SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 13(d) of the Securities Exchange Act of 1934
Date of Report: September 26, 1997
ALCOHOL SENSORS INTERNATIONAL, LTD.
(Exact name of registrant as specified in its charter)
New York 0-26998 11-3104480
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
11 Oval Drive, Islandia, New York 11722
(Address of principal executive offices) (Zip Code)
(516) 342-1515
(Registrant's telephone number, including area code)
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Item 5. Other Events.
On September 26, 1997, pursuant to a Securities Purchase Agreement, dated
September 24, 1997, by and between Alcohol Sensors International, Ltd. (the
"Registrant") and Milbright Estates, Ltd. (the "Purchaser"), the Registrant sold
and issued to the Purchaser (a) a total of 300 shares of 8% Series B Convertible
Preferred Stock (the "Series B Preferred Stock") and (b) a Warrant (the
"Warrant") to purchase 50,000 shares of the common stock, par value $.001 per
share (the "Common Stock"), of the Company, for total gross proceeds of
$3,000,000. In connection with the sale and issuance of the Series B Preferred
Stock and Warrant, the Registrant issued warrants (the "Third Party Warrants")
to purchase an aggregate 100,000 shares of Common Stock to third parties and
paid certain of such third parties an aggregate of $300,000.
The Series B Preferred Stock has a liquidation preference of $10,000 per
share and bears cumulative dividends at a rate of 8% per share per annum. Such
dividends are payable in cash or, at the option of the Registrant, in shares of
Series B Preferred Stock and are due and payable upon the conversion of the
Series B Preferred Stock and into Common Stock. The Series B Preferred Stock is
convertible, at the option of the holder, into shares of Common Stock at any
time following the earlier of (a) the effectiveness of a registration statement
for the Common Stock into which the Series B Preferred Stock is convertible (the
"Registration Statement") or (b) 120 days from the date of original issuance of
the Series B Preferred Stock (the "Original Issuance Date"). Notwithstanding the
foregoing, the Series B Preferred Stock is convertible, (a) with respect to 100
shares, at any time on or after November 24, 1997, (b) with respect to an
additional 100 shares, at any time on or after December 24, 1997 and (c) with
respect to any other shares, at any time on or after January 23, 1998. Each
share of Series B Preferred Stock shall be convertible into that number of
shares of Common Stock as is determined by dividing (a) the sum of (i) $10,000
plus (ii) the amount of all accrued but unpaid or accumulated dividends on the
share of Series B Preferred Stock being so converted by (b) the Conversion Price
(as defined below) in effect at the time of conversion. The "Conversion Price"
of the Series B Preferred Stock will be equal to the lower of (a) $4.03125, the
average of closing bid prices of a share of Common Stock as quoted on The Nasdaq
Stock Market for the ten consecutive trading days immediately preceding the
Original Issuance Date Stock or (b) 82.5% of the average closing bid price of a
share of Common Stock as quoted on The Nasdaq Stock Market for the ten
consecutive trading days immediately preceding the date of the conversion notice
delivered to the Registrant. If not sooner converted, all outstanding shares of
Series B Preferred Stock shall be subject to automatic conversion two years
after the Original Issuance Date. Except in connection with such automatic
conversion, in no event shall a holder of Series B Preferred Stock be entitled
to convert any Series B Preferred Stock in excess of that number of shares upon
conversion of which the sum of (a) the number of shares of Common Stock
beneficially owned by the holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Series B Preferred Stock), and (b) the number of
shares of Common Stock issuable upon the conversion of the shares of the Series
B Preferred Stock with respect to which the determination of this proviso is
being made, would result in beneficial ownership by the holder or its affiliates
of more than 4.99% of the outstanding shares of Common Stock.
<PAGE>
Except as otherwise required by law or the Certificate of Amendment to the
Certificate of Incorporation of the Corporation filed with the Secretary of
State of the State of New York on September 23, 1997, which Certificate of
Amendment, as amended, sets forth the designations, preferences and rights of
the Series B Preferred Stock and the holders thereof, the holders of Series B
Preferred Stock are not entitled to vote on any matters submitted to the
stockholders of the Registrant.
Unless the approval of the Registrant's shareholders has previously been
obtained, the Registrant is not required to issue any Common Stock upon
conversion of the Series B Preferred Stock to the extent that (a) the issuance
of such Common Stock, when taken together with all prior issuances of Common
Stock upon conversion of Series B Preferred Stock, would result in the issuance
by the Registrant of a number of shares of Common Stock equal to or greater than
20% of the number of shares of Common Stock outstanding on the date of initial
issuance of the Series B Preferred Stock (a "20% Issuance"), and such 20%
Issuance requires the prior approval of the shareholders of the Registrant
pursuant to any applicable rule, regulation, stated policy, practice or
interpretation of The Nasdaq Stock Market or (b) the Board of Directors of the
Registrant determines in good faith that the issuance of such Common Stock upon
conversion (whether or not constituting a 20% Issuance) otherwise requires the
prior approval of the shareholders of the Registrant pursuant to any applicable
rule, regulation, stated policy, practice or interpretation of any stock
exchange or stock market on which the Common Stock then listed or admitted to
trading (the "Stockholder Approval Requirement"). Following the first conversion
of Series B Preferred Stock to which a 20% Issuance is applicable, the
Registrant (a) shall promptly give notice to all holders of the Series B
Preferred Stock that the Registrant is unable to issue any further Common Stock
upon conversion of Series B Preferred Stock, and that the Series B Preferred
Stock cannot be converted without compliance with the Stockholder Approval
Requirement, and (b) shall take one of the following actions, at its election,
within twenty days following the date of such notice: (i) the Registrant shall
notify all such holders of the Series B Preferred Stock that the Registrant
intends to seek shareholder approval pursuant to the Stockholder Approval
Requirement, in which event the Registrant shall thereafter take all action
necessary to call a meeting of its shareholders as promptly as reasonably
practicable to vote on such matter; (ii) the Registrant shall obtain from the
stock exchange or stock market on which the Common Stock is then listed a waiver
of the Stockholder Approval Requirement and shall commence any mailing to
stockholders notifying them of such waiver that is required by the rules of such
stock exchange or stock market; or (iii) the Registrant shall notify all such
holders of the Series B Preferred Stock that it is redeeming Series B Preferred
Stock pursuant to the redemption provisions of the Series B Preferred Stock. In
the event that the Registrant elects to seek stockholder approval, and such
stockholder approval is not obtained within 75 days following the date of the
Registrant's notice to the holders of the Series B Preferred Stock that it
intends to seek such stockholder approval, the Registrant shall promptly
following the end of such 75 day period notify all holders of the Series B
Preferred Stock that it is redeeming Series B Preferred Stock. If the
Stockholder Approval Requirement is complied with or if a waiver of or exception
to the Stockholder Approval Requirement is obtained, the conversion rights of
the holders of the Series B Preferred Stock shall be reinstated.
<PAGE>
If the Registrant is required to redeem Series B Preferred Stock pursuant
to the provisions thereof, the Registrant shall (a) issue the Maximum Number of
Shares of Common Stock (as defined below) to the holder or holders of Series B
Preferred Stock who have requested conversion, and will (b) redeem, out of funds
legally available therefor, all of the Series B Preferred Stock that remain
after such conversion at a price per share of Series B Preferred Stock equal to
$12,200 (subject to adjustment) plus an amount equal to all dividends, if any,
accrued but unpaid on such shares as of the earlier of the date fixed for
redemption or the maturity date. For purposes of the Series B Preferred Stock,
the "Maximum Number of Shares of Common Stock" shall mean the greatest number of
shares of Common Stock that may be issued upon conversion of shares of Series B
Preferred Stock without causing a 20% Issuance.
The Registrant has the option, at any time, to redeem Series B Preferred
Stock upon notice, at a price per share of Series B Preferred Stock equal to
$12,200 (subject to adjustment) plus an amount equal to all dividends, if any,
accrued but unpaid as of the date fixed for redemption.
So long as any shares of Series B Preferred Stock remain outstanding, the
Registrant shall not, without the vote or written consent by the holders of at
least a majority of the then outstanding shares of Series B Preferred Stock,
authorize or issue any other equity security senior to the Series B Preferred
Stock as to dividend and liquidation preferences or amend, alter or repeal the
Registrant's Certificate of Incorporation if the powers, preferences, or special
rights of the Series B Preferred Stock would thereby be materially adversely
affected. Notwithstanding the foregoing, the Series B Preferred Stock is junior
in right of payment to the Series A Cumulative Non-redeemable Convertible Stock
of the Registrant.
The Warrant has a term of five years from issuance and is exercisable
during its term at $4.265625 (subject to adjustment) per share of Common Stock.
Payment of the exercise price upon exercise of the Warrant may be made in cash
or by cashless exercise. The Warrant is redeemable upon notice, at $.10 per
share underlying the Warrant, in the event that the per share bid price of the
Common Stock equals or exceeds $6.09375 (subject to adjustment) for the twenty
trading days immediately preceeding the date of such redemption notice. The
Third Party Warrants contain the same terms and conditions as the Warrant.
Pursuant to a Registration Rights Agreement, dated September 24, 1997, by
and between the Registrant and the Purchaser, the Purchaser has been granted
certain registration rights with respect to shares of Common Stock issuable upon
conversion of the Series B Preferred Stock and the shares of Common Stock
issuable upon exercise of the Warrants, pursuant to which the Registrant is
required to file a Registration Statement on Form S-3 no later than October 24,
1997, and to maintain such registration statement in effect for a period of at
least two years, subject to certain terms and conditions contained therein.
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
Listed below are all exhibits to this Current Report on Form 8-K.
Exhibit
Number Description
3.1 Composite of Certificate of Incorporation, as amended through October
2, 1997.
4.1 Form of Warrant Certificate.
10.1 Securities Purchase Agreement, dated September 24, 1997, by and
between the Registrant and Milbright Estates, Ltd. (minus attachments
and exhibits thereto).
10.2 Registration Rights Agreement, dated September 24, 1997, by and
between the Registrant and Milbright Estates, Ltd.
99.1 Press Release of the Registrant, dated September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ALCOHOL SENSORS INTERNATIONAL, LTD.
Dated: October 7, 1997 By:s/ Steven A. Martello
Steven A. Martello, President
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
3.1 Composite of Certificate of Incorporation, as amended through October
2, 1997.
4.1 Form of Warrant Certificate.
10.1 Securities Purchase Agreement, dated September 24, 1997, by and
between the Registrant and Milbright Estates, Ltd. (minus attachments
and exhibits thereto).
10.2 Registration Rights Agreement, dated September 24, 1997, by and
between the Registrant and Milbright Estates, Ltd.
99.1 Press Release of the Registrant, dated September 30, 1997.
COMPOSITE
of
CERTIFICATE OF INCORPORATION
of
ALCOHOL SENSORS INTERNATIONAL, LTD.
(As Amended Through October 2, 1997)
1. The name of the corporation is Alcohol Sensors International, Ltd.
2. The office of the corporation is to be located in the County of Suffolk,
State of New York.
3. (a) The corporation shall have two (2) classes of stock, aggregating
Common Shares and Convertible Preferred Shares respectively, with the authority
to issue 25,000,000 Common Shares, par value $.001, and the authority to issue
3,000,000 Convertible Preferred Shares, par value $.001. Each share of stock
shall have one (1) vote for all corporate purposes without cumulative voting
rights. No shares will have preemptive rights.
(b) Authority is hereby expressly granted to the Board of Directors of
the Corporation from time to time to issue the Convertible Preferred Shares as
Convertible Preferred Shares of any series and to declare and pay dividends
thereon in accordance with the terms thereof and, in connection with the
creation of each such series, to fix by the resolution or resolutions providing
for the issue of shares thereof, the number of shares of such series, and the
designations, powers, preferences, and rights (including voting rights), and the
qualifications, limitations, and restrictions, of such series, to the full
extent now or hereafter permitted by the laws of the State of New York.
Of the 3,000,000 authorized shares of Convertible Preferred Stock of the
Company, 833,333 shares are hereby designated Series A Cumulative Non-redeemable
Convertible Preferred Stock, par value $.001 per share, and shall possess the
rights and preferences set forth below:
SECTION 1. Number of Shares and Designation. The shares of such series
shall have a par value of $.001 per share and shall be designated as Series
A Cumulative Non-redeemable Convertible Preferred Stock (hereinafter called
the "Series A Preferred Stock") and the number of shares constituting the
Series A Preferred Stock shall be 833,333.
SECTION 2. Definitions. As used herein, the following terms shall
have the following meanings:
(a) The term "Board of Directors" shall mean the board of directors
of the Corporation and any committee authorized by such Board of
Directors to perform any of its responsibilities with respect to the
Series A Preferred Stock.
<PAGE>
(b) The term "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State
of New York are authorized or obligated by law or executive order to
close.
(c) The term "Closing Price" with respect to the Common Stock on
any day (other than a day on which securities are generally not traded
on the applicable securities exchange or in the applicable securities
market) shall mean the average of the reported closing bid and asked
prices on the Nasdaq National Market or, if the Common Stock is not
listed or admitted to trading on the Nasdaq National Market, the last
reported sales price regular way on the New York Stock Exchange or the
American Stock Exchange or, if the Common Stock is not listed or
admitted to trading on the Nasdaq National Market, the New York Stock
Exchange or the American Stock Exchange, the average of the closing
bid and asked prices in the over-the-counter market as furnished by
any New York Stock Exchange member firm selected from time to time by
the Corporation for that purpose.
(d) The term "Common Stock" shall mean the common stock, par value
$.001 per share, of the Corporation or, subject to the provisions of
Section 5, such other security resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time
there shall be more than one such resulting class, the shares of each
such class then issuable upon conversion of the Series A Preferred
Stock shall be substantially in the proportion which the total number
of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting form
all such reclassifications.
(e) The term "Conversion Date" shall have the meaning set forth in
Section 5(b).
(f) The term "Conversion Price" shall have the meaning set forth in
Section 5(a).
(g) The term "Dividend Payment Date" shall have the meaning set
forth in Section 3(b).
(h) The term "Dividend Period" shall mean the period from and
including the Initial Issue Date to but not including the first
Dividend Payment Date and thereafter, each semi-annual period from and
including each Dividend Payment Date to but not including the next
Dividend Payment Date.
