affiliate of the Purchaser) or any
rights or obligations hereunder without the prior written consent of the
Company, except that the Purchaser may assign its rights hereunder and under the
Transaction Documents without the consent of the Company as long as such
assignee demonstrates to the reasonable satisfaction of the Company its
satisfaction of the representations and warranties set forth in Section 22 and
the conditions set forth in Section 31. This provision shall not limit the
Purchaser's right to transfer securities or transfer or assign rights hereunder
or under the Registration Rights Agreement.
5.7 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.
5.8 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives,
19
<PAGE>
and agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
5.9 Survival. The agreements and covenants contained in Article 3
--------
shall survive the delivery and conversion of the Shares pursuant to this
Agreement and the representations and warranties of the Company and the
Purchasers contained in Article 2 shall survive each Closing hereunder and any
conversion of Shares and exercise of the Warrant.
5.10 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and the Purchaser shall consult with each
---------
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law in which such case the disclosing party shall
provide the other party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without the Purchaser's prior written consent.
5.12 Severability. In case any one or more of the provisions of this
------------
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
5.13 Remedies. In addition to being entitled to exercise all rights
--------
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchaser agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the
20
<PAGE>
foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.
5.14 Termination. This Agreement may be terminated prior to the
-----------
Initial Closing or the Option Closing by: (a) either party upon notice to the
other party of a material breach of this Agreement by such other party which is
not cured within 20 days of the receipt of such notice, or (b) both parties,
upon mutual written agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOLLOWS]
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized persons as of the date first
indicated above.
AUTONOMOUS TECHNOLOGIES CORPORATION
By: /s/ Randy W. Frey
__________________________
Name: Randy W. Frey
________________________
Title: Chairman & CEO
_______________________
OZ MASTER FUND, LTD.
By: OZ MANAGEMENT, L.L.C.
as Investment Advisor
By: /s/ Daniel S. Och
__________________________
Name: Daniel S. Och
Title: Managing Member
22
<PAGE>
Schedule 2.1(c)
AUTONOMOUS TECHNOLOGIES CORPORATION
CAPITALIZATION TABLE
(unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 1998
- ------------------------------------------------------------------------------------ --------------
CURRENT LIABILITIES:
<S> <C>
Accounts payable $ 608,082
Accrued expenses 1,346,314
Current portion of obligations under capital leases 100,640
------------
Total current liabilities 2,055,036
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 156,821
OBLIGATION UNDER STRATEGIC ALLIANCE AGREEMENT -
------------
Total liabilities 2,211,857
------------
STOCKHOLDERS' EQUITY (Note 1):
Undesignated series, $.01 par value; 1,000,000 shares authorized at March 31,
1998; 0 shares issued and outstanding -
Common stock, $.01 par value; 25,000,000 shares authorized, 10,540,056 shares
issued and outstanding at March 31, 1998 105,400
Additional paid-in capital 39,761,325
Deficit accumulated during the development stage (32,712,436)
------------
Total stockholders' equity 7,154,289
------------
Total capitalization $ 9,366,146
============
</TABLE>
Note 1: Does not include, as of March 31, 1998, (i) 1,213,000 shares of Common
Stock that may be issued upon the exercise of outstanding stock options at a
weighted average exercise price of $3.97 per share, (ii) 1,088,850 shares of
Common Stock that may be issued upon the exercise of outstanding warrants at a
weighted average exercise price of $3.92 per share, and (iii) 171,713 shares of
Common Stock that may be issued to CIBA on May 15, 1999. Options with respect
to 160,900 of the above 1,213,000 shares are currently exercisable at a weighted
average exercise price of $2.81 per share and the remaining balance will become
exercisable at various dates through March 2, 2008. All of the warrants are
currently exercisable and expire at various dates through June 30, 2002.
23
<PAGE>
Schedule 2.1(c) (continued)
Computation of Principal Stockholders
As of 4/16/98
Beneficial Owner Total %
- ------------------ --------- ------
Barabe 1,702,371 15.80%
CIBA 1,695,371 15.73%
Dawson Samberg 1,000,000 9.28%
Frey 665,250 6.17%
Heartland 615,000 5.71%
Capozza 132,259 1,23%
Herbert 70,150 *
Ruffett 36,850 *
Keates 35,950 *
Allen 20,416 *
Pettit 20,000 *
McFarlin 5,000 *
Martin - *
2,688,246 24.95%
Includes vested options and warrants, where applicable
24
<PAGE>
Schedule 2.1(s)
Registration Rights
The Company granted CIBA Vision Management, Inc. certain demand and piggy back
registration rights with respect to all shares of Common Stock held by CIBA. A
copy of the registration rights agreement has been filed with the SEC. There is
currently in effect a Form S-3 resale registration statement which includes the
shares held by CIBA. So long as this registration statement is in effect, the
obligations of the Company to CIBA under the registration rights agreement are
satisfied. The Company intends to keep the Form S-3 registration statement
containing the CIBA shares effective.
25
<PAGE>
Exhibit C
CONVERSION PROCEDURES
This sets forth the procedures for conversion of the shares of Series
I Preferred Stock of the Company (the "Shares"), including the forms of
conversion notice to be provided upon conversion (except as set forth herein or
in the Certificate of Designation), instructions as to the procedures for
conversion, the form of legal opinion, if necessary, that shall be rendered by
the Company to the Company's transfer agent.
6 Notices. Holders of Shares may convert their Shares by
-------
delivering to the Company or its agent a written Notice of Conversion, duly
signed by or on behalf of the holder, stating the number of Shares to be
converted, in the form of Exhibit C-1 attached.
Such notices may be delivered to the Company or its agent by telephone
line facsimile, and shall be delivered prior to 6 p.m., New York time, on the
day prior to the date of requested conversion. The Company will (i) confirm its
receipt of the Notice of Conversion, and (ii) confirm the calculations therein
or indicate alternative calculations, by return facsimile by 9:30 a.m., New York
time, on the following Trading Day. Failure of the Company to send such return
facsimile shall evidence its acceptance of the calculations in the Notice of
Conversion.
No less than ten Shares (or such lesser number of Shares then held by
the holder) may be converted in any particular conversion, unless the Company
consents to conversion of a smaller number of Shares in any particular instance.
7 Delivery of Certificates. A holder of Shares will not be
------------------------
required physically to surrender the certificate(s) representing its converted
Shares to the Company or its agent, unless and until all of the Shares
represented by a given certificate of the holder are so converted. Each holder
of Shares and the Company will maintain records showing the number of Shares so
converted by such holder and the dates of such conversions, or will use such
other method, satisfactory to such holder and the Company, so as not to require
physical surrender of such certificates on each such conversion.
8 Issuance of Common Stock. On receipt by the Company from a
------------------------
holder of Shares of a Notice of Conversion by telephone line facsimile
transmission, meeting the requirements for conversion as in the Certificate of
Designations and this Exhibit C, the Company will issue and deliver, or cause to
be issued and delivered, to or as directed by such holder certificates for the
Common Stock issuable on such conversion, within three Trading Days after such
receipt, and the person converting will be deemed to be the holder of record of
the Common Stock issuable on such conversion, and all rights with respect to the
Shares being converted will forthwith terminate except the right to receive the
Common Stock or other securities or assets as herein provided on the Conversion
Date.
26
<PAGE>
Exhibit C-1
FORM OF NOTICE OF CONVERSION
___________, 199__
BY FACSIMILE: 407-384-1699 or 407-________ (alternate)
Autonomous Technologies Corporation
2800 Discovery Drive
Orlando, Florida 32826
Attn: Monty K. Allen, CFO
cc: [ Name of Transfer Agent ]
Re: Series I Convertible Preferred Stock
------------------------------------
The undersigned hereby elects to convert the number of shares of
Series I Convertible Preferred Stock indicated below (being not less than ten
(10) Shares), into shares of Common Stock, par value $.01 per share of the
Company, as of the following date:
Date to Effect Conversion:
Number of shares of
Series I Preferred Stock being Converted:
Conversion Price (calculated as follows):
Low
Date Trading Price
---- -------------
1
2
3
4
5
-------------
Average =
Average x 0.9=_____________
27
<PAGE>
The number of shares of Common Stock to be received on conversion of __________
Shares of Series I Preferred Stock is ___________ shares.
Delivery Instructions:
- ---------------------
Certificates to be
issued in the name of:
Certificates to be
delivered to:
Date: ___________ _______________________________________________
Authorized Signature of Registered Holder
CONFIRMATION OF RECEIPT
OF NOTICE OF CONVERSION
AND CONVERSION CALCULATION:
Acknowledged:
AUTONOMOUS TECHNOLOGIES CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
28
<PAGE>
Exhibit D
FORM OF LEGAL OPINION
(1) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Florida.
(2) The Shares are duly authorized, have been validly issued and are
fully paid and nonassessable. [The granting of the Option as provided in the
Purchase Agreement is duly authorized, and constitutes the valid and legally
binding obligations of the Company.] [The Warrant is duly authorized, has been
duly executed, validly issued and delivered by the Company, and constitutes the
valid and legally binding obligations of the Company.] The shares of Common
Stock issuable upon conversion of the Shares [and exercise of the Warrant] are
duly authorized and have been validly reserved for issuance and, upon issuance
in accordance with the terms of the Purchase Agreement, will be validly issued,
fully paid and nonassessable.
(3) The Purchase Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and legally binding
obligations of the Company enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(4) It is not necessary in connection with the offer and sale of the
Shares, the Option and the Warrant in the manner contemplated by the Purchase
Agreement to register the offer or sale of the Shares or the Warrant under the
Securities Act of 1933.
29
<PAGE>
Exhibit 10.2
[Execution Counterpart]
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of April 16, 1998, between AUTONOMOUS TECHNOLOGIES CORPORATION,
a Florida corporation (the "Company"), and OZ MASTER FUND, LTD., a Cayman
Islands exempt company (the "Purchaser").
This Agreement is made pursuant to the Convertible Preferred Stock
Purchase Agreement, dated as of the date hereof, between the Company and the
Purchaser (the "Purchase Agreement").
The Company and the Purchaser hereby agree as follows:
1. Definitions.
-----------
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $.01 per
share.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
<PAGE>
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the shares of Series I Convertible Preferred
Stock, par value $.01 per share, of the Company issued to the Purchaser pursuant
to the Purchase Agreement.
"Proceeding" means a material action, claim, suit or investigation.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable
upon (i) conversion of the shares of Preferred Stock and (ii) exercise of the
Warrant issued by the Company to the Purchaser; provided, that in order to
account for the fact that the number of shares of Common Stock that are issuable
upon conversion of shares of Preferred Stock is determined in part upon the
market price of the Common Stock at the time of conversion, Registrable
Securities shall include (but not be limited to) a number of shares of Common
Stock equal to no less than the sum of (1) one and one-half times the number of
shares of Common Stock into which the applicable series of Preferred Stock are
convertible, assuming such conversion occurred on the particular Closing Date
for such tranches of Preferred Stock and (2) the number of shares of Common
Stock issuable upon exercise in full of the Warrant described herein, or such
other number of shares of Common Stock as agreed to by the parties to the
Purchase Agreement. Notwithstanding anything herein contained to the contrary,
if the actual number of shares of Common Stock into which the shares of
Preferred Stock are convertible exceeds one and one-half times the number of
shares of Common Stock into which the particular series of Preferred Stock are
convertible based upon a computation as at a particular Closing Date, the term
"Registrable Securities" shall be deemed to include such additional shares of
Common Stock. If the number of Registrable Securities exceeds the number of
shares of Common Stock initially registered in respect of any particular tranche
of Preferred Stock based upon the computation on a particular Closing Date, the
Company shall have 10 Trading Days to file an additional Registration Statement
covering all such additional shares of Common Stock.
2
<PAGE>
"Registration Statement" means the registration statement contemplated
by Section 2(a) (and any additional Registration Statement contemplated in the
definition of Registrable Securities), including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders, for which
the Holders will be reimbursed by the Company pursuant to Section 4.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq National Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not listed on the Nasdaq
National Market or any other exchange or market, a day on which the Common Stock
is traded in the over-the-counter market, as reported by the OTC Bulletin Board,
or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, in the event
that the Common Stock is not listed or quoted in (a), (b) or (c) above, Trading
Day shall mean any day except Saturday, Sunday and any day which shall be a
legal holiday or a day on which banking institutions in the state of New York
generally are authorized or required by law or other government actions to
close.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
3
<PAGE>
2. Shelf Registration.
------------------
(a) As promptly as practicable after the date hereof, the Company
shall prepare and file with the Commission a "shelf" Registration Statement
covering all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form S-3
(except if otherwise agreed to by the Company and the Holders of a majority in
interest of the applicable Registrable Securities in accordance herewith or if
the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith). The Registration Statement shall
state, to the extent permitted by Rule 416 under the Securities Act, that it
also covers such indeterminate number of shares of Common Stock as may be
required to effect (i) conversion of the Preferred Stock to prevent dilution
resulting from stock splits, stock dividends or similar events, or by reason of
changes in the Conversion Price in accordance with the terms of the Certificate
of Designation and (ii) exercise of the Warrant in full to prevent dilution
resulting from stock splits, stock dividends or similar events, or by reason of
changes in the Exercise Price (as defined in the Warrant) in accordance with the
terms of the Warrant. The Company shall not permit any securities other than
the Registrable Securities to be included in the Registration Statement and
shall keep such Registration Statement continuously effective under the
Securities Act until the date which is three years after the date that such
Registration Statement has been declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144 as determined by the counsel to the Company pursuant to a written
opinion letter, addressed to the Company's transfer agent to such effect (the
"Effectiveness Period"); provided, that the Company shall not be deemed to have
used its commercially reasonable efforts to keep the Registration Statement
effective during the Effectiveness Period if it voluntarily takes any action
that would result in the Holders not being able to sell the Registrable
Securities covered by such Registration Statement during the Effectiveness
Period, unless such action is required under applicable law or the Company has
filed a post-effective amendment to the Registration Statement and the
Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected on no more than two occasions, in the form of an
Underwritten Offering. In such event, and if the managing underwriters advise
the Company and such Holders in writing that in their opinion the amount of
Registrable Securities proposed to be sold in such Underwritten Offering exceeds
the amount of Registrable Securities which can be sold in such Underwritten
Offering, there shall be included in such Underwritten Offering the amount of
such Registrable Securities which in the opinion of such managing underwriters
can be sold, and such amount shall be allocated pro rata among the Holders
proposing to sell Registrable Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon
4
<PAGE>
consultation with the Company. No Holder may participate in any Underwritten
Offering hereunder unless such Person (i) agrees to sell its Registrable
Securities on the basis provided in any underwriting agreements approved by the
Persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such arrangements.
