Securities and Exchange Commission
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
The Hartcourt Companies, Inc.
(Name of Issuer)
Common Stock, par value $.001 per share
(Title of Class of Securities)
416187 20 1
(CUSIP Number)
Reid Breitman
American Equities LLC
11400 Olympic Boulevard, Suite 217
Los Angeles, California 90064
(310) 785-0330
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
December 15, 1997
(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Page 1 of 6
Exhibit Index on Page 6
<PAGE>
SCHEDULE 13D
- -------------------------------------------------
--------------------------------------------------
CUSIP No. 259901 110 6
Page 2 of 6 Pages
- -------------------------------------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
American Equities LLC TIN#95-4562151
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
WC, OO
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or
2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 1,325,000
SHARES
BENEFICIAL
LY
OWNED BY
EACH
REPORTING
PERSON
WITH
-----------------------------------------------------------
8 SHARED VOTING POWER
0
------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
1,325,000
------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTINGPERSON
1,325,000
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.7%
- --------------------------------------------------------------------------------
TYPE OF REPORTING PERSON* 14
OO
- --------------------------------------------------------------------------------
Page 2 of 6
<PAGE>
SCHEDULE 13D
- -------------------------------------------------
--------------------------------------------------
CUSIP No. 259901 110 6
Page 2 of 6 Pages
- -------------------------------------------------
- -------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Reid Breitman
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_|
(b) |_|
- -------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO
- -----------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or
2(e) |_|
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------------------------------------------------------------------
NUMBER OF 0
SHARES
BENEFICIAL
LY
OWNED BY
EACH
REPORTING
PERSON
WITH
-----------------------------------------------------------
0
----------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTINGPERSON
1,325,000
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* |_|
- -------------------------------------------------------------------------------
8.7%
- --------------------------------------------------------------------------------
TYPE OF REPORTING PERSON* 14
IN
- --------------------------------------------------------------------------------
Page 2 of 6
<PAGE>
SCHEDULE 13D
- -------------------------------------------------
--------------------------------------------------
CUSIP No. 259901 110 6
Page 2 of 6
--------------------
- -------------------------------------------------
- --------------------------------------------------------------------------------
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Julia Breitman
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_|
(b) |_|
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or
2(e) |_|
- ----------------------------------------------------------------------------
United States
- --------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES
BENEFICIAL
LY
OWNED BY
EACH
REPORTING
PERSON
WITH
-------------------------------------------------------
0
----------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-----------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- ----------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTINGPERSON
1,325,000
- ---------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* |_|
- ---------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.7%
- -------------------------------------------------------------------------
TYPE OF REPORTING PERSON* 14
IN
- ---------------------------------------------------------------------------
Page 2 of 6
<PAGE>
Item 1 Security and Issuer.
The class of equity securities to which this statement relates is the
common stock, par value $.001 per share (the "Common Stock"), of The Hartcourt
Companies, Inc., a Utah corporation ("Hartcourt" or the "Issuer"). The principal
executive offices of Hartcourt are located at 19104 S. Norwalk Blvd., Artesia,
California 90701.
Item 2 Identity and Background.
This statement is being filed by American Equities LLC, Reid
Breitman and Julia Breitman. American Equities LLC is a California
limited liability company engaged in the business of management and
consulting services, real property management, and investments. Mr.
Breitman is a lawyer and is president of American Equities LLC, and
owns 80% of the membership interests of American Equities LLC.
Mrs. Breitman is a lawyer and is general counsel of American
Equities LLC, and owns 20% of the membership interests of American
Equities LLC. Mr. and Mrs. Breitman are filing this report by
virtue of their ownership of American Equities LLC. The business
address of each of Mr. and Mrs. Breitman and of American Equities
LLC is 11400 Olympic Blvd. Suite 217, Los Angeles, California 90064.
Each of Mr. and Mrs. Breitman are citizens of the United States of
America.
During the last five years, none of American Equities, Mr. Breitman or
Mrs. Breitman have (a) been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (b) been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation with
respect to such laws.
Item Source and Amount of Funds or Other Consideration.
American Equities LLC obtained funds in the aggregate of $275,000 for
the acquisition of 275,000 shares of Common Stock from its working capital and
through the retirement of certain obligations owed to them by the seller of such
shares.