(i) The term "Event of Conversion" shall mean the twentieth day
during any period of thirty consecutive days on which the Closing
Price is at least $8.00 per share.
(j) The term "Excluded Securities" shall mean:
<PAGE>
(x) Common Stock issued to employees or directors of, or
consultants to, the Corporation, pursuant to any agreement, plan or
arrangement approved by the Board of Directors, or options to
purchase or rights to subscribe for such Common Stock, or
securities by their terms convertible into or exchangeable for such
Common Stock, or options to purchase or rights to subscribe for
such convertible or exchangeable securities, in each case as
approved by the Board of Directors, but only to the extent that the
maximum aggregate number of shares of Common Stock so issued or
issuable subsequent to the Initial Issue Date pursuant to all such
agreements, plans and arrangements do not exceed (x) 300,000 shares
of Common Stock in the aggregate in any fiscal year of the
Corporation or (y) 600,000 shares of Common Stock in the aggregate
(in each case subject to adjustment to reflect stock splits, stock
dividends, stock combinations, recapitalizations and like
occurrences); and
(y) The Warrants and shares of Common Stock issued upon the
exercise thereof; and
(z) Common Stock issued upon the exercise of warrants or
options outstanding on December 20, 1996.
(k) The term "Initial Issue Date" shall mean the date that shares
of Series A Preferred Stock are first issued by the Corporation.
(l) The term "Junior Stock" shall mean the Common Stock and any
other class or series of capital stock of the Corporation other than
the Series A preferred Stock.
(m) The term "Liquidation Preference" shall mean the Stated Value
per share plus dividends (whether or not declared) accrued and unpaid
thereon to the date of liquidation, dissolution or other winding up,
or the date of the sale of all or substantially all of the assets of
the Corporation or the merger or consolidation of the Corporation with
or into any Person in a transaction in which the Corporation is not
the surviving entity.
(n) The term "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust, incorporated or
unincorporated association, joint venture, joint stock company or
other entity of any kind, and shall include any successor (by merger
or otherwise) thereof.
(o) The term "Record Date" shall mean the date designated by the
Board of Directors of the Corporation at the time a dividend is
declared; provided, however, that such Record Date shall not be more
<PAGE>
than 30 days nor less than 10 days prior to the respective Dividend
Payment Date or such other date designated by the Board of Directors
for the payment of dividends.
(p) The term "Stated Value" shall mean $3.00 (subject to equitable
adjustment to reflect stock splits, stock dividends, stock
combinations, recapitalization and like occurrences and dividends and
other distributions to holders of Common Stock of indebtedness or
assets of the Corporation).
(q) The term "Warrants" shall mean warrants to purchase 833,333
shares of Common Stock (subject to adjustment as provided in the
certificates evidencing such warrants) being issued on the Initial
Issue Date to the initial holder of the Series A Preferred Stock.
SECTION 3. Dividends; Other Distributions.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive cash dividends out of funds legally available for
payment of dividends. Dividends shall be payable in cash at the rate
of 9.0% of the Stated Value per share per annum and 9.0% per annum
(compounded semi-annually) on any accrued dividends on such shares,
whether or not declared, that remain unpaid beyond the next succeeding
Dividend Payment Date; provided, however, that the Corporation shall,
at its option, be entitled to issue additional shares of Series A
Preferred Stock in lieu of cash in respect of dividends payable on or
prior to the first four Dividend Payment Dates occurring after the
Initial Issue Date.
(b) Dividends on shares of Series A Preferred Stock shall accrue
and be cumulative from the date of issuance of such shares. Dividends
shall be payable semi-annually in arrears, when and as declared by the
Board of Directors of the Corporation, on June 30 and December 31 of
each year (each, a "Dividend Payment Date"), commencing on June 30,
1997. If any Dividend Payment Date occurs on a day that is not a
Business Day, any dividends otherwise payable on such Dividend Payment
Date shall be paid on the next Business Day. Dividends shall be paid
to the holders of record of the Series A Preferred Stock as their
names shall appear on the share register of the Corporation on the
Record Date for such dividend. Dividends payable in any Dividend
Period that is less than a full Dividend Period in length shall be
computed on the basis of a 180 day-period and actual days lapsed in
such Dividend Period. Dividends on account of arrears or any past
Dividend Periods may be declared and paid at any time to holders of
record on the Record Date therefor.
(c) So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall not declare, pay or set apart for
payment on any Junior Stock any dividends whatsoever, whether in cash,
property or otherwise (other than dividends payable in shares of the
class or series upon which such dividends are declared or paid, or
payable in shares of Common Stock with respect to Junior Stock other
<PAGE>
than Common Stock, together with cash in lieu of fractional shares),
nor shall the Corporation make any distribution on any Junior Stock,
nor shall any Junior Stock be purchased, redeemed or otherwise
acquired by the Corporation or any of its Subsidiaries, nor shall any
monies be paid or made available for a sinking fund for the purchase
or redemption of any Junior Stock, in each case unless (i) all
dividends to which the holders of shares of Series A Preferred Stock
shall have been entitled for all previous Dividend Periods shall have
been paid in full and (ii) all such dividends for the immediately
preceding two Dividend Periods shall have been paid exclusively in
cash.
(d) Without limiting any of the foregoing, in the event that full
dividends are not paid or made available to the holders of all
outstanding shares of Series A Preferred Stock and funds available for
the payment of dividends shall be insufficient to permit payment in
full to holders of all such stock of the full preferential amounts to
which they are then entitled, then the entire amount available for
payment of dividends shall be distributed ratably among all such
holders of Series A Preferred Stock in proportion to the full amount
to which they would otherwise be respectively entitled.
SECTION 4. Rights on Liquidation, Dissolution or Winding-Up. In the
event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the sale of all or substantially all of the
assets of the Corporation, the merger or consolidation of the Company with
or into any Person in a transaction in which the Company is not the
surviving entity or the effectuation by the Corporation of a transaction or
series of related transactions in which 50% or more of the voting power of
the Corporation is disposed of, the holders of Series A Preferred Stock
shall then be entitled to receive immediately, prior and in preference to
any distribution to the holders of any class or series of capital stock of
the Corporation, whether now existing or hereafter created, the Liquidation
Preference per share of Series A Preferred Stock (subject to equitable
adjustment to reflect stock splits, stock dividends, stock combinations,
recapitalization and like occurrences and dividends and other distributions
to holders of Common Stock of indebtedness or assets of the Corporation).
If the assets of the Corporation available for distribution to the holders
of Series A Preferred Stock shall be insufficient to permit the payment in
full of the Liquidation Preference per share, the assets of the Corporation
shall be ratably distributed among the holders of the Series A Preferred
Stock in proportion to the full amounts to which they would otherwise be
respectively entitled if all such amounts thereon were paid in full.
SECTION 5. Optional Conversion.
(a) Each holder of any shares of Series A Preferred Stock shall
have the right, at such holder's option, at any time or from time to
time, to convert any of such shares into such whole number of fully
paid and non-assessable shares of Common Stock as is equal to the
quotient obtained by dividing (A) the Liquidation Preference of such
share(s) of Series A Preferred Stock being converted by (B) the
<PAGE>
Conversion Price, as last adjusted and then in effect, for the
share(s) of such Series A Preferred Stock being converted, by
surrender of the certificates representing the share(s) of Series A
Preferred Stock so to be converted in the manner provided in Section
5(b) hereof. The conversion price per share at which shares of Common
Stock shall be issuable upon conversion of shares of Series A
Preferred Stock shall initially be $4.50; provided, however, that such
conversion price shall be subject to adjustment as set forth in
Section 5(d) hereof (such price, as so adjusted from time to time, the
"Conversion Price").
(b) The holder of any shares of Series A Preferred Stock may
exercise the conversion right pursuant to Section 5(a) hereof as to
any portion thereof by delivering to the Corporation during regular
business hours, at the office of the Corporation or any transfer agent
of the Corporation for the Series A Preferred Stock as may be
designated by the Corporation, the certificate or certificates for the
shares to be converted, duly endorsed or assigned in blank or to the
Corporation (if required by it), accompanied by written notice stating
that the holder elects to convert such shares or portion thereof and
stating the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued.
Conversion shall be deemed to have been effected immediately prior to
the close of business on the date upon which the aforesaid delivery is
made (the "Conversion Date"). As promptly as practicable thereafter
the Corporation shall issue and deliver to or upon the written order
of such holder, to the place designated by such holder, a certificate
to which such holder is entitled and a check or cash in respect of any
fractional interest in a share of Common Stock as provided in Section
5(c) hereof. The person in whose name the certificate or certificates
for Common Stock are to be issued shall be deemed to have become a
Common Stock holder of record immediately prior to the close of
business on the applicable Conversion Date unless the transfer books
of the Corporation are closed on that date, in which event he shall be
deemed to have become a Common Stock holder of record immediately
prior to the close of business on the next succeeding date on which
the transfer books are open, but the Conversion Price shall be that in
effect on the Conversion Date. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares of
Series A Preferred Stock surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the holder of
the certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of the
Series A Preferred Stock representing the unconverted portion of the
certificate so surrendered, which new certificate shall entitle the
holder thereof to dividends on the shares of Series A Preferred Stock
represented thereby to the same extent as if the portion of the
certificate theretofore covering such unconverted shares had not been
surrendered for conversion.
(c) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of Series A Preferred Stock. If more than
one share of Series A Preferred Stock shall be surrendered for
<PAGE>
conversion at any one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of such Series
A Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any
shares of Series A Preferred Stock the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal
to the Closing Price on the relevant Conversion Date multiplied by
such fractional interest. Fractional interests shall not be entitled
to dividends, and the holders of fractional interests shall not be
entitled to any rights as stockholders of the Corporation in respect
of such fractional interest.
(d) The Conversion Price shall be subject to adjustment from time
to time as follows:
(i) If the Corporation shall at any time, (1) pay a dividend on
its outstanding Common Stock in shares of Common Stock or effect a
distribution to holders of its outstanding Common Stock payable in
shares of Common Stock, (2) subdivide the outstanding Common Stock,
(3) combine the outstanding Common Stock into a smaller number of
shares of Common Stock, or (4) issue any securities of the Company
in a reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in
which the Company is the continuing or surviving corporation), the
Conversion Price in effect immediately prior thereto shall be
adjusted so that the registered holder of any share of Series A
Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number and kind of shares of Common Stock
and other securities which such holder would have owned or have
been entitled to receive after the happening of any of the events
described above had such share been converted immediately prior to
the happening of such event. An adjustment made pursuant to this
subparagraph (i) shall become effective immediately after the
Record Date in the case of a dividend and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification.
(ii) If the Corporation shall at any time or from time to time
after the Initial Issue Date, issue (x) shares of Common Stock, (y)
rights, options, warrants or other securities entitling the holder
thereof to subscribe for, purchase, convert to, exchange for or
otherwise acquire Common Stock (excluding any such issuance that
results in an adjustment under Section 5(d)(i) or 5(d)(iii) hereof)
or (z) rights, options, warrants or other securities entitling the
holder thereof to subscribe for, purchase, convert to, exchange for
or otherwise acquire such convertible or exchangeable securities
(in each case other than Excluded Securities and other than
issuances that result in an adjustment under Section 5(d)(i) or
5(d)(iv) hereof), without consideration or for a consideration per
share of Common Stock less than the Conversion Price in effect
<PAGE>
immediately prior to the issuance of such Common Stock or such
rights, options, warrants or other securities, the Conversion Price
in effect immediately prior to each such issuance shall forthwith
be adjusted to a price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of
(I) the total number of shares of Common Stock
outstanding immediately prior to such issuance (including
any shares of Common Stock deemed to have been issued
pursuant to subdivisions (A) and (B) of Section 5(d)(ii)(3)
(it being understood that the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock
immediately prior to such issuance shall be deemed to be
outstanding for all purposes of the computation required in
this clause (A))) multiplied by the Conversion Price in
effect immediately prior to such issuance, plus
(II) the consideration received by the Corporation upon
such issuance, by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been
issued pursuant to subdivisions (A) and (B) of Section
5(d)(ii)(3) (it being understood that the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock
immediately prior to such issuance shall be deemed to be
outstanding for all purposes of the computation required in
this clause (A))) immediately after the issuance of such Common
Stock.
For the purposes of any adjustment of the Conversion Price pursuant
to this Section 5(d)(ii), the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid
therefor after deducting therefrom any discounts, commissions or
other expenses allowed, paid or incurred by the Corporation for any
underwriting or otherwise in connection with the issuance and sale
thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board of
Directors, irrespective of any accounting treatment.
<PAGE>
(3) In the case of (x) the issuance of rights, options or
warrants entitling the holder thereof to subscribe for, purchase or
otherwise acquire Common Stock, (y) securities convertible into or
exchangeable for Common Stock or (z) rights, options, warrants or
other securities convertible into or exchangeable for such
convertible or exchangeable securities:
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such rights, options or warrants
entitling the holder thereof to subscribe for, purchase or
otherwise acquire Common Stock shall be deemed to have been
issued at the time such rights, options or warrants were issued
and for a consideration equal to the consideration (determined
in the manner provided in subdivisions (1) and (2) above), if
any, received by the Corporation upon the issuance of such
rights, options or warrants plus the minimum purchase price
provided in such rights, options or warrants for the Common
Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of
rights, options or warrants to subscribe for, purchase or
otherwise acquire such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed
to have been issued at the time such rights, options, warrants
or securities were issued and for a consideration equal to the
consideration received by the Corporation for any such rights,
options, warrants and securities (excluding any cash received
on account of accrued interest or accrued dividends), plus the
consideration, if any, to be received by the Corporation upon
the conversion or exchange of such securities or the exercise
of any related rights, options or warrants (the consideration
in each case to be determined in the manner provided in
subdivisions (1) and (2) above);
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such rights, options or
warrants or conversions of or exchanges for such convertible or
exchangeable securities or any change in the consideration to
be received by the Corporation upon the exercise of any such
rights, options or warrants or conversions of or exchanges for
such convertible or exchangeable securities, other than a
change resulting from the anti-dilution provisions thereof, the
Conversion Price shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustment made
upon the issuance of such rights, options, warrants or
<PAGE>
securities not converted prior to such change been made upon
the basis of such change; and
(D) on the expiration of any such rights, options or
warrants, the termination of any such rights to convert or
exchange or the expiration of any rights, options or warrants
related to such convertible or exchangeable securities, the
Conversion Price shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustment made
upon the issuance of such rights, options, warrants or
securities or rights, options or warrants related to such
securities been made upon the basis of the issuance of only the
number of shares of Common Stock actually issued upon exercise
of such rights, options or warrants, upon the conversion or
exchange of such securities or upon the exercise of the rights,
options or warrants related to such securities and subsequent
conversion or exchange thereof.