3. Registration Procedures.
-----------------------
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission as promptly as practicable a
Registration Statement on Form S-3 (or such other form agreed to by the Company
and by the Holders of a majority in interest of the applicable Registrable
Securities in connection with an Underwritten Offering hereunder or if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith) in accordance with the method or methods of
distribution thereof as specified by the Holders (except if otherwise directed
by the Holders), and use commercially reasonable efforts to cause the
Registration Statement to become effective and remain effective as provided
herein; provided, that not less than five (5) Trading Days prior to the filing
of the Registration Statement or any related Prospectus or any amendment or
supplement thereto (including any document that would be incorporated or deemed
to be incorporated therein by reference), the Company shall, if reasonably
practicable (i) furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel to such Holders
and such underwriters, to conduct a reasonable investigation within the meaning
of the Securities Act. If, following review of the Registration Statement or
any amendment thereto prior to filing, a Holder shall determine not to be named
in such Registration Statement or amendment and shall so notify the Company
within three (3) Trading Days from receipt thereof, then the Company shall
delete the name of any such Holder therein.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as reasonably practicable to any
comments received from the Commission with respect
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<PAGE>
to the Registration Statement or any amendment thereto and reasonably promptly
provide the Holders true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and
Gregory F.W. Todd, Esq. as their Special Counsel (or any other special counsel
to the Holders as shall have been provided in writing to the Company)
immediately (and, in the case of (i)(A) below, not less than five (5) days prior
to such filing) and (if requested by any such Person) confirm such notice in
writing no later than one (1) Trading Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) when the Commission notifies
the Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement and
(C) with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to
the Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement covering any or all of the Registrable Securities or
the initiation of any Proceedings for that purpose; (iv) if at any time any of
the representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use its commercially reasonable efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of the Registration Statement or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration
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Statement such information as such managing underwriters and such Holders
reasonably agree should be included therein and (ii) make all required filings
of such Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, that the Company shall not be required to take any action pursuant to
this Section 3(e) that would, in the opinion of counsel for the Company, violate
applicable law or be materially detrimental to the business prospects of the
Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) reasonably promptly
after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders, any underwriters and their Special Counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things reasonably necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; provided, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) In the event of an Underwritten Offering, cooperate with the
Holders and any managing underwriters to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to a Registration Statement, which certificates shall be free of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such managing underwriters or Holders may
request at least two Trading Days prior to any sale of Registrable Securities.
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(j) Upon the occurrence of any event contemplated by Section 3(c)(vi),
as promptly as practicable, prepare a supplement or amendment, including a post-
effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(k) Use its commercially reasonable efforts to cause all Registrable
Securities relating to such Registration Statement to be listed on The Nasdaq
National Market and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) Enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in Underwritten Offerings) and take
all such other actions in connection therewith as may be reasonably requested by
any managing underwriters and the Holders of a majority of the Registrable
Securities being sold, in order to expedite or facilitate the disposition of
such Registrable Securities, and whether or not an underwriting agreement is
entered into, (i) make such representations and warranties to such Holders and
such underwriters as are customarily made by issuers to underwriters in
underwritten public offerings, and confirm the same if and when requested; (ii)
in the case of an Underwritten Offering obtain and deliver copies thereof to the
managing underwriters, if any, of opinions of counsel to the Company and updates
thereof addressed to each such underwriter, in form, scope and substance
reasonably satisfactory to any such managing underwriters and Special Counsel to
the selling Holders covering the matters customarily covered in opinions
requested in Underwritten Offerings and such other matters as may be reasonably
requested by such Special Counsel and underwriters; (iii) immediately prior to
the effectiveness of the Registration Statement, and, in the case of an
Underwritten Offering, at the time of delivery of any Registrable Securities
sold pursuant thereto, obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to each selling Holder and each of the underwriters, if
any, in form and substance as are customary in connection with Underwritten
Offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders and the underwriters, if any, than those set forth in Section 6
(or such other provisions and procedures acceptable to the Company, the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering); and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause
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<PAGE>
3(l)(i) above and to evidence compliance with any customary conditions contained
in the underwriting agreement or other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, upon
reasonable notice and during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information in each case reasonably
requested by any such Holder, representative, underwriter, attorney or
accountant in connection with the Registration Statement; provided, that any
information that is determined in good faith by the Company in writing to be of
a confidential nature at the time of delivery of such information shall be kept
confidential by such Persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities; (ii) disclosure of such information, in the
opinion of counsel to such Person, is required by law; (iii) such information
becomes generally available to the public other than as a result of a disclosure
or failure to safeguard by such Person; or (iv) such information becomes
available to such Person from a source other than the Company and such source is
not known by such Person to be bound by a confidentiality agreement with the
Company.
(n) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or best
efforts Underwritten Offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the Company
after the effective date of the Registration Statement, which statement shall
cover said 12-month period, or such shorter periods as is consistent with the
requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
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Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) such Purchaser and its officers, directors or Affiliates,
if any, will comply with the prospectus delivery requirements of the Securities
Act as applicable to them in connection with sales of Registrable Securities
pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
4. Registration Expenses.
---------------------
(a) All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall, except as and to the extent specified
in Section 4(b), be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in
the foregoing sentence shall include, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses (A) with
respect to filings required to be made with The Nasdaq National Market and each
other securities exchange or market on which Registrable Securities are required
hereunder to be listed and (B) in compliance with state securities or Blue Sky
laws (including, without limitation, reasonable fees and disbursements of
counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriters, if any,
or by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit,
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the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants, and such other fees and expenses otherwise set
forth in Section 4(a)(i) herein (which shall be borne by the Holders).
Therefore, in such circumstances the Holder shall bear the expenses of the fees
and disbursements of any legal counsel or accounting firm retained by the
underwriters in connection with such Underwritten Offering and the costs of any
determination by the underwriters of the eligibility of the Registrable
Securities for investment under the applicable state securities laws. By way of
illustration which is not intended to diminish from the provisions of Section
4(a), the Holders shall not be responsible for, and the Company shall be
required to pay the fees or disbursements incurred by the Company (including by
its legal counsel and accountants) in connection with, the preparation of a
Registration Statement and related Prospectus for such offering, the maintenance
of such Registration Statement in accordance with the terms hereof, the listing
of the Registrable Securities in accordance with the requirements hereof, and
printing expenses incurred to comply with the requirements hereof.
5. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable out-of-
pocket costs of preparation and reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration
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Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or any form of prospectus or in any amendment or supplement
thereto or arising solely out of or based solely upon any omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information regarding such Holder so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that such failure shall have proximately and
materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the
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Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that a conflict of interest is likely to exist if the same counsel were
to represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel, which shall be reasonably acceptable to the Indemnifying Party,
shall be at the expense of the Indemnifying Party). The Indemnifying Party shall
not be liable for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Trading
Days of written notice thereof to the Indemnifying Party, together with adequate
documentation (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
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The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), the Holder shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by the Holder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that the Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Rule 144.
--------
The Company shall file the reports required to be filed by it under
the Securities Act and the Exchange Act in a timely manner and, if at any time
the Company is not required to file such reports, they will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales of its securities pursuant to Rule 144. The Company further
covenants that it will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144; provided, that the
Company shall not be obligated to provide an opinion to any Holder regarding the
sale of Registrable Securities pursuant to exemptions provided by Rule 144.
Upon the request of any Holder, the Company shall deliver to such Holder a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
7. Miscellaneous.
-------------
(a) Holdback Agreement. In the event the Company files a registration
statement for an offering of its securities to the public (other than on Form S-
4 or successor form), each Holder agrees, upon receipt of written notice from
the Company, on one occasion during each twelve-month period, to discontinue
sales of Registrable Securities pursuant to the Registration Statement for a
period of not longer than sixty (60) days (the "Postponement Period") following
(i) the date of filing of such registration statement or (ii) seven days prior
to the effective date of such registration statement, as notified by the
Company; provided, that notwithstanding such notice, the Holders may continue to
make sales of Registrable Securities under the Registration Statement on each
Trading Day during the Postponement Period in an aggregate amount not greater
than ten percent (10%) of the average trading volume of the Company's Common
Stock for the five (5) Trading Days prior to such Trading Day (which amounts may
not be cumulated from day to day but shall expire if not utilized); and
provided,
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further, that if the offering is not a firm commitment underwritten offering,
the Postponement Period shall in any case terminate on the second Trading Day
following the closing of such offering. The Company shall give prompt notice to
all Holders on termination of such Postponement Period, authorizing them to
resume unrestricted sales pursuant to the Registration Statement.
(b) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(c) No Inconsistent Agreements. Neither the Company nor its
subsidiary has, as of the date hereof, nor shall the Company or its subsidiary,
on or after the date of this Agreement, enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof. Except as set
forth on Schedule 2.1(t) of the Purchase Agreement, neither the Company nor its
subsidiary has previously entered into any agreement granting any registration
rights with respect to any of its securities to any Person. Without limiting
the generality of the foregoing, without the written consent of the Holders of a
majority of the then outstanding Registrable Securities, the Company shall not
grant to any Person the right to request the Company to register any securities
of the Company under the Securities Act unless the rights so granted are subject
in all respects to the prior rights in full of the Holders set forth herein, and
are not otherwise in conflict or inconsistent with the provisions of this
Agreement.
(d) No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not enter into any agreement
providing any such right to any of its security holders, without the consent of
the Holders of a majority of the Registrable Securities.
(e) Piggy-Back Registrations. If at any time prior to the third
anniversary hereof there is not an effective Registration Statement and the
Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) 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, then the Company
shall send to each holder of Registrable Securities written notice of such
determination and, if within ten (10) Trading Days after receipt of such
15
<PAGE>
notice, any such holder shall so request in writing, the Company shall include
in such registration statement all or any part of the Registrable Securities
such holder requests to be registered.
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities; provided, that for the purposes of this sentence, Registrable
Securities that are owned, directly or indirectly, by the Company, or an
Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, that the provisions of this sentence may
not be amended, modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York time) on a Trading Day, (ii) the Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 7:00
p.m. (New York time) on any date and earlier than 11:59 p.m. (New York time)
on such date, (iii) upon receipt of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.
If to the Company:
Autonomous Technologies Corporation
2800 Discovery Drive
Orlando, Florida 32826
Attn: Monty Allen, CFO
Facsimile: 407-384-1699
with a copy to:
Gray, Harris & Robinson, P.A.
201 East Pine Street, Suite 1200
Orlando, Florida 32801
Attn: William A. Grimm, Esq.
Facsimile: 407-244-5690
16
<PAGE>
If to the Purchaser:
OZ Management, L.L.C.
153 East 53rd Street, 43rd Floor
New York, New York 10022
Attn: Joel Frank, CFO
Facsimile: 212-292-5950
with a copy to:
Gregory F.W. Todd, Esq.
888 Seventh Avenue, Suite 4500
New York, New York 10106
Facsimile: 212-246-5454
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the stock transfer
books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(h) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The Purchaser may assign its rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement.
(i) Assignment of Registration Rights. The rights of the Purchaser
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by the Purchaser to any assignee or transferee of all
or a portion of the shares of Preferred Stock, the Warrant or the Registrable
Securities if: (i) the Purchaser 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) following such transfer or assignment the further
disposition of such securities by the transferee or assignees restricted under
the Securities Act and applicable state securities laws, (iv) at or before the
time the Company receives the written notice contemplated by clause (ii) of this
Section, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions of this Agreement, and (v) such transfer shall
17
<PAGE>
have been made in accordance with the applicable requirements of the Purchase
Agreement. The rights to assignment shall apply to the Purchaser's (and to
subsequent) successors and assigns.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(k) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to
principles of conflicts of law.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(o) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK SIGNATURE PAGE TO FOLLOW]
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AUTONOMOUS TECHNOLOGIES CORPORATION
By: __________________________
Name: Randy W. Frey
________________________
Title: Chairman & CEO
_______________________
OZ MASTER FUND, LTD.