Page 3 of 6
<PAGE>
Item 4. Purpose of Transaction.
The reporting persons acquired their shares of Common Stock for
investment purposes.
American Equities LLC intends to continuously review the possible
courses of action that may be available to it and take such action with respect
to the Common Stock of Hartcourt as it considers desirable in light of the
circumstances then prevailing. Pending its decision whether or not to pursue any
of such courses of action and depending on market conditions and other factors,
American Equities LLC reserves the right to purchase shares of Common Stock
individually, or with others as part of a group (and through borrowings, if
deemed appropriate), in brokerage transactions on the Nasdaq Bulletin Board or
in private transactions, if appropriate opportunities to do so are available, on
such terms and at such times as it considers desirable.
Except as set forth above, American Equities LLC has no plans or
proposals which relate to or would result in any of the actions set forth in
parts (a) through (j) of Item 4.
Item 5. Interests in Securities of the Issuer.
(a) The following list sets forth the aggregate number and percentage
(based on 15,231,024 shares of Common Stock outstanding) of outstanding shares
of Common Stock owned beneficially by each reporting person named in Item 2, as
of December 15, 1997:
<TABLE>
<CAPTION>
Shares of Percentage of
Common Stock Shares of Common Percentage of
Beneficially Stock Shared Voting
Name Owned Beneficially Power
Owned
<S> <C> <C> <C>
American 1,325,000 (1) 8.7%(1) 0
Equities LLC
Mr. Breitman 1,325,000 (1) 8.7%(1) 8.7%(2)
Mrs. Breitman 1,325,000 (1) 8.7%(1) 8.7%(2)
</TABLE>
- --------------------------
(1) All of such shares are held by American Equities LLC, and are
beneficially owned by Mr. and Mrs. Breitman by virtue of their
ownership of American Equities LLC. Excludes Warrants, which are
Page 4 of 6
<PAGE>
not currently exercisable and will not be exercisable within the next 60 days,
to purchase a combined total of 2,000,000 shares of Common Stock at an exercise
price of an average of $1.26 per share issued to American Equities LLC in
December 1996.
(2) American Equities LLC has sole voting and dispositive power of
all of such shares, and Mr. and Mrs. Breitman have shared voting
power by virtue of their joint ownership and control of American
Equities LLC.
(b) American Equities LLC has sole voting and dispositive
power of all of such shares, and Mr. and Mrs. Breitman have shared
voting power by virtue of their joint ownership and control of
American Equities LLC.
(c) The following is a description of all transactions in the Common
Stock of the Issuer by the persons identified in Item 2 of this Schedule 13D
effected within 60 days from the date of this report. All sales were by American
Equities LLC on open market transactions.
Sale Date Number of Sale Price Per
Shares Share
11/26/97 20,000 $2.5625
12/15/97 500 $2.75
12/16/97 500 $2.75
12/17/97 500 $2.75
12/19/97 1,000 $2.125
12/22/97 500 $2.125
(d) No other person has the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of such securities.
(e) Not applicable.
Page 5 of 6
<PAGE>
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the Issuer.
American Equities LLC entered into that certain Amended and Restated
Consulting Agreement, dated as of December 20, 1996, between American Equities
LLC and Hartcourt, pursuant to which American Equities LLC agreed to render
certain consulting services to Hartcourt. Under the terms of the Consulting
Agreement, Hartcourt issued to American Equities LLC 1,000,000 shares of Common
Stock as a deposit against future fees payable pursuant to the Consulting
Agreement and warrants to purchase an aggregate of 2,000,000 shares of Common
Stock at an average exercise price of $1.26. The Consulting Agreement provides
for payment by Hartcourt to American Equities LLC of certain fees and
commissions based on performance, which fees and commissions are payable at the
option of Hartcourt in Common Stock.
American Equities LLC presently contemplates purchasing up to 2,000
shares of Hartcourt's Series A Convertible Preferred Stock and up to 1,000
shares of Hartcourt's Series Convertible Preferred Stock from Capital Commerce
Ltd., which purchased such preferred stock from Hartcourt in July, 1997.
Except for the circumstances discussed or referred to above, there are
no contracts, arrangements, understandings, or relationships with respect to the
securities of Hartcourt among any of the persons reporting in this Schedule 13D.