(iii) In case the Corporation shall distribute to all holders
of its Common Stock any shares of capital stock of the Corporation
(other than Common Stock) or evidences of its indebtedness or
assets (including cash) or rights, options, warrants or other
securities entitling them to subscribe for, purchase, convert to,
exchange for or otherwise acquire Common Stock any of its
securities (excluding those referred to in Section 5(d)(i),
5(d)(ii) or 5(d)(iv)), then in each such case, the Conversion Price
shall be adjusted so that the same shall equal the price determined
by multiplying (I) the Conversion Price in effect immediately prior
to the date of such distribution by (II) a fraction, the numerator
of which shall be such Conversion Price less the fair market value
(as determined by the Board of Directors, whose determination
shall, if made in good faith, be conclusive) of the portion of the
capital stock, assets, evidences of indebtedness or rights,
options, warrants or other securities so distributed applicable to
one share of Common Stock, and the denominator of which shall be
such Conversion Price. Such adjustment shall become effective
immediately after the Record Date for the determination of
shareholders entitled to receive such distribution.
(iv) In case of any capital reorganization or any
reclassification of the stock of the Corporation (other than a
change in par value or from par value to no par value or from no
par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares) or the
consolidation or merger of the Corporation with or into another
Person (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not result
in any change in the Common Stock) or of the sale or other
disposition of all or substantially all the properties and assets
of the Corporation as an entirety to any other Person, or the
<PAGE>
effectuation by the Corporation of a transaction or series of
related transactions in which 50% or more of the voting power of
the Corporation is disposed of, each share of Series A Preferred
Stock shall after such reorganization, reclassification,
consolidation, merger, sale or other disposition be convertible
into the kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting from
such consolidation or surviving such merger or to which such
properties and assets shall have been sold or otherwise disposed to
which the holder of the number of shares of Common Stock
deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation, merger, sale or other disposition)
upon conversion of such shares would have been entitled upon such
reorganization, reclassification, consolidation, merger, sale or
other disposition. The provisions of this Section 5 shall similarly
apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or other dispositions.
(e) Whenever the Conversion Price shall be adjusted as provided in
Section 5(d) the Corporation shall forthwith file, at the office of
the Corporation or any transfer agent designated by the Corporation
for the Series A Preferred Stock, a statement, signed by its chief
financial officer, showing in detail the facts requiring such
adjustment and the Conversion Price then in effect. The Corporation
shall also cause a copy of such statement to be sent by first-class
certified mail, return receipt requested, postage prepaid, to each
holder of shares of Series A Preferred Stock at his or its address
appearing on the Corporation's records. Where appropriate, such copy
may be given in advance and may be included as part of a notice
required to be mailed under the provisions of Section 5(f).
(f) In the event the Corporation shall propose to take any action
of the types described in Section 5(d), the Corporation shall give
notice to each holder of shares of Series A Preferred Stock, in the
manner set forth in Section 5(e), which notice shall specify the
record date, if any, with respect to such action and the date on which
such action is to take place. Such notice shall also set forth such
facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action (to the extent such effect maybe at
the date of such notice) on the Conversion Price and the number, kind
or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of shares of Series A Preferred Stock. In
the case of any action which would require the fixing of a record
date, such notice shall be given at least 20 days prior to the date so
fixed, and in case of all other action, such notice shall be given at
least 30 days prior to the taking of such proposed action. Failure to
give such notice, or any defect therein, shall not affect the legality
or validity of any such action.
<PAGE>
(g) The Corporation shall pay all documentary, stamp and other
transactional taxes attributable to the issuance of shares of capital
stock of the Corporation upon conversion of any shares of Series A
Preferred Stock if issued in the name of the record holder; otherwise,
such amounts shall be paid by the holder of such shares of Series A
Preferred Stock.
(h) The Corporation shall reserve, free from preemptive rights, out
of its authorized but unissued shares of Common Stock solely for the
purpose of effecting the conversion of the shares of Series A
Preferred Stock sufficient shares to provide for the conversion from
time to time of all outstanding shares of Series A Preferred Stock.
(i) All shares of Common Stock which may be issued in connection
with the conversion provisions set forth herein will, upon delivery by
the Corporation, be duly and validly issued, fully paid and
nonassessable, with no personal liability attaching to the ownership
thereof, and free from all taxes, liens or charges with respect
thereto and not subject to any preemptive rights.
SECTION 6. Automatic Conversion. Upon the occurrence of an Event of
Conversion, all shares of Series A Preferred Stock then outstanding shall,
by virtue of and simultaneously with the occurrence of the Event of
Conversion and without any action on the part of the holders thereof, be
deemed automatically converted into that number of fully paid and
nonassessable shares of Common Stock into which such shares would have been
convertible in the event of optional conversion at such time pursuant to
Section 5 hereof.
SECTION 7. Voting.
(a) In addition to the rights hereinafter specified in this Section
7 and any other rights provided by law or the By-laws of the
Corporation, each share of Series A Preferred Stock shall entitle the
holder thereof to such number of votes per share as shall equal the
number of shares of Common Stock (rounded to the nearest whole number)
into which such share of Series A Preferred Stock is then convertible
as provided in Section 5 hereof, entitled to vote on all matters as to
which holders of Common Stock shall be entitled to vote, in the same
manner and with the same effect as such holders of Common Stock,
voting together on all matters with the holders of Common Stock as one
class.
(b) In addition to the rights specified in Section 7(a) hereof, the
holders of at least 51% in voting power of the Series A Preferred
Stock, voting separately as one class, shall have the special and
exclusive right to elect one director to the Board of Directors of the
Corporation for so long as at least 250,000 shares of Series A
Preferred Stock are outstanding (as adjusted for stock splits, stock
dividends, stock combinations, recapitalizations and like
occurrences). In any election of directors pursuant to this Section
7(b), each holder of shares of Series A Preferred Stock shall be
<PAGE>
entitled to one vote for each share of Series A Preferred Stock held
by such holder. The special and exclusive voting right of the holders
of the Series A Preferred Stock, voting separately as one class,
contained in this paragraph (b) may be exercised either at a special
meeting of the holders of Series A Preferred Stock called as provided
below, or at any annual or special meeting of the stockholders of the
Corporation, or by written consent of such holders in lieu of a
meeting. The director to be elected pursuant to this Section 7(b)
shall serve for a term extending from the date of his election and
qualification until the time of the next succeeding annual meeting of
stockholders or until his successor has been elected and qualified,
whichever is sooner. The director to be elected pursuant to this
Section 7(b) may be removed, with or without cause, only by the
holders of at least 51% in voting power of the Series A Preferred
Stock.
(c) If at any time the directorship to be filled by the holders of
Series A Preferred Stock pursuant to Section 7(b) hereof has been
vacant for a period of ten or more days, the Secretary of the
Corporation shall deliver a notice of such vacancy to such holders of
Series A Preferred Stock and, upon the written request of the holders
of record of shares representing at least ten percent of the voting
power of the Series A Preferred Stock then outstanding, call a special
meeting of the holders of Series A Preferred Stock for the purpose of
electing a director to fill such vacancy. Such meeting shall be held
at the earliest practicable date at such place as is specified in or
determined in accordance with the By-laws of the Corporation. If such
meeting shall not be called by the Secretary of the Corporation within
ten days after receipt of said written request, then the holders of
record of shares representing at least ten percent of the voting power
of the Series A Preferred Stock then outstanding may designate in
writing one holder to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so
designated upon the notice required for annual meetings of
stockholders and shall be held at such specified place. Any holder of
Series A Preferred Stock so designated shall have access to the stock
books of the Corporation relating to the Series A Preferred Stock for
the purpose of calling a meeting of the stockholders pursuant to these
provisions.
(d) At any meeting held for the purpose of electing a director as
provided in Section 7(b) hereof, the presence, in person or by proxy,
of the holders of record of shares representing at least 51% of the
voting power of the Series A Preferred Stock then outstanding shall
constitute a quorum of the Series A Preferred Stock for such election.
At any such meeting or adjournment thereof, the absence of a quorum of
the Series A Preferred Stock shall not prevent the election of
directors other than the director to be elected by holders of Series A
Preferred Stock pursuant to Section 7(b) hereof, and the absence of a
quorum for the election of such other directors shall not prevent the
election of the director to be elected by the holders of Series A
Preferred Stock pursuant to Section 7(b) hereof, and in the absence of
either or both of such quorums, the holders of record of shares
representing at least 51% of the voting power present in person or by
<PAGE>
proxy of the class of stock which lacks a quorum shall have power to
adjourn the meeting for the election of directors which they are
entitled to elect from time to time without notice other than
announcement at the meeting. A vacancy in the directorship to be
elected by the holders of the Series A Preferred Stock pursuant to
Section 7(b) hereof may be filled only by vote or written consent in
lieu of a meeting of the holders of at least 51% of the voting power
of the Series A Preferred Stock.
(e) The Corporation shall not, without the affirmative consent or
approval of the holders of shares representing at least 51%, by voting
power, of the Series A Preferred Stock then outstanding, voting
separately as one class, given by written consent in lieu of a meeting
or by vote at a meeting called for such purpose for which notice shall
have been given to the holders of the Series A Preferred Stock in the
manner provided in the By-laws of the Corporation:
(i) designate or issue any additional shares of Series A
Preferred Stock or in any manner authorize, create, designate,
issue or sell any class or series of capital stock (including any
shares of treasury stock) or rights, options, warrants or other
securities convertible into or exercisable or exchangeable for
capital stock (other than Excluded Securities) or any debt security
which by its terms is convertible into or exchangeable for any
equity security or has any other equity feature or any security
that is a combination of debt and equity, which, in each case, as
to the payment of dividends, distribution of assets or redemptions,
including, without limitation, distributions to be made upon the
liquidation, dissolution or winding up of the Corporation or a
merger, consolidation or sale of the assets thereof, is senior to
or on a parity with the Series A Preferred Stock or which in any
manner adversely affects in any material respect the rights of the
holders of the Series A Preferred Stock in their capacity as such;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions,
of the Series A Preferred Stock;
(iii) reclassify the shares of any class or series of Junior
Stock into shares of any class or series of capital stock (A)
ranking, either as to payment of dividends, distributions of assets
or redemptions, including, without limitation, distributions to be
made upon the liquidation, dissolution or winding up of the
Corporation or a merger, consolidation or sale of the assets
thereof, senior to or on a parity with the Series A Preferred Stock
or (B) which in any manner adversely affects in any material
respect the rights of the holders of Series A Preferred Stock in
their capacity as such;
<PAGE>
(iv) sell, abandon, transfer, lease or otherwise dispose of all
or substantially all of its properties or assets or merge or
consolidate with or into, or permit any subsidiary to merge with or
into any other corporation, corporations, entity or entities;
(v) take any action to voluntarily dissolve, liquidate or wind
up or carry out any partial liquidation or distribution or
transaction in the nature of a partial liquidation or dissolution;
or
(vi) take any action to cause any amendment, alteration or
repeal of any of the provisions of (i) the Certificate of
Incorporation or (ii) the By-laws, if such amendment, alteration or
repeal could adversely affect in any material respect the rights of
the holders of the Series A Preferred Stock in their capacity as
such or the director elected by the holders of the Series A
Preferred Stock.
SECTION 8. Ranking. Any and all classes of capital stock of the
Corporation, whether now existing or hereafter created, shall be deemed to
rank junior to the Series A Preferred Stock as to dividends and as to the
distribution of assets upon liquidation, dissolution or winding up.
SECTION 9. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable under any circumstances whatsoever, except (i) as
provided in Section 4 hereof or (ii) to the extent otherwise agreed to in
writing by the Corporation and the holders of any such shares.
SECTION 10. Notices. Unless otherwise specified in the Certificate of
Incorporation or the By-laws, all notices or communications given hereunder
shall be in writing and, if to the Corporation, shall be delivered to it at
its principal executive offices, and if to any holder of Series A Preferred
Stock, shall be delivered to it at its address as it appears on the stock
books of the Corporation.
Of the 3,000,000 authorized shares of Convertible Preferred Stock of
the Corporation, 600 shares are hereby designated Series B 8% Convertible
Preferred Stock, par value $.001 per share, and shall possess the rights and
preferences set forth below:
1. Designation. The designation of the series of Preferred Stock
established hereby is the "Series B 8% Convertible Preferred Stock" (the
"Series B Stock"). The number of shares constituting such series is 600,
with a stated value (the "Stated Value") of $10,000 per share. Shares of
Series B Stock converted, redeemed or purchased by the Corporation shall be
canceled and shall revert to authorized but unissued shares of Preferred
Stock undesignated as to series.
<PAGE>
2. Conversion Rights. The holders of the Series B Stock shall each
have the following conversion rights:
(a) Right to Convert. At any time following the earlier of: (i) the
effectiveness of a registration statement for the common stock, par
value $0.001 per share (the "Common Stock"), of the Corporation into
which the Series B Stock shall convert (the "Registration Statement")
or (ii) 120 days from the date of original issuance of Series B Stock
(the "Original Issuance Date"); each share of Series B Stock shall be
convertible, at the option of the holder thereof, into that number of
fully paid and nonassessable shares of Common Stock as is determined
by dividing (A) the sum of (1) $10,000 plus (2) the amount of all
accrued but unpaid or accumulated dividends on the shares of Series B
Stock being so converted by (B) the Conversion Price (determined as
hereinafter provided) in effect at the time of conversion. The
"Conversion Price" shall be equal to the lower of: (i) the closing bid
price of a share of Common Stock, as quoted on The Nasdaq Stock
Market, for the ten consecutive trading days immediately preceding the
Original Issuance Date or (ii) 82.5% of the average closing bid price
of a share of Common Stock, as quoted on The Nasdaq Stock Market, for
the ten consecutive trading days immediately preceding the date of the
Conversion Notice (as defined in paragraph 2(d) below). In the event
that the Common Stock is not traded on The Nasdaq Stock Market, the
average closing bid price shall be as reported or quoted on such other
national or regional securities exchange or automated quotations
system upon which the Common Stock is listed and principally traded.