By: OZ MANAGEMENT, L.L.C.
as Investment Advisor
By: __________________________
Name: Daniel S. Och
Title: Managing Member
19
<PAGE>
Exhibit 10.3
Exhibit B
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
AUTONOMOUS TECHNOLOGIES CORPORATION
WARRANT
Warrant No. [____] Dated _________, 1998
AUTONOMOUS TECHNOLOGIES CORPORATION, a corporation organized and
existing under the laws of the State of Florida (the "Company"), hereby
certifies that, for value received, 0Z MASTER FUND, LTD., a Cayman Islands
exempt company, or its registered assigns ("Holder"), is entitled, subject to
the terms set forth below, to purchase from the Company up to a total of 300,000
shares of Common Stock, par value $.01 per share (the "Common Stock"), of the
Company (each such share, a "Warrant Share" and all such shares, the "Warrant
Shares") at an exercise price equal to $_______ per share (as adjusted from time
to time as provided in Section 8, the "Exercise Price"), at any time and from
time to time from and after the date hereof and through and including _______,
2000 or earlier as provided herein (the "Expiration Date"), and subject to the
following terms and conditions:
1. Registration of Warrant. The Company shall register this
-----------------------
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall register a permitted transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company at
the office specified in or pursuant
<PAGE>
to Section 3(b). Upon any such registration or transfer, a new warrant to
purchase Common Stock, in substantially the form of this Warrant (any such new
warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred
shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance of such transferee of all of the rights and
obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration, Exercise of Warrant and Redemption.
--------------------------------------------
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 7:00 P.M., New York time, at any time and from time to time
on or after the date hereof to and including the Expiration Date. At 7:00 P.M.,
New York time on the Expiration Date, the portion of this Warrant not exercised
prior thereto shall be and become void and of no value.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its office at 2800 Discovery Drive, Orlando,
Florida 32826, Attention: Chief Financial Officer, or at such other address as
the Company may specify in writing to the then registered Holder, and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in lawful money of the United States
of America, in cash or by certified or official bank check or checks, all as
specified by the Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 2 Trading Days after receipt by the Company
of this Warrant and the signed Election to Purchase) issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends other than as required
by the Purchase Agreement of even date herewith between the Holder and the
Company. Any person so designated by the Holder to receive Warrant Shares shall
be deemed to have become holder of record of such Warrant Shares as of the Date
of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
2
<PAGE>
A "Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq National Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not listed on the Nasdaq
National Market or any stock exchange or market, a day on which the Common Stock
if traded on the over-the-counter market, as reported by the OTC Bulletin Board,
or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Company's Common Stock is not listed or quoted as set forth
in (a), (b) and (c) above, Trading Day shall mean any day except Saturday,
Sunday and any day which shall be a legal holiday or a day on which banking
institutions in the State of New York generally are authorized or required by
law or other government actions to close.
(c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. If less than all
of the Warrant Shares which may be purchased under this Warrant are exercised at
any time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this Warrant,
-----------------------------
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933, as
amended, pursuant to which the Company is registering securities pursuant to a
Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days notice to the Holder,
notice of its intention to file such registration statement and provides the
Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
5. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause
3
<PAGE>
to be issued or deliver or cause to be delivered the certificates for Warrant
Shares unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost,
----------------------
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will
-----------------------------
at all times reserve and keep available out of the aggregate of its authorized
but unissued Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of
Warrant Shares which are then issuable and deliverable upon the exercise of this
entire Warrant, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders (taking into account the
adjustments and restrictions of Section 8). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant
-------------------
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8. Upon each such adjustment of the
Exercise Price pursuant to this Section 8, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock (as defined below) or on any other class of capital
stock (and not the Common Stock) payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator
4
<PAGE>
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding before such event and of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
after such event. Any adjustment made pursuant to this Section shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property equal to the amount of Warrant Shares such
Holder would have been entitled to had such Holder exercised this Warrant
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 8(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock to all holders of Common Stock for a
consideration per share less than the
5
<PAGE>
Exercise Price then in effect, then, forthwith upon such issue or sale, the
Exercise Price shall be reduced to the price (calculated to the nearest cent)
determined by dividing (i) an amount equal to the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Exercise Price, and (B) the consideration, if any, received or
receivable by the Company upon such issue or sale by (ii) the total number of
shares of Common Stock outstanding immediately after such issue or sale.
(e) For the purposes of this Section 8, the following clauses shall
also be applicable:
(i) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.
(ii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the nearest
cent or the nearest whole share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock of the Company, any
consolidation or merger to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
property; or
6
<PAGE>
(v) the Company shall authorize the voluntary dissolution, liquidation
or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 15 Trading Days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder shall pay the Exercise
-------------------------
Price in cash, in immediately available funds.
10. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, to the nearest whole number.
11. Notices. Any and all notices or other communications or
-------
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 7:00 p.m. (New York time) on a Trading Day, (ii) the Trading
Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in the Section later
than 7:00 p.m. (New York time) on any date and earlier than 11:59 p.m. (New
York time) on such date, (iii) upon receipt of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to: Autonomous Technologies
Corporation, 2800 Discovery Drive, Orlando, Florida 32826, Attention: Chief
Financial Officer, or to facsimile no. 407-384-1699 or (ii) if to the Holder, to
the Holder at the address or facsimile number appearing on the Warrant Register
or such other address or facsimile number as the Holder may provide to the
Company in accordance with this Section 11.
7
<PAGE>
12. Warrant Agent.
-------------
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant; this
Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
AUTONOMOUS TECHNOLOGIES CORPORATION
By: __________________________
Name: Randy W. Frey
________________________
Title: Chairman & CEO
_______________________
9
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Autonomous Technologies Corporation:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), par value $.01 per share, of Autonomous
Technologies Corporation and encloses herewith $________ in cash or certified or
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: , Name of Holder:
(Print)
(By:) (Name:) (Title:) (Signature must conform
in all respects to name of holder as specified on the face of the Warrant)
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[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________ the right represented by the
within Warrant to purchase ____________ shares of Common Stock of Autonomous
Technologies Corporation to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Autonomous
Technologies Corporation with full power of substitution in the premises.
Dated: ___________________, ____
---------------------------------------
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)
--------------------------------------- Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
---------------------------
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Exhibit 10.4
Exhibit A
CERTIFICATE OF DESIGNATION
OF CONVERTIBLE PREFERRED STOCK, SERIES I
OF AUTONOMOUS TECHNOLOGIES CORPORATION
The undersigned, Richard C. Capozza and Monty K. Allen, hereby certify that:
I. They are the duly elected and acting President and Secretary respectively, of
Autonomous Technologies Corporation, a Florida corporation (the "Company").
II. The Certificate of Incorporation of the Company presently authorizes 900
shares of preferred stock, par value $.01 per share, of which none are issued
and outstanding.
III. The following is a true and correct copy of resolutions duly
adopted by the Board of Directors of the Company (the "Board of Directors") at a
meeting duly held on April 14, 1998, which constituted all requisite action on
the part of the Company for adoption of such resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors is authorized to provide for the
issuance of the shares of preferred stock in series, and by filing a certificate
pursuant to the applicable law of the State of Florida, to establish from time
to time the number of shares to be included in each such series, and to fix the
designations, powers, preferences and relative, participating, optional or
special rights of the shares of each such series and the qualifications,
limitations or restrictions thereof.
WHEREAS, the Board of Directors desires, pursuant to its authority as
aforesaid, to designate a new series of preferred stock, set the number of
shares constituting such series and fix the rights, preferences, privileges and
restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
designates a new series of preferred stock and the number of shares constituting
such series and fixes the rights, preferences, privileges and restrictions
relating to such series as follows (defined terms having the meanings given
thereto in Section 7 unless otherwise provided):
<PAGE>
Section 1. Designation, Amount and Par Value. The series of
---------------------------------
preferred stock shall be designated as Convertible Preferred Stock, Series I
(the "Series I Preferred Stock"), and the number of shares so designated
("Shares") shall be 1,000 (which shall not be subject to increase without the
consent of the holders hereof as provided in Section 3). Each share of Series I
Preferred Stock shall have a par value of $.01 per share and a stated value of
$10,000 per share (the "Stated Value").
Section 2. Dividends.
---------
(a) The holders of the Series I Preferred Stock shall not be entitled
to receive dividends.
(b) So long as any Series I Preferred Stock shall remain outstanding,
the Company shall not redeem, purchase or otherwise acquire directly or
indirectly any Junior Securities nor shall the Company directly or indirectly
pay or declare any dividend or make any distribution upon, nor shall any
distribution be made in respect of, any Junior Securities, nor shall any monies
be set aside for or applied to the purchase or redemption (through a sinking
fund or otherwise) of any Junior Securities or shares pari passu with the Series
I Preferred Stock, except for repurchases effected by the Company on the open
market, pursuant to a direct stock purchase plan.
Section 3. Voting Rights. Except as otherwise provided herein and as
-------------
otherwise required by law, the Series I Preferred Stock shall have no voting
rights. However, the Company shall not, without the affirmative vote of the
holders of a majority of the shares of the Series I Preferred Stock then
outstanding, take any of the following actions: (a) so long as any shares of
Series I Preferred Stock are outstanding, amend its certificate of
incorporation, bylaws or other charter documents so as materially and adversely
to affect any conversion or transfer rights of any Holder; (b) so long as
fifteen percent (15%) of the shares of Series I Preferred Stock are outstanding,
declare, authorize, set aside or pay any dividend or other distribution with
respect to the Common Stock except as permitted under this Certificate of
Designation and as would not materially and adversely affect the rights of any
Holder hereunder; (c) so long as thirty percent (30%) of the shares of Series I
Preferred Stock are outstanding, repay, repurchase or offer to repay, repurchase
or otherwise acquire shares of its Common Stock, except for repurchases effected
by the Company on the open market, pursuant to a direct stock purchase plan; (d)
so long as fifteen percent (15%) of the shares of Series I Preferred Stock are
outstanding, authorize or create any class of equity or equity equivalent
security that ranks senior to or on parity with the Series I Preferred Stock;
(e) so long as thirty percent (30%) of the shares of Series I Preferred Stock
are outstanding, make investments outside the ordinary course of the Company's
business in a cumulative amount in excess of $500,000; (f) so long as thirty
percent (30%) of the shares of Series I Preferred Stock are outstanding, incur
indebtedness for borrowed money, or for the deferred purchase or acquisition
price of property or services, directly or indirectly, in an amount greater than
$500,000, excluding, however, indebtedness incurred in financing of equipment in
connection with the Company's product sales in the ordinary course; (g) so long
as any shares of Series I Preferred Stock are outstanding, merge
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or consolidate with another entity or sell substantially all of the Company's
assets if the proceeds of the transaction are insufficient to redeem the Series
I Preferred Stock then outstanding in full; (h) so long as fifteen percent (15%)
of the shares of Series I Preferred Stock are outstanding, pledge or encumber
substantially all of the Company's assets or property; or (i) enter into any
agreement with respect to any of the foregoing. The voting rights provided in
the foregoing clauses (b) - (h) shall expire on the 300th day following the
Original Issue Date.
Section 4. Liquidation. Upon any liquidation, dissolution or
-----------
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of Series I Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus, for each
share of Series I Preferred Stock an amount equal to one hundred percent (100%)
of the Stated Value per Share, before any distribution or payment shall be made
to the holders of any Junior Securities, and if the assets of the Company shall
be insufficient to pay in full such amounts, then the entire assets to be
distributed to the holders of Series I Preferred Stock shall be distributed
among the holders of Series I Preferred Stock ratably in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. A sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of, or a consolidation or
merger of the Company with or into any other company or companies shall not be
treated as a Liquidation, but instead shall be subject to the provisions of
Section 5. The Company shall mail written notice of any such Liquidation, not
less than 45 days prior to the payment date stated therein, to each record
holder of Series I Preferred Stock.
Section 5. Conversion.
----------
(a) Conversion Elections. (i) The Series I Preferred Stock shall be
convertible at the option of the holder into shares of Common Stock, at the then
prevailing Conversion Ratio, from time to time following the Original Issue
Date, in minimum amounts of ten (10) shares of Series I Preferred Stock, or such
lesser amounts as any converting holder of Series I Preferred Stock then holds.
One hundred and fifteen (115) shares of Series I Preferred Stock shall become
convertible on or after the fifteenth (15th) day following the Original Issue
Date of such Shares, and a further one hundred and fifteen (115) shares of
Series I Preferred Stock shall become convertible on each subsequent monthly
anniversary of such fifteenth (15th) day, subject to reduction pursuant to
Section 5(a)(iii) below and to Section 3.7 of the Purchase Agreement. Shares
need not be converted on the date initially convertible, but may be cumulated
with other Shares eligible for conversion and converted at any time thereafter.
The holder shall effect conversions by surrendering to the Company the
certificate or certificates representing the shares of Series I Preferred Stock
to be converted, together with the form of conversion notice attached hereto as
Exhibit A (the "Holder Conversion Notice"), or otherwise as provided separately
with the holders. Each Holder Conversion Notice shall specify the number of
shares of Series I Preferred Stock to be converted and the date on which such
conversion is to be effected, which date may not be prior to the date the holder
delivers such
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<PAGE>
Holder Conversion Notice by facsimile (the "Holder Conversion Date"). If no
Holder Conversion Date is specified in a Holder Conversion Notice, the Holder
Conversion Date shall be the date that the Holder Conversion Notice is deemed
delivered pursuant to Section 5(i). Subject to Sections 5(b) and 5(a)(iii)
hereof, each Holder Conversion Notice, once given, shall be irrevocable. If the
holder is converting less than all shares of Series I Preferred Stock
represented by the certificate or certificates tendered by the holder with the
Holder Conversion Notice, or if a conversion hereunder cannot be effected in
full for any reason, the Company shall promptly deliver to such holder (in the
manner and within the time set forth in Section 5(b)) a certificate for such
number of shares as have not been converted.
(ii) On or after the second anniversary of the Original Issue Date,
the Company may require the conversion of all or a portion of the then
outstanding and unconverted shares of Series I Preferred Stock at the then
prevailing Conversion Ratio (subject to reduction pursuant to Section 5(a)(iii))
by delivering to the holder of such shares to be converted a notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), provided, that
no such conversion is permitted unless at the time of the delivery of the
Company Conversion Notice and on the Company Conversion Date (as defined below),
(a) an Underlying Shares Registration Statement covering the resale of the
shares of Common Stock issuable upon such conversion is effective, (b) the
shares of Common Stock issuable upon such conversion are listed for trading on
the Nasdaq National Market (or The New York Stock Exchange or any other
principal exchange) and any other exchange or quotation system on which the
Common Stock is then listed for trading, and (c) the Company is in compliance
with all of its obligations under this Certificate of Designation, the Purchase
Agreement and the Registration Rights Agreement. Each Company Conversion Notice
shall specify the number of shares of Series I Preferred Stock to be converted
and the date on which such conversion is to be effected, which date may not be
prior to the day after the Company delivers such Company Conversion Notice by
facsimile (the "Company Conversion Date"). If no Company Conversion Date is
specified in a Company Conversion Notice, the Company Conversion Date shall be
the date that the Company Conversion Notice is deemed delivered pursuant to
Section 5(i). A Holder Conversion Date and a Company Conversion Date are
sometimes referred to herein as the "Conversion Date" and a Holder Conversion
Notice and a Company Conversion Notice are sometimes referred to as a
"Conversion Notice." Any conversion pursuant to this Section 5(a)(ii) shall be
subject to Section 5(b) with respect to consequences of the Company's failure to
deliver shares of Common Stock in respect of a conversion under this Section.
If the Company is converting less than all shares of Series I Preferred Stock
represented by the certificate or certificates tendered by the holder in
response to a Company Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall promptly deliver to such
tendering holder (in the manner and within the time set forth in Section 5(b)) a
certificate for such number of shares as have not been converted.
(iii) If on any Conversion Date, (A) the Common Stock is then listed
for trading on the Nasdaq National Market or the American Stock Exchange, or if
the rules of the Nasdaq Stock Market, Inc. are hereafter amended to extend or
adopt rules similar to Rule 4460(i) promulgated thereby (or any successor or
replacement provision thereof, the "20% Rule") to the
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<PAGE>
Nasdaq SmallCap Market or over-the-counter market and the Company's Common Stock
is listed for trading on such market or exchange, (B) the 20% Rule is applicable
on such Conversion Date, (C) the Conversion Price then in effect is such that
the aggregate number of shares of Common Stock that would then be issuable upon
conversion of all outstanding shares of Series I Preferred Stock, together with
any shares of Common Stock previously issued upon conversion of Series I
Preferred Stock would equal or exceed 20% of the number of shares of Common
Stock outstanding on the Original Issue Date (the "Issuable Maximum"), and (D)
the Company has not previously obtained Shareholder Approval (as defined below),
then the Company shall issue to any holder so requesting conversion of Series I
Preferred Stock its pro rata portion of the Issuable Maximum in the same ratio
that the number of shares of Series I Preferred Stock held by any such holder
bears to all shares of Series I Preferred Stock then outstanding and, with
respect to any shares of Common Stock that otherwise would have been issuable to
such holder in respect of the Conversion Notice at issue hereunder in excess of
such holders pro rata portion of the Issuable Maximum (the "Surplus Amount"),
the Company shall have the option to either (1) as promptly as possible, but in
no event later than 90 days after such Conversion Date, convene a meeting of the
holders of the Common Stock and use its reasonable efforts (which may include,
among other things, hiring a proxy solicitor) to obtain the Shareholder Approval
and the approval of the Company's Board of Directors or (2) redeem, from funds
legally available therefor at the time of such redemption, such holder's Surplus
Amount of the Series I Preferred Stock subject to such Conversion Notice at a
price per share equal to the product of (i) the average Per Share Market Value
for the five (5) Trading Days immediately preceding (x) the Conversion Date or
(y) the date of payment in full by the Company of such redemption price,
whichever is greater, and (ii) the Conversion Ratio calculated on the Conversion
Date; provided, that if the Company has elected to obtain Shareholder Approval
under clause (1) above, the holders of a majority of the outstanding shares of
Series I Preferred Stock may request, in lieu of such meeting, that the Company
redeem each holder's Surplus Amount as set forth herein and provided, further
that if the Company fails for any reason to obtain such Shareholder Approval
within the time period set forth in (1) above, the Company shall be obligated to
redeem the Series I Preferred Stock not converted as a result of the provisions
of this Section in accordance with the provisions of clause (2) above, and in
such case the interest contemplated by the immediately succeeding sentence shall
be deemed to accrue from the Conversion Date. If the holder has requested that
the Company redeem shares of Series I Preferred Stock pursuant to this Section
and the Company fails for any reason to pay the redemption price under clause
(2) above within seven days after the Conversion Date, the Company will pay
interest on such redemption price at a rate of 15% per annum to the converting
holder of Series I Preferred Stock, accruing from the Conversion Date until the
redemption price plus any accrued interest thereon is paid in full. The entire
redemption price, including interest thereon, shall be paid in cash.
"Shareholder Approval" means the approval by a majority of the total votes cast
on the proposal, in person or by proxy, at a meeting of the shareholders of the
Company held in accordance with the Company's Certificate of Incorporation and
by-laws, of the issuance by the Company of shares of Common Stock exceeding the
Issuable Maximum as a consequence of the conversion of Series I Preferred Stock
into Common Stock at a price less than the greater of the book or market value
on the Original Issue Date as and to
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<PAGE>
the extent required pursuant to Rule 4460(i) of the Nasdaq Stock Market or Rule
713 of the American Stock Exchange (or any successor or replacement provision
thereof), as applicable.
(b) Conversion Mechanics. Not later than three Trading Days after
receipt by the Company of a properly completed and duly executed Conversion
Notice, the Company will deliver to the holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of shares of
Series I Preferred Stock (subject to reduction pursuant to Section 5(a)(iii) and
Section 3.7 of the Purchase Agreement), (ii) if a certificate for Series I
Preferred Stock has been delivered to the Company, one or more certificates
representing the number of shares of Series I Preferred Stock not converted, and
(iii) if applicable, a bank check in the amount of declared but unpaid
dividends. If such certificate or certificates are not delivered to or as
directed by the applicable holder by the third Trading Day after receipt by the
Company of a properly completed and duly executed Conversion Notice, the holder
shall be entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return any certificates
representing the shares of Series I Preferred Stock tendered for conversion. If
the Company fails to deliver to the holder such certificate or certificates
pursuant to this Section, prior to the fourth Trading Day after receipt by the
Company of a properly completed and duly executed Conversion Notice, the Company
shall pay to such holder, in cash, as liquidated damages and not as a penalty,
$2,500 for each day after such fourth Trading Day until such certificates are
delivered. If the Company fails to deliver to the holder such certificate or
certificates pursuant to this Section prior to the 11th day after receipt by the
Company of a properly completed and duly executed Conversion Notice and an
original share certificate representing the shares of Series I Preferred Stock
to be converted, the Company shall, at the holder's option redeem, from funds
legally available therefor at the time of such redemption, such number of shares
of Series I Preferred Stock then held by such holder, as requested by such
holder. The redemption price shall be equal to the sum of (A) the aggregate of
all declared but unpaid dividends, plus (B) the number of shares of Series I
Preferred Stock then held by such holder multiplied by (1) the average Per Share
Market Value for the five (5) Trading Days immediately preceding (x) the
Conversion Date or (y) the date of payment in full by the Company of such
prepayment price, whichever is greater, multiplied by, (2) the Conversion Ratio
calculated on the Conversion Date. If the holder has requested that the Company
redeem shares of Series I Preferred Stock pursuant to this Section and the
Company fails for any reason to pay the redemption price under (2) above within
seven days after such notice is deemed delivered pursuant to Section 5(i), the
Company will pay interest on the redemption price at a rate of 15% per annum, in
cash to such holder, accruing from such seventh day until the redemption price
and any accrued interest thereon is paid in full. Nothing herein shall limit a
holder's right to pursue actual damages for the Company's failure to deliver
certificates representing shares of Common upon conversion within the period
specified herein (including, without limitation, damages relating to any
purchase of shares of Common Stock by such holder to make delivery on a sale
effected in anticipation of receiving certificates representing shares of Common
Stock upon conversion, such damages to be in an amount equal to (A) the
aggregate amount paid by such holder for the shares of
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<PAGE>
Common Stock so purchased minus (B) the aggregate amount of net proceeds, if
any, received by such holder from the sale of the shares of Common Stock issued
by the Company pursuant to such conversion), and such holder shall have the
right to pursue all remedies available to it at law or in equity (including,
without limitation, a decree of specific performance and/or injunctive relief).
(c) Conversion Price. (i) The conversion price for each share of
Series I Preferred Stock (the "Conversion Price") in effect on any Conversion
Date shall be the "Applicable Percentage" of the average Per Share Market Value
for the five (5) Trading Days immediately preceding the Conversion Date;
provided, that (a) if the Underlying Shares Registration Statement ceases to be
effective as to all Registrable Securities (as such term is defined in the
Registration Rights Agreement) at any time prior to the expiration of the
"Effectiveness Period" (as such term as defined in the Registration Rights
Agreement), without being succeeded within 10 Trading Days by a subsequent
Underlying Shares Registration Statement filed with and declared effective by
the Commission, or (b) if trading in the Common Stock shall be suspended for any
reason (other than (I) as a result of the suspension of trading in securities
generally or (II) pursuant to a holdback agreement pursuant to Section 7(a) of
the Registration Rights Agreement) for more than five (5) Trading Days in the
aggregate, or (c) if the conversion rights of the holders of Series I Preferred
Stock hereunder are suspended for five (5) consecutive Trading Days (other than
as a result of the suspension of trading in securities on such market or
exchange generally or temporary suspensions pending the release of material
information or due to circumstances within the Company's control, which may
include among other things, suspension of the effectiveness of the Underlying
Securities Registration Statement by the Commission or a suspension imposed by
the Company's board of directors pending any release of material non-public
information) or (d) if the Company breaches in a material respect any covenant
or other material term or condition to the Purchase Agreement (other than a
representation or warranty contained therein), the Registration Rights Agreement
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby, and such breach continues
for a period of thirty (30) days after written notice thereof to the Company
(any such failure being referred to as an "Event," and for purposes of clause
(c) the date on which such Event occurs, or for purposes of clause (a) the date
which such 10 Trading Day-period is exceeded, or for purposes of clause (b) the
date on which such three Trading Day period is exceeded, or for clause (d) the
date on which such thirty (30) day period is exceeded, being referred to as
"Event Date"), then, the Applicable Percentage shall be decreased by 1.5% each
month (e.g., the Applicable Percentage would decrease by 1.5% as of the Event
Date and an additional 1.5% as of the first monthly anniversary of the Event
Date) until the earlier to occur of the third month anniversary after the Event
Date and such time as the applicable Event is cured. Commencing the third month
anniversary after the Event Date, the Company shall pay to the holders of the
Series I Preferred Stock $25,000 (each holder being entitled to receive such
portion of such amount as equals its pro rata portion of the Series I Preferred
Stock then outstanding) in cash as liquidated damages, and not as a penalty, on
the first day of each monthly anniversary of the Event Date until such time as
the applicable Event is cured; provided, that the aggregate amount of such cash
payments shall not in any case exceed the product of (I) the number of Shares
outstanding on the date of
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calculation times (II) $2,000 per Share. Any decrease in the Applicable
Percentage pursuant to this Section shall be reversed, and the originally
prevailing Applicable Percentage shall be restored, if the Event causing such
decrease has been subsequently cured, but with effect only as to Shares which
become convertible after such cure date (i.e., the Conversion Price for Shares
eligible for conversion prior to such cure date, but not converted by such date,
shall be calculated based on the lower Applicable Percentage). The provisions of
this Section are not exclusive and shall in no way limit the Company's
obligations under the Registration Rights Agreement. The "Applicable Percentage"
means (i) 90% or (ii) such lesser amount as is determined in accordance with the
foregoing.