In the event that the Common Stock is not listed on any exchange or
quoted on a quotation system, the average closing bid price shall be
as reported or quoted on any trading market in which quotes can be
obtained.
(b) Automatic Conversion. If not sooner converted, all outstanding
shares of Series B Stock shall be subject to automatic conversion on
such date which is two years after the Original Issuance Date and such
date shall be deemed the date of the giving of the Conversion Notice
under paragraph 2(d) below.
(c) Optional Conversion. Notwithstanding the provisions of
paragraph 2(a) above, holder(s) of Series B Stock shall have the
option to convert Series B Stock into shares of Common Stock at the
Conversion Price then in effect, upon the following schedule:
(i) 100 shares of Series B Stock shall be convertible into
shares of Common Stock at any time on or after 60 days from the
Original Issuance Date;
(ii) an additional 100 shares of Series B Stock shall be
convertible into shares of Common Stock at any time on or after 90
days from the Original Issuance Date; and
<PAGE>
(iii) all shares of Series B Stock shall be convertible into
shares of Common Stock at any time on or after 120 days from the
Original Issuance Date.
(d) Mechanics of Conversion. Before any holder of Series B Stock
shall be entitled to convert such holder's shares of Series B Stock
into shares of Common Stock, such holder shall (i) give written notice
(the "Conversion Notice") to the Corporation by facsimile transmission
(confirmed via telephonic notice) to the Chief Executive Officer or
Chief Financial Officer of the Corporation that such holder elects to
convert such share(s) of Series B Stock and shall state therein the
number of shares to be converted and the name(s) in which such holder
wishes the certificate(s) for shares of Common Stock issuable upon
such conversion to be registered and (ii) surrender (within five
business days after the date of such facsimile transmission) the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or of any transfer agent for shares of Series B Stock.
The Corporation shall, as soon as practicable thereafter, issue and
deliver to such holder of Series B Stock, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled. Such conversion shall be deemed to have been
made on the date of the giving of such facsimile notice to the
Corporation; provided, that certificates representing such shares of
Series B Stock are delivered within three business days to the
Corporation or its transfer agent for shares of Series B Stock,
together with all applicable transfer taxes in the event shares of
Common Stock issuable upon such conversion are to be registered in the
name(s) of any party other than the holder of the shares of Series B
Stock being converted.
(e) Adjustments to Conversion Prices for Stock Dividends and for
Combinations or Subdivisions of Common Stock. In the event that the
Corporation, at any time or from time to time after the date of
issuance of the Series B Stock, shall declare or pay, without
consideration, any dividend on the Common Stock payable in Common
Stock or in any right to acquire Common Stock for no consideration, or
shall effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common
Stock or in any right to acquire Common Stock), or in the event the
outstanding shares of Common Stock shall be combined or consolidated,
by reclassification or otherwise, into a lesser number of shares of
Common Stock, then the Conversion Price for the Series B Stock in
effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or
increased, as appropriate. In the event that the Corporation shall
declare or pay, without consideration, any dividend on the Common
Stock payable in any right to acquire Common Stock for no
consideration, then the Corporation shall be deemed to have made a
dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to
acquire Common Stock.
<PAGE>
(f) Adjustments for Reclassification and Reorganization. If the
Common Stock issuable upon conversion of the Series B Stock shall be
changed into the same or a different number of shares of any other
class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination
of shares provided for in paragraph 2(e) hereof), the Conversion Price
then in effect shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted so
that the Series B Stock shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise
have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock
that would have been subject to receipt by the holders upon conversion
of the Series B Stock immediately before such change.
(g) Notices of Record Date. In the event that the Corporation shall
propose, at any time: (i) to declare any dividend or distribution upon
the Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not
out of earnings or earned surplus; (ii) to offer for subscription pro
rata to the holders of any class or series of its stock any additional
shares of stock of any class or series or other rights; (iii) to
effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to merge
or consolidate with or into any other corporation, or sell, lease or
convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; then, in connection with each such event, the
Corporation shall send to the holders of Series B Stock:
(A) at least twenty days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders
of Common Stock shall be entitled thereto) or for determining
rights to vote, if any, in respect of the matters referred to in
(iii) and (iv) above; and
(B) in the case of the matters referred to in (iii) and (iv)
above, at least twenty days' prior written notice of the date when
the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon the
occurrence of such event).
Any notice required by the provisions of this Section 2 to be given
to the holders of shares of Series B Stock shall be deemed given if
deposited in the United States first-class mail, postage prepaid, and
addressed to each holder of record of Series B Stock at such holder's
address appearing on the books of the Corporation.
(h) Reservation of Stock Issuable Upon Conversion. The Corporation
shall, at all times, reserve and keep available out of its authorized
<PAGE>
but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of shares of Series B Stock, such number of
shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series B Stock;
provided, however, that the Corporation shall not issue, cumulatively,
more than a 20% Issuance (as such term is defined in paragraph 6(a)
below) pursuant to such conversions. If, at any time, the number of
authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of Series B
Stock, the Corporation shall, no later than 75 days from the date on
which the number of authorized but unissued shares of Common Stock
become insufficient to effect the conversion of all then outstanding
shares of Series B Stock, take such corporate action as may, in the
opinion of its counsel, be necessary to cause the increase in the
number of authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for the full conversion of all
then outstanding shares of Series B Stock, including, without
limitation, engaging in best efforts to obtain the necessary
stockholder approval.
(i) Fractional Shares. No fractional share of Common Stock shall be
issued upon the conversion of any share(s) of Series B Stock. All
shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series B Stock by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If,
after the aforementioned aggregation, the conversion would result in
the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined
in good faith by the Board of Directors of the Corporation).
3. Dividends. The holders of the Series B Stock shall be entitled to
receive dividends as follows:
(a) The holders of Series B Stock shall be entitled to receive
dividends at the rate of 8% per share per annum of the Stated Value
(as adjusted for any stock dividends, combinations or splits with
respect to such shares). Such dividends shall be payable in cash or
additional shares of Series B Stock (at the rate of one full share of
Series B Stock for every $10,000 of dividends). Such dividends shall
begin to accumulate on each share of Series B Stock upon such share's
issuance and shall be due and payable with respect to such share only
immediately prior to the conversion or redemption of such share
pursuant to Section 2 or 7 hereof. The Corporation shall be permitted
to issue fractional shares of Series B Stock in connection with the
payment of dividends in the form of additional shares of Series B
Stock pursuant to this Section 3.
(b) In the event the Corporation shall declare a distribution
(other than any distribution described in Section 5 or 6 hereof)
<PAGE>
payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights to purchase any such securities or
evidences of indebtedness, then, in each such case, the holders of
Series B Stock shall be entitled to a proportionate share of any such
distribution as though the holders of Series B Stock were the holders
of the number of shares of Common Stock into which their respective
shares of Series B Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock entitled to
receive such distribution.
(c) Nothing contained herein shall grant to the holders of Series B
Stock any dividend preference senior to the shares of Series A
Cumulative Non-Redeemable Convertible Preferred Stock, par value $.001
per share (the "Series A Convertible Stock"), of the Corporation, and
the Series B Stock is specifically made junior in the right of payment
of dividends by the Corporation to the Series A Convertible Stock.
4. Voting Rights of Series B Stock. Except as otherwise required by
law or Section 7 hereof, the holders of outstanding shares of Series B
Stock shall not be entitled to vote on any matters submitted to the
stockholders of the Corporation.
5. Liquidation Preference. The holders of the Series B Stock shall be
entitled to a liquidation preference as follows:
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of
Series B Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their
ownership thereof, an amount equal to the Stated Value per share (as
adjusted for any stock dividends, combinations or splits with respect
to such shares) plus all accumulated dividends thereon. If, upon the
occurrence of such an event, the assets and funds thus distributed
among the holders of the Series B Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential
amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the
holders of Series B Stock in proportion to the preferential amount
each such holder is otherwise entitled to receive.
(b) After payment to the holders of Series B Stock of the amounts
set forth in Section 5(a) hereof, the entire remaining assets and
funds of the Corporation legally available for distribution, if any,
shall be distributed among the holders of the Common Stock in
proportion to the shares of Common Stock then held by them.
(c) Whenever the distribution provided for in this Section 5 shall
be payable in securities or property other than cash, the value of
<PAGE>
such distribution shall be the fair market value of such securities or
other property as determined in good faith by the Board of Directors
of the Corporation.
(d) Nothing contained herein shall grant to the holders of Series B
Stock any liquidation preference senior to the shares of Series A
Cumulative Non-Redeemable Convertible Preferred Stock, par value $.001
per share (the "Series A Convertible Stock"), of the Corporation, and
the Series B Stock is hereby specifically made junior in the right of
payment upon the liquidation, dissolution or winding up of the
Corporation to the Series A Convertible Stock.
6. Mandatory Redemption.
(a) Notwithstanding anything contained in these designations to the
contrary, unless the approval of the stockholders referred to in
clause (i) or (ii) below has previously been obtained, the Corporation
shall not be required to issue any Common Shares pursuant to any
optional or automatic conversion of Series B Stock under Section 2
hereof, if, and to the extent that, (i) the issuance of Common Stock
upon conversion, when taken together with all prior issuances of
Common Stock pursuant to Section 2 hereof, would result in the
issuance by the Corporation of a number of shares of Common Stock
equal to or greater than 20% of the number of shares of Common Stock
outstanding on the Original Issuance Date (a "20% Issuance"), and such
20% Issuance requires the prior approval of the stockholders of the
Corporation pursuant to any rule, regulation, stated policy, practice
or interpretation of The Nasdaq Stock Market applicable to the
Corporation or (ii) the Board of Directors of the Corporation
determines in good faith that the issuance of such Common Stock upon
conversion (whether or not constituting a 20% Issuance) otherwise
requires the prior approval of the stockholders of the Corporation
pursuant to any applicable rule, regulation, stated policy, practice
or interpretation of any stock exchange or stock market on which the
Common Stock is then listed or admitted to trading (such prior
approval of the stockholders referred to in clauses (i) and (ii) above
herein called the "Stockholder Approval Requirement").
(b) Following the first conversion of Series B Stock to which the
provisions of Section 6(a) hereof are applicable, the Corporation (i)
shall promptly give to all holders of Series B Stock then outstanding
(determined of record not more than fifteen days before the date such
notice is given) a notice stating that the Corporation is unable to
issue any further shares of Common Stock upon conversion of Series B
Stock and that Series B Stock cannot be converted, without compliance
with the Stockholder Approval Requirement, and (ii) shall take one of
the following actions, at its election, within twenty days following
the giving of such notice:
(i) the Corporation shall notify all such holders of Series B
Stock that the Corporation intends to seek stockholder approval
pursuant to the Stockholder Approval Requirement, in which event
<PAGE>
the Corporation shall thereafter take all action necessary to duly
call, give notice of, convene and hold a meeting of its
stockholders as promptly as reasonably practicable to consider and
vote on such matter;
(ii) the Corporation shall obtain from the stock exchange or
stock market on which the Common Stock is then listed or admitted
to trading a waiver of or exception to the Stockholder Approval
Requirement and shall commence any mailing to stockholders
notifying them of such waiver or exception that is required by the
rules of such stock exchange or stock market; or
(iii) the Corporation shall notify all such holders of Series B
Stock that the Corporation is redeeming Series B Stock pursuant to
the following provisions of this Section 6;
provided, however, that if the Corporation elects to seek stockholder
approval pursuant to clause (i) above, and such stockholder approval
is not obtained within 75 days following the date of the giving of the
Corporation's notice to the holders of Series B Stock that the
Corporation intends to seek such stockholder approval, the Corporation
shall promptly following the end of such 75 day period notify all
holders of Series B Stock that the Corporation is redeeming Series B
Stock pursuant to the following provisions of this Section 6. If the
Stockholder Approval Requirement is complied with or if a waiver of or
exception to the Stockholder Approval Requirement is obtained, the
conversion rights of the holders of the Series B Stock shall be
reinstated.
(c) If the Corporation elects or is required to redeem Series B
Stock pursuant to paragraph 6(b) hereof, the Corporation shall (i)
issue the Maximum Number of Shares of Common Stock (as hereinafter
defined in this paragraph 6(c) to the holder(s) of Series B Stock
whose Series B Stock is proposed to be converted and will (ii) redeem,
out of funds legally available therefor, all Series B Stock that
remain after such conversion (a "Mandatory Redemption") at a price per
share of Series B Stock equal to $12,220 (as adjusted for any stock
split, reverse stock split, stock dividend, or similar event resulting
in a change in Series B Stock) plus an amount equal to all dividends,
if any, accrued but unpaid on such shares to the date fixed for
redemption (the "Mandatory Redemption Price"). For purposes of this
Section 6(c), the "Maximum Number of Shares of Common Stock" shall
mean the greatest number of shares of Common Stock that may be issued
upon conversion of shares of Series B Stock without causing a 20%
Issuance. The Corporation shall honor requests for conversion under
this Section 6 in order of receipt, and should the Corporation
simultaneously receive multiple requests for conversion of Series B
Stock that would otherwise cause a 20% Issuance, the Corporation shall
honor such conversion requests pro rata in proportion to the number of
shares of Series B Stock sought to be converted by each holder.
<PAGE>
(d) The Corporation's notice of Mandatory Redemption pursuant to
Section 6(b) hereof shall be given to each holder of record of Series
B Stock to be redeemed and shall specify the redemption date of such
Mandatory Redemption (which redemption date shall not be later than
twenty days following the date of such notice of Mandatory
Redemption), the place or places at which such Mandatory Redemption
shall be effected and the Mandatory Redemption Price and shall call
upon such holder to surrender to the Corporation, in the manner and at
a place designated, the certificate(s) representing Series B Stock of
such holder to be redeemed. No failure on the part of the Corporation
to give any notice or Mandatory Redemption required to be given by it
under this Section 6, and no defect in such notice or in the giving
thereof, shall affect the validity of the proceedings for such
Mandatory Redemption, except as to a holder of Series B Stock (i) to
whom the Corporation has failed to give such notice or (ii) whose
notice was defective. An affidavit of the Secretary of the Corporation
that notice of Mandatory Redemption has been given shall in the
absence of fraud, be prima facie evidence of the facts stated therein.
(e) Notwithstanding anything contained in these designations to the
contrary, the obligation of the Corporation to redeem Series B Stock
at any given time shall be subject to such limitations and
restrictions as may then be imposed on the Corporation under
applicable law or governmental regulation. If, on the date on which a
Mandatory Redemption is to be effected, the Corporation shall be
unable, because of any applicable law or governmental regulation, to
redeem the total number of shares of Series B Stock to be redeemed on
such date, the Corporation shall redeem, ratably among the holders of
the shares of Series B Stock to be redeemed, the maximum number of
such shares of Series B Stock (if any) which the Corporation shall be
permitted to redeem under such law or regulation. At any time
thereafter when funds of the Corporation are legally available for the
Mandatory Redemption of Series B Stock, such funds shall immediately
be used to redeem the balance of Series B Stock that the Corporation
has become obligated to redeem on any such date(s) but which it has
not redeemed. If such funds are insufficient to redeem the total
number of such shares of Series B Stock, such Series B Stock shall be
redeemed ratably among the holders of Series B Stock.
(f) From and after the date fixed for a Mandatory Redemption,
notwithstanding that any certificate for Series B Stock to be redeemed
in such Mandatory Redemption shall not have been surrendered for
cancellation, such Series B Stock shall no longer be deemed to be
outstanding, dividends thereon, if any, shall cease to accrue from and
after the date so fixed and the rights of the holders of such Series B
Stock shall forthwith after such redemption date cease and terminate,
excepting only the right of the holders thereof to receive the
Mandatory Redemption Price thereof, but without interest, upon the
surrender of their respective certificates therefor; provided, that
if, on or after the date fixed in any notice as the date of Mandatory
Redemption, the Corporation shall default in the payment of the
<PAGE>
Mandatory Redemption Price of any Series B Stock entitled to
redemption upon the surrender of the certificate therefor, the
dividend and all other rights of the holders of such share (other than
any conversion rights) shall be reinstated retroactively to such
Mandatory Redemption Date.
(g) From and after the date fixed for a Mandatory Redemption, the
Corporation shall, at the place or places specified in the notice of
Mandatory Redemption, upon presentation and surrender to the
Corporation by the holder thereof of one or more certificates
representing Series B Stock to be redeemed, deliver or cause to be
delivered to or upon the written order of such holder, a sum in cash
equal to the Mandatory Redemption Price of each share of Series B
Stock of such holder to be redeemed, together with, if the
certificate(s) presented and surrendered by such holder represent a
greater number of shares of Series B Stock than the number of shares
to be so redeemed from such holder, one or more new certificates
registered in the name of such holder and representing the shares of
Series B Stock not redeemed.
(h) Except as provided in this Section 6, Series B Stock is not
subject to any Mandatory Redemption by the Corporation. Nothing in
these designations shall be determined to prohibit the Corporation
from purchasing or otherwise acquiring outstanding shares of its
capital stock, whether now or hereafter authorized, at any time and in
any manner not prohibited by applicable law.
(i) The Corporation shall not be required to maintain any sinking
fund for the Mandatory Redemption of Series B Stock pursuant to this
Section 6.
7. Optional Redemption.
(a) At any time on or after the Original Issuance Date through the
date ending ten trading days prior to the Mandatory Conversion Date,
the Corporation may (by resolution of its Board of Directors), at its
option, upon not less than ten days' prior written notice given by the
Corporation to each holder of Series B Stock, redeem the outstanding
shares of Series B Stock, in whole or part, at an optional redemption
price (the "Optional Redemption Price") equal to $12,200 per share
plus the amount of any accrued but unpaid dividends on the shares of
Series B Stock to be so optionally redeemed to the date of such
optional redemption. Each redemption of less than all outstanding
shares of Series B Preferred Stock shall be made pro rata in respect
of the shares of Series B Stock then outstanding. Each holder of
Series B Stock shall be permitted to convert such holder's Series B
Stock into Common Stock pursuant to Section 2 hereof for the first
five trading days following the giving of written notice provided in
this paragraph 7(a) and, following such fifth trading day, the right
of such holder to so convert shall terminate, except in the event that
the Corporation's Optional Redemption rights under this Section 7
shall be forfeited in accordance with paragraph 7(d) hereof.
<PAGE>
(b) At least ten days prior notice by mail, postage prepaid, shall
be given to the holders of record of the shares of Series B Stock of
the corporation's election to exercise the Corporation's option to
redeem shares of Series B Stock pursuant to paragraph 7(b) (each, an
"Optional Redemption"), such notice to be addressed to each such
holder at the address of such holder appearing on the books of the
Corporation or given by such holder to the Corporation for the purpose
of notice, or if no such address appears or is so given, at the place
where the principal office of the Corporation is located. Such notice
shall state the date fixed for Optional Redemption (the "Optional
Redemption Date") and the Optional Redemption Price and shall call
upon such holder to surrender to the Corporation on said date at the
place designated in said notice such holder's certificate(s)
representing the shares of Series B Stock to be redeemed. On or after
the Optional Redemption Date, each holder of shares of Series B Stock
called for Optional Redemption shall surrender the certificate(s)
evidencing such shares of Series B Stock to the Corporation at the
place designated in such notice and shall thereupon be entitled to
receive payment of the Optional Redemption Price, together with
accrued dividends to the Optional Redemption Date. If less than all
the shares of Series B Stock represented by any such surrendered
certificate(s) are redeemed, a new certificate shall be issued
representing the unredeemed shares. If such notice of Optional
Redemption shall have been duly given, and if on the Optional
Redemption Date funds necessary for the Optional Redemption shall be
available and segregated from the other assets of the Corporation to
be held in trust therefor, then, notwithstanding that the
certificate(s) evidencing any shares of Series B Stock so called for
Optional Redemption shall not have been surrendered, the dividends
with respect to the shares so called for Optional Redemption shall
forthwith after such Optional Redemption Date cease to accrue and all
other rights pertaining to such shares of Series B Stock shall
terminate, except only the right of the holders to receive the
Optional Redemption Price, together with accrued and unpaid dividends
to the Optional Redemption Date, without further interest, upon
surrender of their certificates therefor.
(c) If, after notice of Optional Redemption has been given, the
Corporation deposits, on or prior to the Redemption Date fixed for
such Optional Redemption, with any bank or trust company that has a
combined capital and surplus of not less than $100 million, as a trust
fund, a sum sufficient to redeem, on the Optional Redemption Date, the
shares called for Optional Redemption, with irrevocable instructions
and authority to the bank or trust company to give the notice of
redemption thereof (or to complete the giving of such notice if
theretofore commenced) and to pay, on or after the Optional Redemption
Date, the Optional Redemption Price on the shares of Series B Stock
subject to such Optional Redemption to their respective holders upon
the surrender of their certificates evidencing Series B Stock, then,
from and after the date of the deposit (although prior to the Optional
Redemption Date), such shares of Series B Stock shall no longer be
deemed outstanding, and the holders thereof shall cease to be
<PAGE>
stockholders with respect to such shares, and shall have no rights
with respect thereto except the right to receive from the bank or
trust company payment of the Optional Redemption Price for such shares
without interest, upon the surrender of their certificate(s) therefor,
except that dividends on such shares shall continue to accrue to the
Optional Redemption Date. Any interest accrued on any funds so
deposited shall be the property of, and paid to the Corporation. If
the holder(s) of any shares of Series B Stock so called for redemption
shall not, at the end of two years from the Optional Redemption Date
thereof, have claimed any funds so deposited, such bank or trust
company shall thereupon pay over to the Corporation such unclaimed
funds, and such bank or trust company shall thereafter be relieved of
all responsibility in respect thereof to such holders and such holders
shall look only to the Corporation for payment of the Optional
Redemption Price.
(d) In the event that the Corporation shall default in its
obligations to redeem all shares of Series B Stock called for Optional
Redemption pursuant to a notice of Optional Redemption given in
accordance with this Section 7, other than due to the failure of a
holder to surrender certificate(s) representing shares of Series B
Stock so called for Optional Redemption, the Corporation shall forfeit
its Optional Redemption rights with respect to (i) such shares of
Series B Stock so called for Optional Redemption and (ii) all future
Optional Redemptions of Series B Stock.
8. Exchange and Cancellation of Series B Stock.
(a) Subject to all applicable securities laws and other applicable
restrictions on transfer, at any time upon the request of any holder
of shares of Series B Stock to the Corporation at the Corporation's
office provided under Section 10 hereof, the Corporation will issue
and deliver to or upon the order of such holder in exchange therefor,
new certificate(s) representing Series B Stock registered in the name
of such person(s) as may be designated by such holder for the same
aggregate number of shares as the Series B Stock surrendered and
substantially in the form thereof, dated the date of the
certificate(s) representing Series B Stock so surrendered. Any such
new Series B Stock shall bear any required notation as to any
modification.
(b) Upon the conversion or redemption, in whole or part, of any
Series B Stock, if only a portion of the Series B Stock is issued in
such conversion or redemption, then the Corporation shall execute and
deliver to or upon the order of the holder thereof, at the expense of
the Corporation, new certificate(s) representing Series B Stock
evidencing the portion of such Series B Stock not so converted or
redeemed.
(c) All Series B Stock certificates or portions thereof which have
been converted or redeemed shall be canceled by the Corporation and no
<PAGE>
Series B Stock certificates shall be issued in lieu of the portion of
the Series B Stock so converted or redeemed.
9. Replacement of Series B Stock Certificates. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction of
mutilation of any certificate(s) representing Series B Stock and, in the
case of any such loss, theft or destruction, upon delivery of an indemnity
reasonably satisfactory to the Corporation (if requested by the
Corporation), or in the case of any such mutilation, upon surrender and
cancellation of such certificate(s) representing Series B Stock, the
Corporation will issue new certificate(s) representing Series B Stock of
like tenor in lieu of such lost, stolen, destroyed or mutilated
certificate(s) representing Series B Stock as if the lost, stolen destroyed
or mutilated certificate(s) representing Series B Stock were then
surrendered for exchange.
10. Office for Exchange and Registration. So long as any of the shares
of Series B Stock are outstanding, the Corporation will maintain an office
or agency where Series B Stock may be presented for exchange, conversion,
redemption or registration of transfer. Such office or agency initially
shall be the principal office of the Corporation, which place may
thereafter, from time to time, be changed by notice to the holders of the
Series B Stock then outstanding.
11. Restrictions and Limitations.
(a) So long as any shares of Series B Stock remain outstanding, the
Corporation shall not, without the vote or written consent by the
holders of at least a majority of the then outstanding shares of
Series B Stock:
(i) Authorize, create or issue any other equity security senior
to Series B Stock as to liquidation preferences, other than shares
of Series A Cumulative Non-redeemable Preferred Stock of the
Corporation; or
(ii) Amend, alter or repeal, by any means, the Certificate of
Incorporation of the Corporation if the powers, preferences or
special rights of Series B Stock would thereby be materially
adversely affected.
4. The Secretary of State is designated as agent of the corporation upon
whom process against it may be served. The post office address to which the
Secretary of State shall mail a copy of any process against the corporation
served upon him is c/o Martello, Lamagna, Beckenstein & Zellin, Esqs., 20 Broad
Hollow Road, Suite 2009, Melville, New York 11747.
5. The purpose or purposes of the corporation are as follows:
To engage in any lawful act or activity for which corporations may be
organized under 402 of the Business Corporation Law.
<PAGE>
This corporation is not formed to engage in any act or activity
requiring the consent or approval of any state official, department, board,
agency or other body without such consent or approval first being obtained.
The rights, powers, and privileges provided in this certificate are
not to be deemed to be in limitation of similar, other or additional
powers, rights, and privileges granted or permitted to a corporation by the
Business Corporation Law, it being intended that this corporation shall
have all the rights, powers and privileges granted or permitted to a
corporation by such statute.
To generally purchase or acquire property, personal and real, as may
be useful to the operation of this business, generally to do and perform
everything necessary to carry out the aforesaid purposes.
6. The corporation will indemnify any officer or director, made, or
threatened to be made, a party to an action or proceeding other than one by or
in the right of the corporation to procure a judgment in its favor, whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, domestic or foreign, of any partnership, joint
venture, trust, employee benefit plan or other enterprise, which any director or
officer of the corporation served in any capacity at the request of the
corporation, by reason of the fact that he, his testator or intestate, was a
director or officer of the corporation, or served such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees actually and necessarily incurred
as a result of such action or proceeding, or any appeal therein, if such
director or officer acted, in good faith, for a purpose which he reasonably
believed to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interest of the corporation and, in criminal actions or
proceedings, in addition, had no reasonable cause to believe that his conduct
was unlawful.
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON THEIR
EXERCISE (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
ALCOHOL SENSORS INTERNATIONAL, LTD.
COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by ALCOHOL SENSORS INTERNATIONAL, LTD.,
a New York corporation (the "Company"), MILBRIGHT ESTATES, LTD., or registered
assigns (the "Holder") is hereby granted the right to purchase at any time until
5:00 P.M., New York City time, on September 24, 2002 (the "Expiration Date"),
Fifty Thousand (50,000) fully paid and nonassessable shares of the common stock,
par value $.001 per share of the Company (the "Common Stock"), at an initial
exercise price of $4.265625 per share (the "Exercise Price"), subject to further
adjustment as set forth in Section 6 hereof.
2. Exercise of Warrants. (a) This Warrant is exercisable in whole or in
part at the Exercise Price per share of Common Stock payable hereunder, payable
in cash or by certified or official bank check, or by "cashless exercise", by
means of tendering this Warrant Certificate to the Company to receive a number
of shares of Common Stock equal in Market Value to the difference between the
Market Value of the shares of Common Stock issuable upon exercise of this
Warrant in full and the aggregate cash Exercise Price thereof. Upon surrender of
this Warrant Certificate with the annexed Notice of Exercise Form duly executed,
together with payment of the Exercise Price for the shares of Common Stock
purchased, the Holder shall be entitled to receive a certificate or certificates
for the shares of Common Stock so purchased. For the purposes of this Section 2,
"Market Value" shall be an amount equal to the average closing bid price of a
share of Common Stock for the ten (10) trading days preceding the Company's
receipt of the Notice of Exercise Form duly executed, via delivery or facsimile,
multiplied by the number of shares of Common Stock to be issued upon surrender
of this Warrant Certificate.