(ii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person pursuant to
which (i) a majority of the Company's Board of Directors will not constitute a
majority of the board of directors of the surviving entity or (ii) less than 65%
of the outstanding shares of the capital stock of the surviving entity will be
held by the same shareholders of the Company, the sale or transfer of all or
substantially all of the assets of the Company or any compulsory share exchange
pursuant to which the Common Stock is converted into other securities, cash or
property, the holders of the Series I Preferred Stock then outstanding shall
have the right thereafter to, at their option, (A) convert such shares only into
the shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the holders of the
Series I Preferred Stock shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Company into which such shares of Series I Preferred Stock could have been
converted immediately prior to such reclassification, consolidation, merger,
sale, transfer or share exchange would have been entitled or (B) require the
Company to redeem, from funds legally available therefor at the time of such
redemption, its shares of Series I Preferred Stock at a price per share equal to
the product of (i) the average Per Share Market Value for the five (5) Trading
Days immediately preceding (1) the effective date, the date of the closing or
the date of the announcement, as the case may be, of the reclassification,
consolidation, merger, sale, transfer or share exchange the triggering such
redemption right or (2) the date of payment in full by the Company of the
redemption price hereunder, whichever is greater, and (ii) the Conversion Ratio
calculated on the date of the closing or the effective date, as the case may be,
of the reclassification, consolidation, merger, sale, transfer or share exchange
triggering such redemption right, as the case may be. The entire redemption
price shall be paid in cash, and the terms of payment of such redemption price
shall be subject to the provisions set forth in Section 6(c). The terms of any
such consolidation, merger, sale, transfer or share exchange shall include such
terms so as to continue to give to the holder of Series I Preferred Stock the
right to receive the securities, cash or property set forth in this subsection
upon any conversion or redemption following such consolidation, merger, sale,
transfer or share exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
(iii) If the Company (i) makes a public announcement that it intends
to enter into a Change of Control Transaction (as defined below) or (ii) any
person, group or entity
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(including the Company, but excluding a Holder or any affiliate of a Holder)
publicly announces a bona fide tender offer, exchange offer or other transaction
to purchase 50% or more of the Common Stock (such announcement being referred to
herein as a "Major Announcement" and the date on which a Major Announcement is
made, the "Announcement Date"), then, in the event that a Holder seeks to
convert shares of Series I Preferred Stock on or following the Announcement
Date, the Conversion Price shall, effective upon the Announcement Date and
continuing through the earlier to occur of the consummation of the proposed
transaction or tender offer, exchange offer or other transaction and the
Abandonment Date (as defined below), be equal to the lower of (x) the average
Per Share Market Value on the five Trading Days immediately preceding (but not
including) the Announcement Date and (y) the Conversion Price in effect on the
Conversion Date for such Series I Preferred Stock. "Abandonment Date" means with
respect to any proposed transaction or tender offer, exchange offer or other
transaction for which a public announcement as contemplated by this paragraph
has been made, the date upon which the Company (in the case of clause (i) above)
or the person, group or entity (in the case of clause (ii) above) publicly
announces the termination or abandonment of the proposed transaction or tender
offer, exchange offer or another transaction which caused this paragraph to
become operative.
(d) Reservation of Common Stock. The Company covenants that it will
at all times reserve and keep available out of its authorized and unissued
Common Stock solely for the purpose of issuance upon conversion of Series I
Preferred Stock, free from preemptive rights or any other actual contingent
purchase rights of persons other than the holders of Series I Preferred Stock,
not less than such number of shares of Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
forth in the Purchase Agreement) be issuable upon the conversion of all
outstanding shares of Series I Preferred Stock. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and freely tradeable.
(e) Calculations. Upon a conversion hereunder the Company shall not
be required to issue stock certificates representing fractions of shares of
Common Stock, but shall instead round to the nearest whole share. All
calculations, and all cash payments hereunder, upon redemptions or otherwise,
shall be rounded to the nearest $.01.
(f) Issuance Costs. The issuance of certificates for shares of Common
Stock on conversion of Series I Preferred Stock shall be made without charge to
the holders thereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificate, provided that
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the holder of such shares of Series
I Preferred Stock so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
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<PAGE>
(g) Converted Stock. Shares of Series I Preferred Stock converted
into Common Stock shall be canceled and shall have the status of authorized but
unissued shares of undesignated stock.
(h) Notices. Any and all notices or other communications or
deliveries to be provided by the holders of the Series I Preferred Stock
hereunder, including, without limitation, any Conversion Notice, shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to the attention of the Legal
Department of the Company at the facsimile telephone number or address of the
principal place of business of the Company as set forth in the Purchase
Agreement. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to each holder of Series I Preferred Stock at the facsimile telephone
number or address of such holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m.
(Eastern Time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 7:00 p.m. (New York Time) on any date and
earlier than 11:59 p.m. (New York Time) on such date, (iii) upon receipt, if
sent by a nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given.
Section 6. Redemptions.
-----------
(a) All outstanding and unconverted shares of Series I Preferred Stock
on the third anniversary of the Original Issue Date may, at the Company's
option, be converted pursuant to Section 5(a)(ii) or redeemed by the Company
pursuant to this Section 6(a), from funds legally available therefor at a price
per share of Series I Preferred Stock equal to 110% of the aggregate Stated
Value of the outstanding Series I Preferred Stock. Thereafter, all shares of
Series I Preferred Stock shall cease to be outstanding and shall have the status
of authorized but undesignated stock. The entire redemption price shall be paid
in cash.
(b) If at any time the Conversion Price falls below $4.50 (the
"Minimum Price"), the Company may give written notice (a "Cash Conversion
Notice") to the holders of Series I Preferred Stock, not less than five (5)
Trading Days prior to the effective date, that it will redeem by cash payment
all Shares tendered for conversion at a Conversion Price less than the Minimum
Price, in lieu of issuing Common Stock. Any such cash payment shall be equal to
one-hundred ten percent (110%) of the Stated Value of the Shares tendered for
conversion (the "Cash Conversion Amount"). Whenever a Holder Conversion Notice
is given while a Cash Conversion Notice is in effect, the Company shall, within
48 hours of receipt of a duly executed Holder Conversion Notice, pay the Cash
Conversion Amount to the converting holder by wire transfer of immediately
available funds. If the Company fails to pay the required amount as and
10
<PAGE>
when specified herein, time being of the essence, (A) any current Cash
Conversion Notice shall cease to be effective, (B) the converting holder shall
be entitled to immediate return of all Share certificates submitted by it, and
(C) whether or not such certificates have been returned, such holder may convert
its Shares into Common Stock of the Company, without regard to the cash
redemption option of this subsection. The Company may terminate the Cash
Conversion Notice on notice to the holders of Series I Preferred Stock to such
effect, effective on the date of such notice if delivered to such holders prior
to 9:30 a.m. on a Trading Day, otherwise effective on the next following Trading
Day. In case of any subdivision, combination or reclassification of outstanding
shares of Common Stock, the Minimum Price shall be proportionately adjusted to
reflect such change.
(c) If any portion of the applicable redemption price under this
Section 6 shall not be paid by the Company within seven (7) calendar days after
the date due, interest shall accrue thereon at the rate of 15% per annum until
the redemption price plus all such interest is paid in full (which amount shall
be paid as liquidated damages and not as a penalty). In addition, if any
portion of such redemption price remains unpaid for more than 7 calendar days
after the date due, the holder of the Series I Preferred Stock subject to such
redemption may elect, by written notice to the Company given within 30 days
after the date due, to either (i) demand conversion in accordance with the
formula and the time frame therefor set forth in Section 5 of all of the shares
of Series I Preferred Stock for which such redemption price, plus accrued
liquidated damages thereof, has not been paid in full (the "Unpaid Redemption
Shares"), in which event the Per Share Market Price for such shares shall be the
lower of the Per Share Market Price calculated on the date such redemption price
was originally due and the Per Share Market Price as of the holder's written
demand for conversion, or (ii) invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary. If the holder elects
option (i) above, the Company shall within three (3) Trading Days of its receipt
of such election deliver to the holder the shares of Common Stock issuable upon
conversion of the Unpaid Redemption Shares subject to such holder conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of holder's notice of
such election, return to the holder all of the Unpaid Redemption Shares.
Section 7. Definitions. For the purposes hereof, the following terms
-----------
shall have the following meanings:
"Common Stock" means the Company's common stock, $.01 par value per
share, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which (x) the
numerator is the Stated Value and of which (y) the denominator is the Conversion
Price at such time.
"Junior Securities" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation preference
to the Series I Preferred Stock.
11
<PAGE>
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Series I Preferred Stock regardless of the number of transfers of
any particular shares of Series I Preferred Stock and regardless of the number
of certificates which may be issued to evidence such Series I Preferred Stock.
"Per Share Market Value" means on any particular date (a) the lowest
trading price per share of the Common Stock on such date on the Nasdaq National
Market or other stock exchange or quotation system on which the Common Stock is
then listed or if there is no such price on such date, then the lowest trading
price on such exchange or quotation system on the date nearest preceding such
date, or (b) if the Common Stock is not listed then on the Nasdaq National
Market or any stock exchange or quotation system, the lowest trading price for a
share of Common Stock in the over-the-counter market, as reported by the Nasdaq
Stock Market or in the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices), or (c)
if the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the lowest "Pink Sheet" quotes for the
relevant conversion period, as determined in good faith by the holder, or (d) if
the Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) (an "Appraiser") selected in good faith by the
holders of a majority in interest of the shares of the Series I Preferred Stock;
provided, that the Company, after receipt of the determination by such
Appraiser, shall have the right to select an additional Appraiser, in which
case, the fair market value shall be equal to the average of the determinations
by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Series I Preferred Stock
Purchase Agreement, dated as of April 16, 1998, between the Company and the
original Purchaser of the Series I Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of April 16, 1998, by and among the Company and the original
Purchaser of Series I Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq National Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not listed on the Nasdaq
National Market or any stock exchange or market, a day on which the Common Stock
is traded in the over-the-counter market, as reported by the OTC Bulletin Board,
or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization
12
<PAGE>
or agency succeeding its functions of reporting prices); provided, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Shares" means the number of shares of Common Stock into
which the Shares are convertible in accordance with the terms hereof and the
Purchase Agreement.
RESOLVED FURTHER, that the Vice President and Secretary of the Company
be, and they hereby are, authorized and directed to prepare, execute, verify,
and file with the Secretary of State of Florida, a Certificate of Designation in
accordance with these resolutions and as required by law.
IN WITNESS WHEREOF, Autonomous Technologies Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
________________, its [Vice President], and attested by ______________, its
[Secretary], this ___ day of April, 1998.
AUTONOMOUS TECHNOLOGIES CORPORATION
By: __________________________
Name: ________________________
Title: _______________________
Attest:
By: __________________________
Name: ________________________
Title: _______________________
13
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder in order
to Convert shares of Series I Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series I
Convertible Series I Preferred Stock indicated below, into shares of Common
Stock, par value $.01 per share (the "Common Stock"), of Autonomous Technologies
Corporation (the "Company") according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Series I Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
A-1
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Autonomous Technologies Corporation
(the "Company") hereby notifies the addressee hereof that the Company hereby
elects to exercise its right to convert [ ] shares of its Series I
Convertible Preferred Stock (the "Series I Preferred Stock") held by the Holder
into shares of Common Stock, par value $.01 per share (the "Common Stock") of
the Company according to the terms hereof, as of the date written below. No fee
will be charged to the Holder for any conversion hereunder, except for such
transfer taxes, if any which may be incurred by the Company if shares are to be
issued in the name of a person other than the person to whom this notice is
addressed.
Conversion calculations:
Date to effect Conversion
Number of shares of Series I Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Name of Holder
Address of Holder
B-1
<PAGE>
EXHIBIT 10.5
Autonomous Technologies Corporation
INDEX TO FINANCIAL STATEMENTS
===============================================================================
DESCRIPTION Page No.