(b) If, after the Effective Date of the Registration Statement as defined
in Section 7 hereof, the closing price of the Common Stock on the trading market
or securities exchange where the Common Stock regularly trades equals or exceeds
$6.09375 (the "Call Price") for twenty (20) consecutive trading days, the
Company may, by notice to Holder, redeem the Warrants or any unexercised portion
thereof, for ten ($.10) cents per share within twenty (20) trading days
<PAGE>
following such notice; provided, however, that during the initial fifteen (15)
trading days after receipt of such notice, the Holder may exercise this Warrant
in accordance with the terms hereof.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, the Holder shall be entitled to purchase
such number of additional shares of Common Stock as will cause (i) the total
number of shares of Common Stock Holder is entitled to purchase pursuant to this
Warrant, multiplied by (ii) the adjusted purchase price per share, to equal
(iii) the dollar amount of the total number of shares of Common Stock Holder is
entitled to purchase before adjustment multiplied by the total purchase price
before adjustment.
6.2 Capital Adjustments. (a) In case of any stock split or reverse
stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
(b) In such event, the Call Price shall also be equitably adjusted
in accordance with this Section 6.
<PAGE>
7. Transfer to Comply with the Securities Act; Registration Rights.
(a) This Warrant has not been registered under the Securities Act of 1933,
as amended (the "Act"), and has been issued to the Holder for investment and not
with a view to the distribution of either the Warrant or the Warrant Shares.
Neither this Warrant nor any of the Warrant Shares or any other security issued
or issuable upon exercise of this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under the Act
relating to such security or an opinion of counsel satisfactory to the Company
that registration is not required under the Act. Each certificate for the
Warrant, the Warrant Shares and any other security issued or issuable upon
exercise of this Warrant shall contain a legend on the face thereof, in form and
substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which shall
include the Warrant Shares, on Form S-3 or another available form (the
"Registration Statement"), pursuant to the Registration Rights Agreement between
the Company and Holder dated September , 1997.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if the to Company, to:
ALCOHOL SENSORS INTERNATIONAL, LTD.
11 Oval Drive
Islandia, New York 11722
ATTN: President
Telecopier No.: (516) 342-1550
Telephone No.: (516) 342-1515
with a copy to:
Moritt, Hock & Hamroff, LLP
400 Garden City Plaza, Suite 202
Garden City, New York 11530
Attention: Neil Kaufman, Esq.
Telecopier No.: (516) 873-2010
<PAGE>
(ii) if to the Holder, to:
MILBRIGHT ESTATES, LTD.
11 Arlosorov Street
Tel Aviv, Israel
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Any party may designate another address or person for receipt of notices
hereunder by notice given to the other parties in accordance with this Section.
9. Supplements and Amendments; Whole Agreement. This Warrant may be amended
or supplemented only by an instrument in writing signed by the parties hereto.
This Warrant of even date herewith contain the full understanding of the parties
hereto with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
12. Descriptive Headings. Descriptive headings of the several Sections of
this Warrant are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
25th day of September 1997.
ALCOHOL SENSORS INTERNATIONAL, LTD.
By: s/Steven A. Martello
STEVEN A. MARTELLO
President
Attest:
s/Joseph M. Lively
JOSEPH M. LIVELY
Secretary
<PAGE>
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of ______________, to purchase
__________shares of the Common Stock, par value $_______ per share, of
___________________ and tenders herewith payment in accordance with Section 1 of
said Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
By:__________________________________
___ CASH: $ _______________________
___ OTHER:
Market Value Issuable
Cash Exercise Price
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between ALCOHOL SENSORS INTERNATIONAL, LTD.,
a New York corporation, with headquarters located at 11 Oval Drive, Islandia,
New York 11722 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon exemptions from securities registration afforded
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act") and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, Series B 8% Convertible Preferred Stock, $.001 par
value per share, of the Company which will be convertible into shares of Common
Stock, $.001 par value per share (the "Common Stock"), of the Company upon the
terms and subject to the conditions of such Preferred Stock, together with the
Warrants (as defined below) exercisable for the purchase of shares of Common
Stock (the "Warrant Shares"), and subject to acceptance of this Agreement by the
Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions. (i) The undersigned hereby agrees to
purchase from the Company Series B 8% Convertible Preferred Stock of the
Company, in the amount set forth on the signature page of this Agreement (the
"Initial Preferred Stock"), out of a total offering of $3,000,000.00 of such
Preferred Stock, and having the terms and conditions set forth in the
Certificate of Amendment to the Certificate of Incorporation of the Company
attached hereto as Annex I (the "Certificate of Designations"). The purchase
price for the Initial Preferred Stock shall be as set forth on the signature
page hereto and shall be payable in United States Dollars.
(ii) As used herein, the term "Preferred Stock" means the Initial Preferred
Stock, together with all shares, if any, of Series B 8% Convertible Preferred
Stock issued as dividends thereon, unless the context otherwise requires.
(iii) As used herein, the term "Securities" means the Preferred Stock, the
Warrants and the Common Stock issuable upon conversion of the Preferred Stock or
the exercise of the Warrants.
<PAGE>
b. Form of Payment. The Buyer shall pay the purchase price for the Initial
Preferred Stock by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as Annex II (the "Joint Escrow Instructions").
Promptly following payment by the Buyer to the Escrow Agent of the purchase
price for the Initial Preferred Stock, the Company shall deliver a Certificate
representing the Initial Preferred Stock duly executed on behalf of the Company,
to the Escrow Agent. By signing this Agreement, the Buyer and the Company, and
subject to acceptance by the Escrow Agent, each agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
c. Method of Payment. Payment into escrow of the purchase price for the
Preferred Stock shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No. 637-1657450
Not later than 1:00 p.m., New York time, on the date which is two (2) New York
Stock Exchange trading days after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit with the Escrow Agent the aggregate purchase
price for the Initial Preferred Stock, in immediately available funds. Time is
of the essence with respect to such payment, and failure by the Buyer to make
such payment shall allow the Company to cancel this Agreement.
d. Escrow Property. The purchase price and the certificate(s) representing
the Initial Preferred Stock delivered to the Escrow Agent as contemplated by
Sections 1(b) and (c) hereof are referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
a. Without limiting the Buyer's right to sell the Common Stock pursuant to
the Registration Statement (as that term is defined in the Registration Rights
Agreement defined below), the Buyer is purchasing the Preferred Stock and the
Warrants and will be acquiring the shares of Common Stock issuable upon
conversion of the Preferred Stock (the "Converted Shares") and the Warrant
<PAGE>
Shares for its own account for investment only and not with a view towards the
resale, public sale or distribution thereof and not with a view to or for sale
in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Preferred Stock and Common Stock
representing the Converted Shares and Warrant Shares (such Common Stock
sometimes referred to as the "Shares") by the Buyer shall be made pursuant to
registration of the Shares under the 1933 Act and applicable state law or
pursuant to an exemption from registration available to the Buyer with respect
to each such subsequent offer and sale under the 1933 Act and applicable state
law.
d. The Buyer understands that the Preferred Stock is being offered and sold
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Preferred Stock.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Preferred Stock and the offer of
the Shares which have been requested by the Buyer, including Annex V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review the Company's (1) Annual
Report on Form 10-K SB/A for the fiscal year ended December 31, 1996, and (2)
Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1997 and
June 30, 1997 (the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities involves a
high degree of risk.
g. The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
<PAGE>
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. Neither the Buyer, nor any affiliate of the Buyer nor any party
controlled by the Buyer, has entered into or has any intention of entering into
any put option, short position, hedging, or other similar position with respect
to the Preferred Stock or any shares of the Common Stock.
j. Notwithstanding the provisions hereof or of the Preferred Stock, in no
event (except with respect to the automatic conversion of the Preferred Stock as
provided in the Certificate of Designations) shall the holder be entitled to
convert any Preferred Stock to the extent that after such conversion, the sum of
(1) the number of shares of Common Stock beneficially owned by the Buyer and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the Preferred Stock),
and (2) the number of shares of Common Stock issuable upon the conversion of the
Preferred Stock with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the Buyer and its affiliates of
more than 4.99% of the outstanding shares of Common Stock. For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), except as otherwise provided in clause (1) of
such proviso.
k. Except for such brokers or agents for whom the Buyer is solely
responsible for the payment of any fees or other compensation, the Buyer has not
retained any brokers or other agents entitled to a fee or other compensation in
connection the transactions contemplated hereby.
l. The Buyer specifically acknowledges that the Preferred Stock is junior
to the rights of the Series A Cumulative Non-redeemable Convertible Preferred
Stock of the Company (the "Series A Preferred Stock") as provided in paragraph
3(c) and Sections 4 and 8 of the Certificate of Amendment to the Certificate of
Incorporation of the Company filed with the Secretary of State of the State of
New York on December 20, 1996.
3. COMPANY REPRESENTATIONS, ETC.
Except as disclosed in Annex V, delivered in writing to the Buyer, or in
the Company's SEC Documents, the Company represents and warrants to the Buyer
that:
a. Concerning the Preferred Stock. The Preferred Stock has been duly
authorized and, when issued, will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability by
reason of being such holder. There are no preemptive rights of any stockholder
of the Company, as such, to acquire the Preferred Stock and/or the Warrants,
except for such rights which have been waived in writing by the holder thereof.
<PAGE>
b. Reporting Company Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
and has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary other than those jurisdictions in which the failure to
so qualify would not have a material and adverse effect on the business,
operations, properties, prospects or condition (financial or otherwise) of the
Company. The Company has registered its Common Stock pursuant to Section 12 of
the 1934 Act, and the Common Stock is listed and traded on The NASDAQ/SmallCap
Market. The Company has received no notice, either oral or written, with respect
to the continued eligibility of the Common Stock for such listing, and the
Company has maintained all requirements for the continuation of such listing.
c. Authorized Shares. The Company has sufficient authorized and unissued
shares of Common Stock as may be reasonably necessary to effect the conversion
of the Preferred Stock or to issue the Warrant Shares. The Converted Shares and
the Warrant Shares have been duly authorized and, when issued upon conversion
of, or as interest on, the Preferred Stock or upon exercise of the Warrants,
each in accordance with its respective terms, will be duly and validly issued,
fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and Stock.
This Agreement and the Registration Rights Agreement, the form of which is
attached hereto as Annex IV (the "Registration Rights Agreement"), and the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Company, this Agreement has been duly executed and delivered
by the Company and this Agreement is, and the Registration Rights Agreement,
when executed and delivered by the Company, will be, valid and binding
agreements of the Company enforceable in accordance with their respective terms,
subject as to enforceability to general principles of equity, and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally.
e. Non-contravention. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company, the issuance of the Securities,
and the consummation by the Company of the other transactions contemplated by
this Agreement and the Registration Rights Agreement do not and will not
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the (i) certificate of
incorporation or by-laws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, (iii) any existing applicable law, rule, or regulation or any
applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, or (iv) the
Company's listing agreement for its Common Stock, except such conflict, breach
or default which would not have a material adverse effect on the transactions
contemplated herein.
<PAGE>
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the Stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the Company's SEC Documents contained, at the time
they were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Except as set forth on Annex V hereto, the Company has since August
1, 1996 timely filed all requisite forms, reports and exhibits thereto with the
Securities and Exchange Commission.
h. Absence of Certain Changes. Since January 1, 1997, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, or results of operations of the
Company, except as disclosed in Annex V or in the Company's SEC Documents.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally, and other than facts
disclosed in the documents referred to in Section 2(e) hereof), that has not
been disclosed in writing to the Buyer that (i) would reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
earnings, business affairs, properties or assets of the Company or (ii) would
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement or any of the
documents and agreements contemplated hereby (collectively, including this
Agreement, the "Transaction Agreements").
j. Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, condition (financial or otherwise), results of operations
or prospects of the Company and its subsidiaries taken as a whole or the
transactions contemplated by any of the Transaction Agreements or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, any of the Transaction
Agreements.
k. Absence of Events of Default. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the Company's
financial condition or results of operations.
<PAGE>
l. No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it or its property is bound.
m. Prior Issues. Except as set forth in Annex V, during the twelve (12)
months preceding the date hereof, the Company has not issued any securities. The
presently outstanding unconverted shares of each such issuance as at September
18, 1997 are set forth in Annex V.
n. No Brokers. The Company acknowledges that fees and compensation due to
Settondown Capital International, Ltd. and Corporate Capital Management, LLC.
(the "Identified Brokers") in connection with the transactions contemplated
hereby are the obligation solely of the Company and not of the Buyer. Except for
the Identified Brokers and such other brokers or agents for whom the Company is
solely responsible for the payment of any fees or other compensation, the
Company has not retained any brokers or other agents entitled to a fee or other
compensation in connection the transactions contemplated hereby.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the Preferred
Stock has not been and is not being registered under the provisions of the 1933
Act and, except as provided in the Registration Rights Agreement, the Shares
have not been and are not being registered under the 1933 Act, and may not be
transferred unless (A) subsequently registered thereunder or (B) the Buyer shall
have delivered to the Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of the
Securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the Preferred
Stock and the Warrants have not been registered under the 1933 Act, and, until
such time as the Shares have been registered under the 1933 Act as contemplated
by the Registration Rights Agreement and sold in accordance with such
Registration Statement, certificates and other instruments representing any of
the Securities shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of any of the
Securities):
THE SECURITIES REPRESENTED HEREBY (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
<PAGE>
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement, in substantially the form attached hereto as
Annex IV, on or before the Closing Date (as defined in Section 7 hereof).
d. Filings. The Company undertakes and agrees to make all necessary filings
in connection with the sale of the Preferred Stock to the Buyer under any United
States federal, state and local laws and regulations, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Buyer promptly after such filing.
e. Reporting Status. So long as the Buyer beneficially owns any of the
Preferred Stock, the Company shall file all reports required to be filed with
the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall
not terminate its status as an issuer required to file reports under the 1934
Act even if the 1934 Act or the rules and regulations thereunder would permit
such termination. The Company will take all action under its control to continue
the listing and trading of its Common Stock on The NASDAQ Stock Market and will
comply in all respects with the Company's reporting, filing and other
obligations under the by-laws or rules of the National Association of Securities
Dealers, Inc. ("NASD") or The NASDAQ Stock Market.
f. Use of Proceeds. Except for loans to Alcohol Sensors (Europe), Plc,
which is an 80%-owned subsidiary of the Company, the Company will use the
proceeds from the sale of the Preferred Stock (excluding amounts paid by the
Company for legal fees and finder's fees in connection with the sale of the
Preferred Stock) for internal working capital purposes , and shall not, directly
or indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership enterprise or other person.
g. Certain Agreements. (i) The Company covenants and agrees that it will
not, without the prior written consent of the Buyer, enter into any subsequent
or further offer or sale of Common Stock or securities convertible into Common
Stock with any third party until the expiration of sixty (60) days after the
effective date of the Registration Statement (the "Effective Date").