- -------------------------------------------------------------------------------
Report of Independent Certified Public Accountants F-1
- -------------------------------------------------------------------------------
Balance Sheets - - December 31, 1997 and 1996 F-2
- -------------------------------------------------------------------------------
Statements of Operations F-4
- -------------------------------------------------------------------------------
Statements of Stockholders' Equity for the Period from Inception
(July 23, 1985) to December 31, 1997 F-5
- -------------------------------------------------------------------------------
Statements of Cash Flows F-7
- -------------------------------------------------------------------------------
Notes to Financial Statements F-9
- -------------------------------------------------------------------------------
Consent of Arthur Andersen LLP F-21
===============================================================================
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Autonomous Technologies Corporation:
We have audited the accompanying balance sheets of Autonomous Technologies
Corporation (a Florida corporation in the development stage) as of December 31,
1997 and 1996, and the related statements of operations, stockholders' equity
and cash flows for the years ended December 31, 1997 and 1996, the nine months
ended December 31, 1995, and the period from inception (July 23, 1985) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Autonomous Technologies
Corporation as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years ended December 31, 1997 and 1996, the nine
months ended December 31, 1995, and the period from inception (July 23, 1985) to
December 31, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company is in the development stage with no
significant operating results to date. The factors discussed in Note 1 to the
financial statements raise a substantial doubt about the ability of the Company
to continue as a going concern. Management's plans in regard to those matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ ARTHUR ANDERSEN LLP
- ------------------------
Arthur Andersen LLP
Orlando, Florida,
January 31, 1998
(except with respect to
the matters discussed in
Note 11, as to which the
dates are March 30 and
April 16, 1998)
F-1
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
(A Development Stage Company)
BALANCE SHEETS -- DECEMBER 31, 1997 AND 1996
--------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
- ------------------------------------------------------------- ------------- ------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 109,245 $ 2,980,036
Investments 7,191,827 9,263,754
Restricted investment - 162,000
Inventories 2,358,934 262,607
Prepaid expenses and other assets 356,892 63,018
------------- ------------
Total current assets 10,016,898 12,731,415
PROPERTY AND EQUIPMENT, net (Note 2) 1,155,718 453,555
LADARVision SYSTEMS-IN-SERVICE, net (Note 2) 400,584 -
ADVANCE LICENSING FEES 747,470 750,000
OTHER ASSETS 95,479 209,279
------------- ------------
Total assets $ 12,416,149 $ 14,144,249
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 743,898 $ 834,785
Accrued expenses 835,324 422,254
Note payable - 151,299
Current portion of obligations under capital leases (Note 3) 97,108 55,130
------------- ------------
Total current liabilities 1,676,330 1,463,468
OBLIGATIONS UNDER CAPITAL LEASES, less current portion (Note 3) 185,007 122,133
OBLIGATION UNDER STRATEGIC ALLIANCE AGREEMENT (Notes 4 and 11) 1,575,000 975,000
------------- ------------
Total liabilities 3,436,337 2,560,601
------------- ------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 5, 6 and 9)
STOCKHOLDERS' EQUITY (Notes 4, 5 and 6):
Undesignated series, $.01 par value; 1,000,000 shares authorized at
December 31, 1997 and 1996; 0 shares issued and outstanding - -
Common stock, $.01 par value; 25,000,000 shares authorized, 9,986,755
shares issued and outstanding at December 31, 1997; 15,000,000 shares
authorized, 6,763,187 shares issued and outstanding at December 31, 1996 99,868 67,632
Additional paid-in capital 37,787,991 28,784,708
Deficit accumulated during the development stage (28,908,047) (17,268,692)
------------- ------------
Total stockholders' equity 8,979,812 11,583,648
------------- ------------
Total liabilities and stockholders' equity $ 12,416,149 $ 14,144,249
============= ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-2
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
(A Development Stage Company)
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Cumulative
Nine Months from Inception
Year Ended Year Ended Ended (July 23, 1985) to
December 31, December 31, December 31, December 31,
1997 1996 1995 1997
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
REVENUES:
LADARVision systems and services $ 37,065 $ $ $ 37,065
Research grants - - - 3,450,517
OPERATING EXPENSES:
Costs of revenues - LADARVision systems and
services 105,892 - - 105,892
Costs of revenues - research grants - - - 3,465,596
Clinical trials 2,980,317 1,715,412 602,847 5,870,194
Research and development 2,954,559 3,521,381 1,698,056 10,308,315
Selling and marketing (Notes 4 and 5) 1,493,069 1,190,898 478,439 3,455,002
General and administrative 2,328,222 1,852,351 974,738 6,354,871
Other expenses (Notes 4 and 9) 2,355,472 1,283,874 375,000 4,014,346
------------ ------------ ------------ ------------------
OPERATING LOSS (12,180,466) (9,563,916) (4,129,080) (30,086,634)
OTHER INCOME (EXPENSE):
Interest income 582,219 581,866 32,155 1,287,722
Interest expense (41,108) (25,994) (2,120) (104,363)
------------ ------------ ------------ ------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (11,639,355) (9,008,044) (4,099,045) (28,903,275)
PROVISION FOR INCOME TAXES (Note 7) - - - 4,772
------------ ------------ ------------ ------------------
NET LOSS $(11,639,355) $(9,008,044) $(4,099,045) $ (28,908,047)
============ ============ ============ ==================
LOSS PER SHARE (Notes 1 and 10):
Basic net loss per share $ (1.43) $ (2.36) $ (3.37)
============ ============ ============
Weighted average common shares used in computing
basic net loss per share 8,151,395 3,812,039 1,217,509
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------
FOR THE PERIOD FROM INCEPTION (JULY 23, 1985) TO DECEMBER 31, 1997
------------------------------------------------------------------
(Note 5)
<TABLE>
<CAPTION>
Convertible Deficit
Accumulated
Preferred Stock Common Stock Additional During the
---------------------- ------------------ Paid-in Development
Shares Amount Shares Amount Capital Stage
-------- ------- --------- ------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 23, 1985 - $ - - $ - $ - $ -
Issuance of common stock - - 1,125,000 11,250 76,250 -
Issuance of Series A
convertible preferred stock 3,000 3,000 - - 723,233 -
Issuance of Series B
convertible preferred stock 1,313 1,313 - - 374,071 -
Net loss - - - - - (1,466,254)
-------- ------- --------- ------- ------------- -------------
BALANCE, March 31, 1994 4,313 4,313 1,125,000 11,250 1,173,554 (1,466,254)
Issuance of Series A
convertible preferred stock 354 354 - - 80,180 -
Issuance of Series B
convertible preferred stock 170 170 - - 49,017 -
Issuance of Series C
convertible preferred stock 2,927 2,927 - - 1,535,270 -
Net loss - - - - - (2,695,349)
-------- ------- --------- ------- ------------- -------------
BALANCE, March 31, 1995 7,764 7,764 1,125,000 11,250 2,838,021 (4,161,603)
Common stock placed in escrow
for future services - - 120,000 1,200 22,850 -
Issuance of Series D
convertible preferred stock 2,456 2,456 - - 1,211,717 -
In-kind services provided by
stockholder - - - - 220,148 -
Compensation under stock
option plan - - - - 380,626 -
Net loss - - - - - (4,099,045)
-------- ------- --------- ------- ------------- -------------
BALANCE, December 31, 1995 10,220 $10,220 1,245,000 $ 12,450 $ 4,673,362 $ (8,260,648)
</TABLE>
F-4
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------
FOR THE PERIOD FROM INCEPTION (JULY 23, 1985) TO DECEMBER 31, 1997
------------------------------------------------------------------
(Note 5)
(Continued)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Deficit Accumulated
------------------- ------------------- Additional Paid-in During the
Shares Amount Shares Amount Capital Development Stage
-------- -------- --------- -------- ------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 10,220 $ 10,220 1,245,000 $ 12,450 $ 4,673,362 $ (8,260,648)
Issuance of Series D convertible
preferred stock 4,363 4,363 - - 2,177,137 -
Conversion of all preferred stock
upon closing of initial public
offering (14,583) (14,583) 2,187,450 21,875 (7,292) -
Conversion of note payable and
advance from stockholder upon
closing of initial public offering - - 817,500 8,175 3,396,825 -
Issuance of common stock in initial
public offering, net of
offering costs - - 2,500,000 25,000 17,868,000 -
In-kind services provided by stockholder - - - - 449,736 -
Compensation under stock plans and
agreements - - - - 218,890 -
Exercise of stock options - - 13,237 132 8,050 -
Net loss - - - - - (9,008,044)
-------- -------- --------- -------- ------------------ --------------------
BALANCE, December 31, 1996 - - 6,763,187 67,632 28,784,708 (17,268,692)
Issuance of common stock, net of
offering costs - - 3,000,000 30,000 7,984,996 -
In-kind services provided by stockholder - - - - 471,275 -
Compensation under stock plans and
agreements - - - - 485,937 -
Exercise of stock options and warrants - - 223,568 2,236 61,075 -
Net loss - - - - - (11,639,355)
-------- -------- --------- -------- ------------------ --------------------
BALANCE, December 31, 1997 - $ - 9,986,755 $ 99,868 $ 37,787,991 $ (28,908,047)
======== ======== ========= ======== ================== ====================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Cumulative from
Inception
Nine Months (July 23, 1985)
Year Ended Year Ended Ended to
December 31, December 31, December 31, December 31,
1997 1996 1995 1997
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (11,639,355) $ (9,008,044) $ (4,099,045) $ (28,908,047)
Adjustments to reconcile net loss to net cash
used in operating activities-
In-kind services provided by stockholder 471,275 449,736 220,148 1,141,159
Compensation expense under stock option plan 485,937 218,890 380,626 1,085,453
Compensation expense related to common stock
placed in escrow for future services - - 24,050 24,050
Convertible preferred stock issued for services - - 132,500 162,500
Loss on disposal of property and equipment - 85,167 - 85,167
Depreciation and amortization 315,054 173,724 33,886 693,859
Changes in assets and liabilities-
Increase in inventory (2,096,327) (262,607) - (2,358,934)
Decrease (increase) in prepaid expenses and
other assets (180,074) (200,770) 35,248 (452,371)
Decrease (increase) in advance licensing fees 2,530 (750,000) - (747,470)
Increase (decrease) in accounts payable (90,887) 508,258 267,263 743,898
Increase in accrued expenses 413,070 191,973 137,660 835,324
Increase in obligation under strategic alliance
agreement 600,000 600,000 375,000 1,575,000
------------- ------------ ------------ -------------
Net cash used in operating activities (11,718,777) (7,993,673) (2,492,664) (26,120,412)
------------- ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures on property and equipment (802,556) (298,287) (71,098) (1,483,250)
Investments in LADARVision Systems-in-Service (437,000) - - (437,000)
Restricted investment (made) proceeds 162,000 (162,000) - -
Investments made (9,644,170) (14,144,080) - (23,788,250)
Investment proceeds 11,716,097 4,880,326 - 16,596,423
------------- ------------ ------------ -------------
Net cash used in investing activities 994,371 (9,724,041) (71,098) (9,112,077)
------------- ------------ ------------ -------------
</TABLE>
F-6
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
------------------------
(continued)
<TABLE>
<CAPTION>
Cumulative from
Inception
Nine Months (July 23, 1985)
Year Ended Year Ended Ended to
December 31, December 31, December 31, December 31,
1997 1996 1995 1997
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of convertible
preferred stock - 2,181,500 1,081,673 6,002,708
Net proceeds from issuance of common stock 8,014,996 17,893,000 - 25,995,496
Proceeds from exercise of stock options and
warrants 63,311 8,182 - 71,493
Payment of obligations under capital leases (73,393) (28,557) (1,013) (102,963)
Net proceeds from (payments of) note payable (151,299) 151,299 - -
Advance from stockholder - - 1,000,000 1,000,000
Proceeds from issuance of convertible note payable - - - 2,405,000
Proceeds from long-term debt - - - 200,000
Repayment of long-term debt - - - (200,000)
Other, net - - - (30,000)
------------- ------------ ------------ -------------
Net cash provided by financing activities 7,853,615 20,205,424 2,080,660 35,341,734
------------- ------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,870,791) 2,487,710 (483,102) 109,245
CASH AND CASH EQUIVALENTS, beginning of year 2,980,036 492,326 975,428 -
------------- ------------ ------------ -------------
CASH AND CASH EQUIVALENTS, end of year $ 109,245 $ 2,980,036 $ 492,326 $ 109,245
============= ============ =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash transactions-
Interest paid $ 36,518 $ 22,057 $ 2,120 $ 59,318
Non-cash transactions-
Property and equipment purchases subject to
capital lease obligations $ 178,246 $ 178,519 $ 28,314 $ 206,833
Advance from stockholder converted to common
stock $ - $ 1,000,000 $ - $ 1,000,000
Convertible note converted to common stock $ - $ 2,405,000 $ - $ 2,405,000
</TABLE>
The accompanying notes are an integral part of these statements
F-7
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997, 1996 AND 1995
--------------------------------
1. ORGANIZATION, FUNDING AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
---------------------------------------------------------------------
Organization and Funding
- ------------------------
Autonomous Technologies Corporation (the Company) was incorporated in the State
of Florida in 1985. The Company was formed to pursue applications in the
specialized field of laser radar (LADAR). The Company has now focused its
efforts on applying unique LADAR tracking technology to the medical field of
ophthalmology and has developed an ophthalmic laser product for vision
correction, tradenamed the LADARVision System (formerly called the T-PRK(R)
System).
The Company generated revenues under government research grants during the early
years of its existence while it was developing commercial applications of the
LADAR technology. The final grant under which the Company conducted such
research was completed in February 1994. All subsequent research and clinical
development efforts have been devoted toward ophthalmic commercial applications
for its LADARVision System.
In May 1996, the Company completed its initial public offering of common stock.
The Company sold 2,500,000 shares of common stock in this offering. Concurrent
with this event, all of the outstanding convertible preferred stock and certain
debt of the Company were converted to common shares. In June 1997, the Company
completed a secondary offering of 3,000,000 shares of common stock.
The Company's management believes that its current cash and investment resources
will be sufficient to fund operations through the first quarter of 1998.
Management intends to seek additional funding during 1998 to fund the Company's
operations as it: (a) progresses through the clinical and regulatory process
directed at seeking approval from the U.S. Food & Drug Administration (FDA) for
its initial indications of moderate myopia (up to -10 diopters) and astigmatism,
(b) initiates and executes new clinical protocols for additional indications and
clinical capabilities, including hyperopia and the Company's Custom Cornea(TM)
technology, and (c) prepares and launches the LADARVision System in markets to
include Canada, Europe and the U.S. Such funding may be sought from one or more
sources, including: debt financing to support the Company's commercial
placements, and equity financing and/or the sale of marketing rights to fund on-
going operations.
F-8
<PAGE>
Summary of Significant Accounting Policies
- ------------------------------------------
Basis of Presentation
- ---------------------
Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. Accordingly, the financial statements do not
include any adjustments that might result from the Company's inability to
continue as a going concern.
Development Stage Company
The Company's primary operations since inception have been devoted to developing
commercial applications of its LADAR technology. No significant operating
revenue has yet been generated. As a result, the financial statements are
presented in accordance with Statement of Financial Accounting Standards (SFAS)
No. 7, "Accounting and Reporting by Development Stage Enterprises." In order to
generate significant revenues and become an operating business, the Company is
in the process of building both U.S. and non-U.S. sales and marketing
capabilities and commercially introducing the LADARVision System overseas.
Additionally, the Company must continue FDA clinical trial protocols for its
submitted indications and achieve a Pre-Market Approval (PMA) from the FDA
before commencing U.S. sales and marketing activities. Several companies are
actively marketing ophthalmic laser devices outside the U.S. Two such devices
have been approved by the FDA for U.S. marketing.
Change in Fiscal Year
The Company changed its fiscal year from March 31 to December 31 effective
December 31, 1995. This change was made to be consistent with general medical
device industry practice. As a result, the fiscal period ended December 31,
1995, presented herein is a nine-month period.
Cash and Cash Equivalents
Cash in excess of immediate operating needs is invested for up to 90 days in
overnight repurchase agreements and/or marketable debt securities, such as
commercial paper, in accordance with the Company's investment policy. Such cash
equivalents are stated at cost plus accrued interest which approximates market
value. The Company considers these investments as cash for cash flow statement
purposes.
Investments
Certain other liquid funds of the Company have been invested for terms in excess
of 90 days in Treasury and Agency securities. These investments are being
accounted for as "available-for-sale" securities under SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Realized gains and
losses are computed using the specific identification method. As of December
31, 1997 and 1996, the investments are stated at amounts which approximate
quoted market value. All of the Company's investments held at December 31,
1997, mature in 1998.
F-9
<PAGE>
Inventories
As of December 31, 1997, inventory is made up of component parts for LADARVision
Systems ($988,822) and work-in-progress on LADARVision Systems ($1,370,111).
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
Property and Equipment, Net
Property and equipment is recorded at cost less accumulated depreciation and
amortization. The Company provides depreciation primarily using the straight-
line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the term of the lease or the life
of the asset. Asset lives range as follows:
Years
-----
Furniture and office equipment................................ 3-7
Assembly, design and test equipment........................... 3-7
LADARVision Systems-in-Service
The Company's LADARVision Systems-in-Service are LVC systems placed under the
Company's Autonomous Affiliates ProgramSM wherein the ophthalmology clinic or
hospital pays the Company a per- procedure fee for the use of the system in LVC
procedures. The Company is depreciating LADARVision Systems-in-Service for
financial reporting purposes over five years on a straight-line basis.
Advance Licensing Fee
The Company paid an advance licensing fee for the right to use certain patented
technology in commercial applications of its LADARVision System in the future.
License fees, which began to accrue in 1997, are due based on agreed upon
percentages of certain of the Company's future revenues, as defined in the
license agreement.
Research and Development
Research and development costs, which include the costs to pursue new patents
and the costs of building prototype LADARVision System and Custom Cornea units,
are expensed as incurred.
Software Development Costs
Costs of developing software that will be used in the LADARVision System units
have been included in research and development expenses since technological
feasibility has not yet been established. Once technological feasibility is
established, the Company intends to capitalize such costs thereinafter incurred
and report them at the lower of unamortized cost or net realizable value. Due
to uncertainties surrounding the FDA approval process, technological feasibility
will not be considered established until the approval process has advanced to
the point when the Company has received its PMA from the FDA.
Income Taxes
The Company accounts for income taxes using an asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred income taxes have
F-10
<PAGE>
been provided for the differences between the financial reporting and income tax
reporting basis of the Company's assets and liabilities. These temporary
differences consist of differences between the timing of the deduction of
certain amounts between income tax reporting purposes and financial statement
purposes. Due to uncertainties regarding the Company's ability to realize the
benefits of its deferred tax assets through future operations, a valuation
allowance has been established that completely offsets the net deferred tax
asset.
Net Loss Per Share; Statement of Financial Accounting Standards 128
Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No.
128 replaces the presentation of primary earnings per share ("EPS") with a
presentation of basic EPS. Additionally, for many companies with potential
common stock instruments outstanding (options, warrants, convertible securities,
or other contingent issuances), a dual presentation of basic and diluted EPS is
required. The Company's presentation of basic EPS is found in the accompanying
statements of operations. The Company's net losses for the periods presented
cause the inclusion of potential common stock instruments outstanding to be
antidilutive and, therefore, in accordance with SFAS No. 128, the Company is not
required to present a diluted EPS.
All share and per-share information in the financial statements have been
adjusted to give effect to the 150-for-1 stock split and par value restatement
which became effective upon Board of Directors (the Board) and shareholder
approval in February 1996, as further discussed below in the notes.
Stock Authorization and Stock Split
In February 1996, the Board approved a 150-for-1 stock split of the Company's
common stock and a restatement of the par value of the Company's common stock to
$.01 per share, accompanied by an increase in authorized common shares to
15,000,000. The Board also approved the creation of a new class of convertible
preferred stock of the Company and approved an authorization of 1,000,000 shares
of such stock, whose price, rights, privileges and related terms shall be
determined by the Board at the time of issuance. On June 12, 1997, the
stockholders of the Company authorized an increase in authorized common shares
to 25,000,000.
Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), which encourages, but
does not require, companies to adopt the fair value method of accounting for
stock-based employee compensation plans. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board ("APB") Opinion No. 25, but are
required to disclose on a pro forma basis, net income and, if presented,
earnings per share, as if the fair value based method of accounting had been
applied.
Effective January 1, 1996, the Company elected to adopt only the disclosure
requirements of SFAS No. 123. Accordingly, the Company will continue to account
for stock based employee compensation under APB Opinion No. 25.
F-11
<PAGE>
Fair Value of Financial Instruments
The carrying amounts of the Company's financial assets and liabilities,
including cash and cash equivalents and accounts payable at December 31, 1997
and 1996, approximate fair value because of the short maturity of these items.
The carrying amount of the Company's obligations under capital leases
approximates fair value at December 31, 1997 and 1996, since the interest rates
approximate rates currently available to the Company for borrowings and
investments.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Effective January 1, 1996, the Company changed the estimated useful lives for
some of its property and equipment from five years to three years. The effect
of this change in accounting estimate on net loss and net loss per share for the
year ended December 31, 1996 was immaterial.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the current-
year presentation.
2. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consisted of the following as of December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Furniture and office equipment....................................... $ 941,298 $ 475,732
Assembly, design and test equipment.................................. 662,252 298,823
Leasehold improvements............................................... 151,178 -
---------- -----------
1,754,728 774,555
Less- Accumulated depreciation and amortization...................... (599,010) (321,000)
---------- -----------
Property and equipment, net................................. $1,155,718 $ 453,555
========== ===========
</TABLE>
As of December 31, 1997, the Company held equipment under capital leases with a
net book value of $242,251. Depreciation expense totaled $278,638, $173,724,
and $33,886 for the periods ended December 31, 1997, 1996, and 1995,
respectively.
3. LEASE OBLIGATIONS:
------------------
The Company has acquired furniture, computer, design and communications
equipment under capital lease arrangements. The effective interest rate on the
leases range from 9 percent to 21 percent.
In May 1997, the Company began occupying a main office and production facility
with approximately 25,000 square feet under a lease. The lease term is 10 years,
with two five-year renewal options and termination opportunities at years five
and seven. Base rent under this lease for the first year is $237,500, with
annual 3 percent increases in subsequent years, plus the Company's allocated
portion of common area maintenance and other operating costs. The lease payments
include rent on $500,000 of landlord
F-12
<PAGE>
provided and tenant specified improvements, including certain outfitting of
production areas. Minimum future obligations under noncancelable operating
leases (including the aforementioned facilities lease) and the present value of
future minimum capital lease payments as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year Ending Capital Operating
December 31, Leases Leases
------------ ---------- ------------
<S> <C> <C>
1998............................................................ $ 125,983 $ 244,595
1999............................................................ 94,919 251,933
2000............................................................ 56,828 259,491
2001............................................................ 46,930 267,276
2002............................................................ 21,499 275,294
2003 and thereafter............................................. - 1,505,419
---------- ------------
Total minimum lease payments.................................... 346,159 $ 2,804,008
Less- Amount representing interest.............................. (64,044) ============
----------
Present value of minimum lease payments......................... 282,115
Less- Current portion........................................... (97,108)
----------
Long-term obligation............................................ $ 185,007
==========
</TABLE>
Rent expense totaled $362,876, $168,741, and $80,720 for the periods ended
December 31, 1997, 1996 and 1995, respectively.
4. STRATEGIC ALLIANCE:
-------------------
In May 1994, the Company entered into a strategic marketing alliance (the
Purchase Agreement) with CIBA Vision Group Management, Inc. (CIBA), whereby CIBA
invested $2,405,000 into the Company and received an interest-free, convertible
note of $2,405,000 (the Note) with a three-year term, made an equity investment
in the Company (see Note 5), and acquired exclusive marketing rights outside of
North America to the LADARVision System. The Note automatically converted into
common stock upon the Company's initial public offering in May 1996.
On May 15, 1995, the Company entered into a Strategic Alliance Agreement (SAA)
with CIBA which terminated the aforementioned marketing agreement with CIBA and
amended the Purchase Agreement. Under this agreement, the Company regained
control of all marketing rights, received a $1,000,000 cash payment (see below),
and a commitment of $1,000,000 worth of contributed sales and marketing services
over three years. In return, CIBA obtained the right to a 6 percent commission
on net revenue worldwide, as defined in the SAA, from all of the Company's
equipment sales and patient procedure fees pertaining to ophthalmic refractive
surgery. The commission is limited to $10,000,000 in the aggregate unless the
Company chooses to continue paying such commissions for five additional years in
lieu of issuing the stock discussed below. Unless the commission period is
extended, the Company is required to issue 610,534 shares of common stock
(Additional Shares) to CIBA on May 15, 1999. The number of such Additional
Shares was increased from 529,500 during 1997 due to the operation of an
anti-dilution provision in connection with the Company's 1997 equity financing.
See Note 11.
The Company is accruing for the obligation to issue the additional shares to
CIBA under the SAA on a straight line basis from the agreement date of May 15,
1995, to the expected issuance date of May 15, 1999. The obligation being
accrued over this four-year period is $2.4 million, which represents the value
of the originally issuable preferred shares at the date of agreement. In the
periods ended December 31, 1997, 1996 and 1995, the Company recorded $600,000,
$600,000 and $375,000, respectively,
F-13
<PAGE>
of expenses under this agreement which are included in other expenses on the
accompanying statements of operations. This amount is recorded as the obligation
under strategic alliance agreement in the accompanying balance sheets as of
December 31, 1997 and 1996.
Under the SAA, CIBA has the right, at its sole discretion, to terminate the SAA
upon 180 days notice to the Company whereby the Company would continue to be
obligated to pay to CIBA the 6 percent commission for three years beyond
termination on those LADARVision Systems that were commercially placed at the
time of termination. In this case, CIBA's right to the additional shares on May
15, 1999, would be terminated. Additionally, CIBA has the right to terminate
the SAA upon 30 days notice should there be a change of control of the Company
or if the commercial value of the Company's technology is materially impacted.
The $1,000,000 cash payment from CIBA referred to above was, in accordance with
the terms of the SAA, reclassified to additional paid-in capital upon the
Company's initial public offering. This amount was previously reflected as
advance from shareholder in balance sheets prior to the initial public offering.
During the periods ended December 31, 1997, 1996 and 1995, CIBA contributed
sales and marketing services of $471,275, $449,736 and $220,148, respectively,
to the Company. This amount has been recorded as selling and marketing expense
in the accompanying statements of operations, with a corresponding increase to
additional paid-in capital.
5. COMMON STOCK:
-------------
Common Stock and Common Stock Warrants
- --------------------------------------
The Company issued detachable warrants for the purchase of 1,048,350 shares of
common stock in connection with a preferred stock issuance prior to its initial
pubic offering. The warrants have a weighted average exercise price of $3.47
per share. These warrants expire on February 28, 1999, have a cashless exercise
provision, and are exercisable at any time during their term. As of December
31, 1997, warrants for 93,000 of these shares have been exercised resulting in
the issuance of 46,246 shares of common stock.
Upon completion of its initial public offering, the Company issued warrants for
the purchase of 75,000 shares of common stock to the managing underwriters of
the offering. These warrants have an exercise price of $9.60 per share, are
exercisable after May 7, 1997, and have an expiration date of May 7, 1999.
In connection with its 1997 equity offering, the Company issued warrants for the
purchase of 90,000 shares of common stock to an investment banking firm and the
placement agent for the offering. These warrants have a weighted average
exercise price of $3.61 per share, are currently exercisable, and have
expiration dates in April 1999 and June 2002.
In June 1995, the Company agreed to place 120,000 shares of common stock in
escrow for the benefit of a CIBA employee who is providing sales and marketing
services to the Company. A portion of these shares was to be released to the
individual in fixed annual increments over a three-year period. In June 1997,
the original agreement was amended by the Board of Directors to remove any
performance based vesting on the variable shares under the agreement. Of the
120,000 shares, 32,100 remain in escrow for the individual pending his
commencement of employment with the Company. With the removal of variability of
the stock grant based on performance, the grant was deemed to have become fixed
and the Company recorded its final compensation expense using the then current
fair market value of the stock. Compensation expense of approximately $215,000,
$156,000 and $24,000 was recorded under this
F-14
<PAGE>
agreement during the periods ended December 31, 1997, 1996 and 1995,
respectively. These amounts are included in selling and marketing expense in the
statements of operations for those periods.
Investor Rights Agreement
- -------------------------
In connection with the Purchase Agreement, CIBA entered into an Amended and
Restated Investors' Rights Agreement (the Rights Agreement) between the Company
and certain holders of its shares. The Rights Agreement provides, among other
things, for uniform registration and information among such holders and gives
CIBA the right of first offer with respect to future offerings of any shares of
any class of the Company's capital stock.
6. EMPLOYEE BENEFIT PLANS:
-----------------------
Stock Options
- -------------
In 1995, the Board established the Autonomous Technologies Corporation 1995
Stock Option Plan (1995 Option Plan), authorizing a total of 1,050,000 common
shares for the purpose of attracting and retaining the services of qualified
employees, directors and consultants. In June 1997, the Company's stockholders
approved an increase in authorized shares under the 1995 Option Plan to
1,750,000. Options under the 1995 Option Plan can be either incentive stock
options for employees or non-qualified stock options for consultants or
directors and generally vest ratably over the five-year period following their
grant. Options granted under the 1995 Option Plan can have a term of no more
than 10 years.