(ii) Subject, with respect to clauses (x) and (y) hereof, to the conditions
of subparagraph (g)(iii), the provisions of subparagraph (g)(i) will not apply
to (x) the issuance of securities (other than for cash) in connection with a
merger, consolidation, sale of assets, disposition or acquisition of a business,
product or license by the Company, strategic alliance, bank loan or other credit
facility agreement, or the exercise of options, (y) the exchange of the capital
stock for assets, stock or other joint venture interests, or (z) the issuance of
<PAGE>
shares of Common Stock upon the exercise or conversion of the outstanding
warrants or convertible securities outstanding on the date of this Agreement and
specified on Annex VII to this Agreement, which Annex VII summarizes the terms
of the warrant exercise, conversion, registration and other rights, if any, held
by the holder thereof.
(iii) Any action contemplated under either clause (x) or clause (y) of
subparagraph (g)(ii) is subject to the condition that registration rights, if
any, in connection with such action shall not require the filing of a
Registration Statement in respect of such stock prior to thirty (30) days after
the Effective Date.
h. Right of First Refusal. (i) During the period commencing on the sixtieth
(60th) day after the Effective Date and continuing through and including
December 20, 1998 (the "Restricted Period"), the Company hereby grants to the
Buyer, subject to the Existing Right (as defined below), the right of first
refusal (the "Right of First Refusal") to purchase up to $2,000,000 of New
Securities (as defined below) that the Company may, from time to time and in one
or more transactions, propose to sell and issue. This Right of First Refusal
shall be subject to the provisions of this Section 4(h).
(ii) The term "New Securities" means any offering by the Company of any
capital stock or debentures (provided such stock or debentures is or is
convertible into Common Stock), whether now authorized or not; provided,
however, that the term "New Securities" does not include, subject to the
conditions set forth in Section 4(g)(iii) hereof, the issuance of any capital
stock or debenture contemplated by clauses (x), (y) and (z) of Section 4(g)(ii)
hereof.
(iii) In the event that the Company proposes to undertake an issuance of
New Securities during the Restricted Period, the Company shall give written
notice thereof (an "Offering Notice"). The Offering Notice shall specify, in
detail, the type of New Securities, the price and the general terms and
conditions upon which the Company proposes to issue the same.
(iv) The Buyer shall have the right, for a period (the "Exercise Period")
expiring at 11:59 PM (Eastern Time) on the twentieth (20th) business day after
the giving of the Offering Notice, to purchase up to $2,000,000 of the New
Securities for the price and on the general terms and conditions specified in
the Offering Notice. Such exercise shall be effected by the Buyer's giving
written notice of such exercise (the "Exercise Notice") to the Company as
hereinafter provided. If less than all of the New Securities are to be
purchased, the Exercise Notice shall state the quantity of the New Securities
available to be purchased.
(v) The term "Existing Right" means the right granted by the Company to
American International Insurance Company ("AIIC") under Section 3.4 of that
certain Shareholders Agreement, dated as of December 20, 1996, to which, among
others, AIIC and the Company are parties. Anything herein to the contrary, the
Right of First Refusal shall only be effective with respect to New Securities
which (A) AIIC specifically declines to purchase by exercise of the Existing
Right or (B) AIIC does not affirmatively purchase by exercise of the Existing
Right prior to the expiration of Existing Right with respect to such New
Securities. The Company will provide written notice to the Buyer promptly when
<PAGE>
either condition (A) or condition (B) of the immediately preceding sentence is
effective with respect to any New Securities (an "Non-exercise Notice") and the
Buyer shall thereupon have the right to exercise the Right of First Refusal
until the later of (1) the last day of the Exercise Period or (2) five (5)
business days after the Buyer's receipt of the Non-exercise Notice (the
"Extended Exercise Period").
(vi) In the event the Buyer fails to exercise in full the Right of First
Refusal before the expiration of the Exercise Period or, if applicable, the
Extended Exercise Period, the Company shall have the right, for a period of
sixty (60) days thereafter (the "Third Party Sale Period"), to sell the New
Securities as to which the Buyer did not exercise the Right of First Refusal to
one or more third parties at a price and upon terms and conditions no more
favorable to the purchasers thereof than specified in the Offering Notice. In
the event the Company has not sold the New Securities before the expiration of
the Third Party Sale Period, the Company shall not sell any New Securities
(whether the New Securities described in the Offering Notice or other New
Securities) without affording the Buyer the right, subject to the Existing
Right, if any, to exercise the Right of First Refusal as provided herein.
(vii) Anything herein to the contrary notwithstanding, the Buyer may
exercise the Right of First Refusal with respect to any proposed offering of New
Securities as to which the Company has given or should have given an Offering
Notice during the Restricted Period, even if the Exercise Period or Extended
Exercise Period expires after the Restricted Period.
(viii) This Section 4(h) shall not limit in any respects any other
obligations of the Company under the Transaction Agreements.
i. Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield the number of shares of Common Stock issuable (i) at
conversion as may be required to satisfy the conversion rights of the Buyer
pursuant to the terms and conditions of the Preferred Stock and (ii) upon
exercise as may be required to satisfy the exercise rights of the Buyer pursuant
to the terms and conditions of the Warrants.
j. Warrants. The Company agrees to issue to the Buyer on the Closing Date
transferable, divisible warrants with cashless exercise rights for the purchase
of 50,000 shares of Common Stock (the "Warrants"). The Warrants shall bear an
exercise price per share of Common Stock equal to 105% of the closing bid price
of the Common Stock on the Closing Date, shall be immediately exercisable and
for a period of five (5) years thereafter, and shall be in the form annexed
hereto as Annex VI, together with registration rights as provided in the
Registration Rights Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the aggregate purchase
price for the Preferred Stock in accordance with Section 1(c) hereof, the
<PAGE>
Company will irrevocably instruct its transfer agent to issue Common Stock from
time to time upon conversion of the Preferred Stock in such amounts as specified
from time to time by the Company to the transfer agent, bearing the restrictive
legend specified in Section 4(b) of this Agreement prior to registration of the
Shares under the 1933 Act, registered in the name of the Buyer or its nominee
and in such denominations to be specified by the Buyer in connection with each
conversion of the Preferred Stock. The Company covenants and agrees that no
instruction other than such instructions referred to in this Section 5 and stop
transfer instructions to give effect to Section 4(a) hereof prior to
registration and sale of the Shares under the 1933 Act will be given by the
Company to the transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws with respect to the
offer or sale of any of the Securities. If the Buyer provides the Company with
an opinion of counsel reasonably satisfactory to the Company that registration
of a resale by the Buyer of any of the Securities in accordance with clause
(1)(B) of Section 4(a) of this Agreement is not required under the 1933 Act, the
Company shall (except as provided in clause (2) of Section 4(a) of this
Agreement and to the extent of any applicable law) permit the transfer of the
Securities and, in the case of the Converted Shares or Warrant Shares, as the
case may be, promptly instruct the Company's transfer agent to issue one or more
certificates for Common Stock without legend in such name and in such
denominations as specified by the Buyer.
b. Subject to the completeness and accuracy of the Buyer's representations
and warranties herein, upon the conversion of any Preferred Stock by a person
who is a non-U.S. Person, and following the expiration of any applicable
Restricted Period (as those terms are defined in Regulation S), the Company,
shall, at its expense, take all necessary action (including the issuance of an
opinion of counsel) to assure that the Company's transfer agent shall issue
stock certificates without restrictive legend or stop orders in the name of
Buyer (or its nominee (being a non-U.S. Person) or such non-U.S. Persons as may
be designated by Buyer) and in such denominations to be specified at conversion
representing the number of shares of Common Stock issuable upon such conversion,
as applicable. Nothing in this Section 5, however, shall affect in any way
Buyer's or such nominee's obligations and agreement to comply with all
applicable securities laws upon resale of the Securities.
c. The Company will permit the Buyer to exercise its right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion to
the Company and delivering within three (3) business days thereafter, the
original Notice of Conversion and the certificates representing the Preferred
Stock being converted to the Company by express courier, with a copy to the
transfer agent. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be deemed
a Conversion Date. The Company will transmit the certificates representing the
Converted Shares (together with the certificates representing the Preferred
Stock not being so converted) to the Buyer via express courier, by electronic
transfer or otherwise, within three business days after receipt by the Company
of the original Notice of Conversion and the certificate representing the
Preferred Stock being converted (the "Delivery Date").
<PAGE>
d. The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond five (5) business days from
Delivery Date:
Late Payment For Each
$10,000 of Debenture
No. Business Days Late Principal Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for the Company's failure to issue and deliver the Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within five (5) business days
after the Delivery Date, the Buyer will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Buyer shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion.
e. In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer, so long as the certificates
therefor do not bear a legend and the Buyer thereof is not obligated to return
such certificate for the placement of a legend thereon, the Company shall use
its best efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the Buyer by crediting the account of
Buyer's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
system.
<PAGE>
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the Escrow Agent
pursuant to Section 1(b) hereof, on a delivery against payment basis, on the
Closing Date.
7. CLOSING DATE.
a. The date and time of the issuance and sale of the Preferred Stock (the
"Closing Date") shall occur no later than 12:00 Noon, New York time on the first
NYSE trading day after the fulfillment or waiver of all closing conditions
pursuant to Sections 8 and 9 hereof, or such other mutually agreed to time. The
closing shall occur on such date at the offices of the Escrow Agent.
Notwithstanding anything to the contrary contained herein, the Escrow Agent will
be authorized to release the Escrow Property only upon satisfaction of the
conditions set forth in Sections 8 and 9 hereof.
b. Each of the parties agrees to use its best efforts to effectuate the
closing of the transactions contemplated by this Agreement.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Initial
Preferred Stock to the Buyer pursuant to this Agreement on the Closing Date is
conditioned upon:
a. The receipt and acceptance by the Company of this Agreement (such
acceptance to be evidenced by the Company's execution and delivery of this
Agreement) for the sale of at least Three Million ($3,000,000.00) Dollars in
liquidation value of Preferred Stock (or such lesser amount as the Company, in
its sole discretion, shall determine);
b. Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the purchase price for the Initial Preferred Stock in
accordance with Section 1(c) hereof;
c. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Buyer contained in this Agreement, each as
if made on such Closing Date, and the performance by the Buyer on or before such
Closing Date of all covenants and agreements of the Buyer required to be
performed on or before such Closing Date;
d. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained; and
e. On the Closing Date, the Company shall have received the Registration
Rights Agreement annexed hereto as Annex IV (the "Registration Rights
Agreement") duly executed and delivered by the Buyer.
<PAGE>
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the Initial
Preferred Stock on the Closing Date is conditioned upon:
a. The receipt and acceptance by the Buyer of this Agreement (to be
evidenced by the Buyer's execution and delivery of this Agreement) for the
purchase of the Initial Preferred Stock;
b. Delivery by the Company to the Escrow Agent of certificate(s)
representing the Initial Preferred Stock in accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement, each
as if made on such Closing Date, and the performance by the Company on or before
such Closing Date of all covenants and agreements of the Company required to be
performed on or before such Closing Date; and
d. On the Closing Date, the Buyer shall have received (i) an opinion of
counsel for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, to the effect set forth in Annex III
attached hereto, and (ii) the Registration Rights Agreement duly executed and
delivered by the Company.
10. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
b. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
c. This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original.
d. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
e. If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
<PAGE>
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
f. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
g. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(i) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
(ii) the seventh business day after deposit, postage prepaid, in the United
States Postal Service by registered or certified mail, or
(iii) the third business day after mailing by international express
courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: ALCOHOL SENSORS INTERNATIONAL, LTD.
11 Oval Drive
Islandia, New York 11722
ATTN: President
Telecopier No.: (516) 342-1550
Telephone No.: (516) 342-1515
with a copy to:
Moritt, Hock & Hamroff, LLP
400 Garden City Plaza, Suite 202
Garden City, New York 11530
Attention: Neil Kaufman, Esq.
Telecopier No.: (516) 873-2010
BUYER: At the address set forth on the signature page of this Agreement.
<PAGE>
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties herein shall survive the execution and delivery
of this Agreement and the delivery of the Preferred Stock and the Purchase
Price, and shall inure to the benefit of the Buyer and its successors and
assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer or
one of its officers thereunto duly authorized as of the date set forth below.
NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED: 300
AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $3,000,000
<PAGE>
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this 24h day of September, 1997.
- -------------------------------- ---------------------------------
Address Printed Name of Subscriber
- --------------------------------
By: _____________________________
Telecopier No. _________________ (Signature of Authorized Person)
---------------------------------
Printed Name and Title
- --------------------------------
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
ALCOHOL SENSORS INTERNATIONAL, LTD.
By: ________________________
Title: ________________________
Date: ________________________
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 24, 1997 (this
"Agreement"), is made by and between ALCOHOL SENSORS INTERNATIONAL, LTD., a New
York corporation (the "Company"), and the entity named on the signature page
hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of September 24, 1997, between the Initial Investor
and the Company (the "Securities Purchase Agreement"), the Company has agreed to
issue and sell to the Initial Investor 300 shares (the "Preferred Shares") of 8%
Series B Convertible Preferred Stock, $.001 par value, of the Company, at an
aggregate purchase price of $3,000,000, which Preferred Stock (as that term is
defined in the Securities Purchase Agreement) is convertible into shares of
Common Stock , $.001 par value, of the Company (the "Common Stock") and warrants
to purchase up to 50,000 shares of Common Stock (the "Warrants") ; and
WHEREAS, the shares of Preferred Stock are convertible into shares of
Common Stock (the "Conversion Shares") upon the terms and subject to the
conditions of the Certificate of Designations (as defined in the Securities
Purchase Agreement) and the Warrants may be exercised for the purchase of shares
of Common Stock (the "Warrant Shares") upon the terms and conditions of the
Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. Definitions.
a. As used in this Agreement, the following terms shall have the following
meanings:
(i) "Investor" means the Initial Investor and any permitted transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "Potential Material Event" means any of the following: (a) the
possession by the Company of material information not ripe for disclosure in a
<PAGE>
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (b) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(iii) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iv) "Registrable Securities" means the Conversion Shares and the Warrant
Shares.