In 1996, the Board established the Autonomous Technologies Corporation Employee
Stock Purchase Plan (1996 ESPP), authorizing a total of 75,000 common shares for
the purpose of providing qualifying employees the opportunity to purchase shares
in accordance with the terms of the 1996 ESPP at a discount of 15 percent from
market. The 1996 ESPP began operation on July 1, 1996.
A summary of the Company's 1995 Option Plan and 1996 ESPP as of December 31,
1997, 1996, and 1995 and changes during the periods then ended is presented
below:
F-15
<PAGE>
<TABLE>
<CAPTION>
1995 Option Plan 1996 ESPP
------------------------------- -------------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
Granted in 1995 597,600 $ .29 - $ -
---------- ========= ---------- =========
Outstanding as of December 31, 1995 597,600 .29 - -
========= =========
Granted in 1996 283,550 5.02 1,417 3.40
========= =========
Exercised in 1996 (11,820) .28 (1,417) 3.40
---------- ========= ---------- =========
Outstanding as of December 31, 1996 869,330 1.84 - -
========= =========
Granted in 1997 694,000 5.16 9,346 3.47
========= =========
Exercised in 1997 (173,620) .29 (9,346) 3.47
---------- ========= ---------- =========
Cancellations in 1997 (22,720) 3.14 - -
========= =========
Outstanding as of December 31, 1997 1,366,990 $ 3.70 - $ -
---------- ========= ---------- =========
SFAS 123 weighted-average fair value of options granted during the year:
1995 597,600 $ 2.08 - -
1996 283,550 $ 3.42 1,417 $ 1.02
1997 694,000 $ 3.57 9,346 $ 1.13
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------------------------
Number Number
Range of Outstanding at Weighted-Average Weighted- Exercisable at Weighted-
Exercise December 31, Remaining Average December 31, Average
Prices 1997 Contractual Life Exercise Price 1997 Exercise Price
------------- ------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ .13 - $ .33 430,940 7.8 years $ .30 156,080 $ .25
$3.50 - $4.88 290,550 9.3 years $ 4.08 31,810 $ 4.40
$5.13 - $8.00 645,500 9.6 years $ 5.79 45,600 $ 5.63
------------- --------------
1,366,990 $ 3.70 233,490 $ 1.87
============= ======== ============== ========
</TABLE>
The options outstanding at December 31, 1997, expire from February 2003 to
December 2007. There are 197,570 shares remaining available for grant in the
1995 Option Plan and 64,237 shares remaining available for grant in the 1996
ESPP at December 31, 1997.
For options granted during the periods ended December 31, 1997, 1996 and 1995,
the Company recognized compensation expense under APB 25 of $244,145, $218,890
and $380,626, respectively. According to the current vesting schedules related
to those individual option grants, the Company will recognize additional
compensation expense under APB 25 as follows:
F-16
<PAGE>
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
- -------------- ------------
<S> <C>
1998........................................................................... 184,000
1999........................................................................... 173,500
2000........................................................................... 108,200
2001........................................................................... 300
------------
$466,000
============
</TABLE>
The Company has not elected to adopt the compensation measurement provisions of
SFAS 123. Had the Company elected to measure compensation using the methodology
prescribed in SFAS 123 for options during the periods ended December 31, 1997,
1996 and 1995, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Nine Months
Year Ended Year Ended Ended
December 31, December 31, December 31,
1997 1996 1995
---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net loss As reported $ 11,639,355 $ 9,008,044 $ 4,099,045
Pro forma $ 12,205,000 $ 9,296,000 $ 4,126,000
Basic net loss per share As reported $ 1.43 $ 2.36 $ 3.37
Pro forma $ 1.50 $ 2.44 $ 3.39
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing model with the following assumptions summarized as
follows:
<TABLE>
<CAPTION>
Expected
Grant type and period Volatility Life Interest Rates
------------------------------------ --------------- ------------- -------------------
(in years)
<S> <C> <C> <C>
1995 option grants 60% 4.1 5.8%
1996 option grants 60% 6.3 5.6% - 6.8%
1997 option grants 70% 6.4 5.7% - 6.9%
Employee stock purchase plan grants 60%-70% 0.5 5.0% - 5.4%
</TABLE>
401(k) Plan
- -----------
In December 1995, the Board authorized the formation of a retirement plan for
the Company's employees that qualifies under Internal Revenue Code (IRC) Section
401(k). The Plan, which began January 1, 1996, covers employees who have
attained at least 18 years of age with three or more months of service. The
Company may, at the Board's discretion, make matching contributions to the
employee contributions. The Company has never made any matching contributions.
7. INCOME TAXES:
-------------
The reconciliation of the benefit for income taxes based upon the U.S. statutory
federal rate (34 percent) to the Company's provision for income taxes is as
follows for the periods ended:
F-17
<PAGE>
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Expected tax benefit at statutory rate $ (3,958,000) $ (3,063,000) $ (1,394,000)
(Increase) decrease resulting from:
State income tax benefit,
net of federal tax benefit (423,000) (327,000) (149,000)
Costs incurred but not deductible for tax
purposes 11,000 6,000 18,000
Increase in the valuation allowance 4,370,000 3,384,000 1,525,000
------------------ ------------------ ------------------
Total provision for income taxes $ - $ - $ -
================== ================== ==================
</TABLE>
The Company's deferred tax accounts consisted of the following as of December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
Assets:
<S> <C> <C>
Net operating loss (NOL) carryforwards........................ $ 9,220,000 $ 5,382,000
Accruals and other............................................ 1,559,000 1,042,000
---------------- ----------------
10,779,000 6,424,000
Less - Valuation allowance.................................... (10,779,000) (6,424,000)
---------------- ----------------
$ - $ -
================ ================
</TABLE>
The NOL carryforwards expire in years 2005 through 2012.
The Company has had greater than 50 percent ownership changes in 1993, 1994 and
1996, as defined under the rules of IRC Section 382. Consequently, the use of
the NOL carryforwards generated in periods prior to the changes in control
against future taxable income in any one year may be limited. The deferred tax
asset is fully reserved.
8. RELATED PARTY TRANSACTIONS:
---------------------------
The Company received general and medical advisory services from three of its
directors. The Company was charged $151,625, $72,000, and $18,194 in
professional fees for such services in the periods ended December 31, 1997, 1996
and 1995, respectively. See also Note 4 which describes the relationship with
CIBA, a related party.
9. CONTINGENCIES:
--------------
Legal Matters
- -------------
In July 1996, VISX, Inc. (VISX) sued the Company in London, England, alleging
that the Company infringed on certain European Community patents held by VISX.
In October 1996, the Company filed suit in Federal Court of Canada, Trial
Division against VISX. VISX is the holder of certain Canadian Letters patents
relating to refractive laser surgery. In March 1997, the Company was able to
reach a settlement in these two cases whereby the Company received a license
from VISX to utilize certain patents outside the U.S.
In October 1996, the Company filed suit in the United States District Court for
the District of Delaware against Pillar Point Partners (Pillar Point), Summit
Technologies, Inc. (Summit), VISX, Summit Partner, Inc. (Summit Partner) and
VISX Partner, Inc. (VISX Partner) (collectively, the Defendants). The
Defendants hold a portfolio of U.S. patents relating to refractive laser
surgery. The complaint seeks a
F-18
<PAGE>
declaratory judgment of non-infringement, invalidity, and/or unenforceability,
with regard to the Company's LADARVision System.
As a result of these actions, the Company has incurred and anticipates that it
will incur significant expenses consisting primarily of management resources,
legal fees, expert witness fees and related expenses. The expenses incurred in
1997 and 1996 are classified as other expenses in the accompanying statements of
operations. These expenses could amount to over $100,000 per month for the
foreseeable future depending on whether or not the remaining matter can be
settled and when the court proceedings, including jury trials, will be held
concerning these matters. The Company believes that it does not infringe on the
VISX or Pillar Point apparatus patents and that it must aggressively assert this
position in order to bring its products to the commercial markets in the United
States, Canada and the European Community. There can, however, be no assurances
that pursuit of these actions will bring the Company any relief from the license
arrangements that might be required nor is there any assurance that such
licenses as might be needed to enter certain markets will be available to the
Company if the Company does not prevail in its actions.
Product Liability and Insurance
- -------------------------------
The Company's business involves the risk of product liability claims. The
Company has not experienced any product liability claims to date. The Company
maintains a "claims made" product liability insurance policy with coverage
limits of $5 million per occurrence and $5 million in the aggregate. The
inability of the Company to maintain adequate insurance coverage at any time
could, in the event of product liability or other claims in excess of the
Company's insurance coverage, have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, the
Company has agreed in the past, and is likely to agree in the future, to
indemnify certain medical institutions and their personnel who participate in
the Company's clinical studies.
10. QUARTERLY FINANCIAL INFORMATION - UNAUDITED:
--------------------------------------------
The tables below contain summarized unaudited quarterly data for the years ended
December 31, 1997 and 1996. The Company believes this information reflects all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation of the quarterly information presented. The operating results
for any quarter are not necessarily indicative of the results that may be
expected for future periods.
<TABLE>
<CAPTION>
First Second Third Fourth Annual
Quarter Quarter Quarter Quarter Totals
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1997
- ----
Operating loss $ 2,597,840 $ 3,091,332 $ 2,677,129 $ 3,273,054 $ 11,639,355
Net loss $ (0.38) $ (0.45) $ (0.27) $ (0.33) $ (1.43)
Basic net loss per share
Shares used in computing
basic net loss per share 6,852,814 6,888,689 9,900,212 9,958,832 8,151,395
1996
- ---- $ 1,365,696 $ 2,061,456 $ 3,104,560 $ 3,032,204 $ 9,563,916
Operating loss $ 1,354,597 $ 1,923,320 $ 2,891,380 $ 2,838,747 $ 9,008,044
Net loss $ (1.09) $ (0.43) $ (0.43) $ (0.42) $ (2.36)
Basic net loss per share
Shares used in computing
basic net loss per share 1,245,000 4,511,674 6,749,950 6,753,012 3,812,039
</TABLE>
F-19
<PAGE>
* - Due to the adoption of SFAS No. 128 concerning the computation of a basic
net loss per share, the loss per share amounts reported in this Note 10 differ,
in some cases, from those previously reported in Company filings with the
Securities and Exchange Commission. See Note 1 for a further explanation of
SFAS No. 128 and the specifics of the Company's adoption thereof.
11. SUBSEQUENT EVENTS
-----------------
CIBA Shares
- -----------
On March 30, 1998, the Company and CIBA agreed to the issuance of 438,821 shares
of common stock to CIBA under an amendment to the SAA. These shares comprise a
portion of the Additional Shares discussed in Note 4. Concurrent with this
issuance, the Company's Obligation under Strategic Alliance Agreement was
reclassified to common stock and additional paid-in capital. The remaining
shares of the Additional Shares to be issued in 1999 (171,713) shall still be
governed by the terms of the SAA.
Proposed Sale of Convertible Preferred Stock
- --------------------------------------------
On April 16, 1998, the Company entered into a Convertible Preferred Stock
Purchase Agreement and certain other related documents with an investor,
including a Stock Purchase Warrant Agreement, relating to the sale by the
Company of 500 shares of a newly designated Series I Convertible Preferred Stock
("Preferred Stock") and an option for the investor to purchase an additional 400
of such shares. The purchase price of the Preferred Stock is $10,000 per share,
for a total initial purchase price of $5,000,000 with the option shares having a
purchase price of $4,000,000. The option must be exercised within 55 days of the
initial closing.
The Preferred Stock is convertible into common stock from time to time, but
generally on a schedule of 115 shares per month, at a price ten percent less
than the average of the prior five days low trading prices of the Company's
common stock on the Nasdaq National Market. In no case is the entire issue of
the Preferred Stock convertible into more than 2,111,710 shares of common stock.
Should operation of the aforementioned formula result in the issuance of the
maximum number of shares without full conversion of the Preferred Stock, the
Company will be required to redeem the remainder in cash at 110% of the purchase
price of the remaining Preferred Stock.
The Stock Purchase Warrant ("Warrant") shall be issued upon the purchaser's
exercise of the option for 400 shares of the Preferred Stock and shall be for
300,000 shares of common stock at an exercise price of 125% of the price of the
Company's common stock at the time of the initial closing. The Warrant shall
have a term of 2 years.
The Preferred Stock is generally non-voting, is senior in liquidation preference
to the Company's common stock and to any other preferred stock so long as it
shall remain outstanding, and imposes certain limitations on the Company's
operations until such time as a substantial amount of the Preferred Stock has
been converted into common stock or 300 days from the initial closing, which
ever occurs first.
The initial closing on the Preferred Stock shall occur upon the declaration by
the U.S. Securities Exchange Commission on effectiveness of a resale
registration statement on Form S-3, which the Company anticipates will be filed
during April 1998.
F-20
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
- ------------------------------------------------------------------------------------------
10.10 Autonomous Technologies Corporation 1995 Stock Option Plan, as amended by the
Board of Directors on October 14, 1997
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in his Form 8-K into the Company's
previously filed Registration Statement File Nos. 333-13581, 333-29499 and
333-43853.
/s/ ARTHUR ANDERSEN LLP
Orlando, Florida
April 27, 1998
F-21