(v) "Registration Statement" means a registration statement of the Company
under the Securities Act.
b. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, no later than thirty (30) days following the Closing Date under the
Securities Purchase Agreement, either a Registration Statement on Form S-3 or an
amendment to any pending Company Registration Statement on Form S-3 registering
for resale by the Investor all of the Registrable Securities (or such lesser
number as may be required by the SEC, but in no event less than the number of
shares into which the Preferred Shares would be convertible and the Warrants
exercisable at the time of filing of the Form S-3), and such Registration
Statement or amended Registration Statement shall state that, in accordance with
Rule 416 and 457 under the Securities Act, it also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Shares and the exercise of the Warrants resulting
from adjustment in the Conversion Price, or to prevent dilution resulting from
stock splits, or stock dividends). The Company shall use its best efforts to
cause the Registration Statement to be declared effective no later than ninety
(90) days after the Closing Date. If at any time the number of shares of Common
Stock into which the Preferred Shares may be converted and which would be issued
upon exercise of the Warrants exceeds the aggregate number of shares of Common
Stock then registered, the Company shall, within ten (10) business days after
receipt of a written notice from any Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC at that time,
to register all shares of Common Stock into which the Preferred Stock may be
converted, or (ii) if such Registration Statement has been declared effective by
the SEC at that time, file with the SEC an additional Registration Statement on
<PAGE>
Form S-3 to register the shares of Common Stock into which the Preferred Shares
may be converted and which would be issued upon exercise of the Warrants that
exceed the aggregate number of shares of Common Stock already registered.
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable Securities is
not filed in proper form with the SEC within thirty (30) days after the Closing
Date (the "Required Filing Date"), the Company will make payment to the Initial
Investor in such amounts and at such times as shall be determined pursuant to
this Section 2(b).
(ii) If the Registration Statement covering the Registrable Securities is
not effective within the earlier of (a) five (5) days after notice by the SEC
that it may be declared effective or (b) one hundred twenty (120) days following
the Closing Date (the "Required Effective Date"), or after a Suspension Period
(as defined below), then the Company will make payments to the Initial Investor
in such amounts and at such times as shall be determined pursuant to this
Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the Company to the
Initial Investor shall be determined as of each Computation Date (as defined
below) and such amount shall be equal to (A) one percent (1%) of the purchase
price paid by the Initial Investor (the "Purchase Price") for all Preferred
Shares then purchased and outstanding pursuant to the Securities Purchase
Agreement for the period from the date following the Required Filing Date or the
Required Effective Date, as the case may be, to the first relevant Computation
Date, (B) one percent (1%) to the next Computation Date, and (C) two percent
(2%) to each Computation Date thereafter. By way of illustration and not in
limitation of the foregoing, if the Registration Statement is timely filed but
is not declared effective until two hundred (200) days after the Closing Date,
the Periodic Amount will aggregate four percent (4%) of the purchase price of
the Preferred Shares (1% for days 121-150, plus 1% for days 151-180, plus 2% for
days 181-200).
(iv) Each Periodic Amount will be payable by the Company in cash or other
immediately available funds to the Investor upon demand of the Investor.
(v) The parties acknowledge that the damages which may be incurred by the
Investor if the Registration Statement is not filed by the Required Filing Date
or if the Registration Statement has not been declared effective by the Required
Registration Date may be difficult to ascertain. The parties agree that the
Periodic Amount represent a reasonable estimate on the part of the parties, as
of the date of this Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this provision shall not be payable to the extent any delay in the
effectiveness of the Registration Statement occurs because of an act of, or a
failure to act or to act timely by the Initial Investor or its counsel, or in
the event all of the Registrable Securities may be sold pursuant to Rule 144 or
another available exemption under the Act.
<PAGE>
(vii) "Computation Date" means (i) the date which is the earlier of (A)
thirty (30) days after the Required Filing Date and the Required Effective Date,
as the case may be, or (B) the date after the Required Filing Date or the
Required Registration Date on which the Registration Statement is filed (with
respect to payments due as contemplated by Section 2(b)(i) hereof) or declared
effective (with respect to payments due as contemplated by Section 2(b)(ii)
hereof), as the case may be, and (ii) each date which is the earlier of (A)
thirty (30) days after the previous Computation Date or (B) the date after the
previous Computation Date on which the Registration Statement is filed (with
respect to payments due as contemplated by Section 2(b)(i) hereof)or declared
effective (with respect to payments due as contemplated by Section 2(b)(ii)
hereof), as the case may be.
(c) Underwritten Offerings. In the event that (i) the Company shall be
required to include in the Registration Statement securities of the Company for
the benefit of any other security holder of the Company (the "Other
Rightsholders") pursuant to registration rights granted by the Company prior to
the date hereof, and (ii) the managing underwriter or underwriters of the
proposed public offering of the Registrable Securities of the Investors advises
the Company in writing that, as a result of the inclusion of such amount or kind
of securities of the Other Rightsholders in such proposed public offering, the
likelihood of success of such public offering would be materially adversely
affected, then the amount or kind of securities to be offered for the accounts
of all Investors and the Other Rightsholders whose securities are included in
the Registration Statement shall be reduced pro rata to the extent necessary to
reduce the total amount or kind of securities of the Company being registered in
such offering to the amount and kind of such securities recommended by such
managing underwriter or underwriters.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC by thirty (30) days after the
Closing Date, a Registration Statement with respect to not less than the number
of Registrable Securities provided in Section 2(a), above, and thereafter use
its reasonable best efforts to cause each Registration Statement relating to
Registrable Securities to become effective the earlier of (a) five (5) days
after notice by the SEC that it may be declared effective or (b) ninety (90)
days following the initial Closing Date, and keep the Registration Statement
effective at all times until the earliest (the "Registration Period") of (i) the
date that is two (2) years after the Closing Date, (ii) the date when the
Investors may sell all Registrable Securities under Rule 144 or (iii) the date
the Investors no longer own any of the Registrable Securities, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
<PAGE>
the Registration effective at all times during the Registration Period, and,
during the Registration Period, comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement;
(c) The Company shall permit a single firm of counsel designated by the
Initial Investor to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time (but not less than three (3)
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects;
(d) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(g) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Registrable Securities
for more than two twenty (20) day periods in the aggregate during any 12-month
period ("Suspension Period") with at least a ten (10) business day interval
<PAGE>
between such periods, during the periods the Registration Statement is required
to be in effect;
(h) Use its reasonable efforts to secure designation of all the Registrable
Securities covered by the Registration Statement on the "Small Capitalization
Market" of the National Association of Securities Dealers Automated Quotations
System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
quotation of the Registrable Securities on The NASDAQ SmallCap Market; or if,
despite the Company's reasonable efforts to satisfy the preceding clause, the
Company is unsuccessful in doing so, to secure NASDAQ/OTC Bulletin Board
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(i) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(j) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request, and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(k) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
<PAGE>
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor, and
the obligations of the Company with respect to the registration of the
Registrable Securities of the such Non-Responsive Investor shall be suspended
and the Company shall not be liable for the payments set forth in Section 2(c)
hereof for such period during which the Requested Information is not provided;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
c. Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions of the Investor, incurred in connection
with registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company.
6. Indemnification. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, liabilities or expenses
(joint or several) incurred (collectively, "Claims") to which any of them may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
<PAGE>
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of such
Indemnified Party or Indemnified Person (as such terms are defined below)
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (II) be available to the extent such Claim is based on a failure of the
Investor to deliver or cause to be delivered the prospectus made available by
the Company; or (III) apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Each Investor will indemnify the
Company and its officers, directors and agents against any Claims arising out of
or based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
(b) Promptly after receipt by an indemnified person or indemnified party
(each, an "Indemnified Person" or "Indemnified Party") under this Section 6 of
notice of the commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel, with the reasonable fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other person represented by such counsel in such
proceeding. In such event, the indemnifying party shall pay for only one
separate legal counsel for the Indemnified Party or Indemnified Person; such
<PAGE>
legal counsel to be selected by the Indemnified Person or Indemnified Party, (I)
subject to the consent of the indemnifying party (which consent shall not be
unreasonably withheld or delayed), and (II) if the Indemnified Parties or
Indemnified Persons are Investors, by the Investors holding a majority in
interests of the Registrable Securities included in the Registration Statement
to which the Claim relates. Except as provided in the immediately preceding
sentences, in case any such action is brought against any Indemnified Person or
Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of the indemnifying person's election so to assume (alone or
with other indemnifying persons) the defense thereof, the indemnifying party
will not be liable to such Indemnified Person or Indemnified Party under this
Section 6 for any legal or other reasonable out-of-pocket expenses subsequently
incurred by such Indemnified Person or Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not defend such action to its final conclusion. The
Indemnified Person or Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but,
except as provided above, the fees and reasonable out-of-pocket expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
<PAGE>
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any Debenture of the Company which is
convertible into such securities) only if: (a) the Investor agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(c) hereof.
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold an eighty (80%) percent
interest of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered (by hand,
<PAGE>
by courier, by telephone line facsimile transmission, receipt confirmed, or
other means) or sent by certified mail, return receipt requested, properly
addressed and with proper postage pre-paid (i) if to the Company, ALCOHOL
SENSORS INTERNATIONAL, LTD., 11 Oval Drive, Islandia, NY 11722, ATTN: President,
Telecopier No.: (516) 342-1550; with a copy to Morritt, Hock & Hamroff, LLP, 400
Garden City Plaza, Suite 202, Garden City, New York 11530, ATTN: Neil Kaufman,
Esq, Telecopier No.: (516)873-2010; (ii) if to the Initial Investor, at the
address set forth under its name in the Securities Purchase Agreement, with a
copy to Samuel Krieger, Esq., Krieger & Prager, 319 Fifth Avenue, Third Floor,
New York, NY 10016, Telecopier No.: (212) 213-2077; and (iii) if to any other
Investor, at such address as such Investor shall have provided in writing to the
Company, or at such other address as each such party furnishes by notice given
in accordance with this Section 11(b), and shall be effective, when personally
delivered, upon receipt and, when so sent by registered or certified mail, four
(4) calendar days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
coveniens, to the bringing of any such proceeding in such jurisdictions.
(e) If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
<PAGE>
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3(a) hereof, or any delay in such performance could
result in loss to the Investors, and the Company agrees that, in addition to any
other liability the Company may have by reason of such failure or delay, the
Company shall be liable for all direct damages caused by any such failure or
delay, unless the same is the result of force majeure. Neither party shall be
liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
ALCOHOL SENSORS INTERNATIONAL, LTD.
By: s/Steven A. Martello
Name: Steven A. Martello
Title: President
MILBRIGHT ESTATES LTD.
By: s/John Sansford
Name: John Sansford
Title: Director
Contact: Joseph M. Lively, Esq.
Corporate Counsel
(516 342-1515
FOR IMMEDIATE RELEASE
- ---------------------
ALCOHOL SENSORS INTERNATIONAL, LTD.
ANNOUNCES PREFERRED STOCK FINANCING
Islandia, New York (September 30, 1997) - Alcohol Sensors International,
Ltd. (ASI) (Nasdaq: ASIL), developers and marketers of safety devices including
those that help prevent drinking and driving, today announced that it has raised
gross proceeds of $3,000,000 from the private placement of 300 shares of Series
B 8% Convertible Redeemable Preferred Stock (the "Preferred Stock") and a
Warrant to purchase up to 50,000 shares of Common Stock of the Company. The
Company intends to utilize the net proceeds from the private placement for
working capital and general corporate purposes, including to fund the
manufacture and marketing of the Company's next generation Sens-O-Lock alcohol
sensor ignition interlock devices scheduled for introduction into the United
Kingdom market.
The Preferred Stock is convertible, at the option of the holder, into
shares of the Company's Common Stock in accordance with a schedule specified in
the designation of the Preferred Stock filed as an amendment to the Company's
Certificate of Incorporation. The Preferred Stock is convertible into shares of
Common Stock at a conversion price equal to the lower of (a) $4.03 or (b) 82.5%
of the average closing bid price of a share of Common Stock over the ten
consecutive trading days prior to conversion. Unless earlier converted, the
Preferred Stock will be automatically converted into Common Stock on September
25, 1999.
The Preferred Stock bears cumulative dividends at the rate of 8% per annum,
payable in cash or shares of Preferred Stock, and due upon the conversion of the
Preferred Stock into Common Stock. The Preferred Stock has no voting rights,
except as required by law, and is subordinated to the Company's Series A
Convertible Non-Redeemable Preferred Stock issued in December 1996.
The Warrant has a term of five years and is exercisable at any time during
its term at the price of $4.27 per share of Common Stock.
The holders of Preferred Stock and Warrant have been granted certain
registration rights under which the Company is required to file, no later than
October 25, 1997, a registration statement on Form S-3 with the SEC with respect
to the shares of Common Stock issuable upon conversion of the Preferred Stock
and upon exercise of the Warrant, and to maintain such registration statement in
effect for a period of at least two years, subject to certain terms and
conditions.
<PAGE>
The Company markets and sells electronic after-market safety products,
including a patent-pending line of ignition interlock devices to the
corporate/commercial and individual markets under the Sens-O-Lock brand name.
The Company's Sens-O-Lock equipment is designed to detect, evaluate and assist
in the prevention of an alcohol impaired driver from operating a vehicle. The
Company intends to distribute the Sens-O-Lock devices through a network of
authorized dealers and distributors who will be responsible for the
installation, service and repair of the Company devices. The Company also
markets and sells, under the WeatherEye brand name, a line of modular products
designed to automatically engage and adjust the headlights and taillights of
automobiles depending upon weather and sunlight conditions.