Item 7. Material to be Filed as Exhibits.
Exhibit A - Joint Filing Agreement under Section 13d-1(f) under the
Securities Exchange Act of 1934, dated as of December 22, 1997, between
American Equities LLC, Mr. Breitman and Mrs.
Breitman.
Exhibit 1 - Amended and Restated Consulting Agreement, dated as of
December 20, 1996, by and between The Hartcourt Companies, Inc., a Utah
corporation and American Equities LLC, a California limited liability
company.
Exhibit 2 - Warrant Agreement and Warrrants, each dated as of December
20, 1996, by and between The Hartcourt Companies, Inc.
and American Equities LLC.
Page 6 of 6
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of their knowledge and belief,
each of the undersigned certifies that the information set forth in this
Schedule is true, complete and correct.
Dated: December 22, 1997 AMERICAN EQUITIES LLC
By:
Reid Breitman, President
Reid Breitman
Julia Breitman
<PAGE>
EXHIBIT A
JOINT FILING AGREEMENT
Agreement among American Equities LLC, Reid Breitman and Julia Breitman
whereby, in accordance with Rule 13d-1(f) under the Securities Exchange Act of
1934, each of the parties named below agree to the joint filing on behalf of
each of them of a Statement on Schedule 13D (including amendments thereto) with
respect to the equity securities of The Hartcourt Companies, Inc. and further
agree that this Joint Filing Agreement be included as an exhibit to such joint
filings provided that, as contemplated by Section 13d- 1(f)(1)(ii), no person
shall be responsible for the completeness or accuracy of the information
concerning the other person making the filing, unless such person knows or has
reason to believe that such information is inaccurate.
In evidence thereof, the undersigned, being duly authorized, hereby
execute this Agreement in counterpart as of this 22nd day of December, 1997.
AMERICAN EQUITIES LLC
By:
Reid Breitman, President
Reid Breitman
Julia Breitman
AMENDED AND RESTATED
CONSULTING AGREEMENT
This Amended and Restated Consulting Agreement (the "Agreement") is
entered into as of December 20, 1996, by and between Hartcourt Companies, Inc.,
a Utah corporation and its subsidiaries or affiliates (the ACompany@), and
American Equities LLC, a California limited liability company
("Consultant").
WHEREAS, the parties hereto have previously entered into that certain
Consulting Agreement, dated December 20, 1996;
WHEREAS, the Company has determined that it is in the best interests of
the Company and its shareholders to amend and restate the Consulting Agreement
to expand the duties, objectives, focus and obligations of the Consultant;
WHEREAS, the parties hereby agree that the Consulting Agreement be
amended and
re tated by this Agreement;
WHEREAS, the Company desires to acquire, manage and develop a large
real estate portfolio for its real estate division, including, but not limited
to, office, retail, industrial and multi-family properties, and raw land (the
"Real Estate Business");
WHEREAS, the Company also desires to acquire or merge with other
businesses, enter into investment banking relationships and enhance shareholder
value through the sale or restr cturing of its business, recapitalizations,
reorganizations and placement of common stock, preferred stock, and/or debt
instruments (the "Acquisition Business," and together with the Real Estate
Business, the "Business");
WHEREAS, the Company recognizes that the Consultant can contribute to
the acquisition, management and development of a real estate portfolio, as well
as finding, analyzing, structuring, negotiating and financing business
acquisitions, joint ventures, alliances an other desirable projects, which
contribution is of great value to the Company and its shareholders;
WHEREAS, the Company believes it to be important both to the future
prosperity of the Business and to the Company=s general interest to retain
Consultant as an exclusive consultant to the Company and have Consultant
available to the Company for consulting services in the manner and subject to
the terms, covenants, an conditions set forth herein;
<PAGE>
WHEREAS, in order to accomplish the foregoing, the Company and
Consultant desire to enter into this Agreement, effective on January 1, 1997, to
provide certain assurances as set forth herein.
NOW THEREFORE, in view of the foregoing and in consideration of the
premises and mutual representations, warranties, covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby ac nowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. Retention. The Company hereby retains the Consultant during the
Consulting Period (as
defined in Section 2 below), and Consultant hereby agrees to be so retained by
the
Company, all subject to the terms and provisions of this Agreement.
2. Consulting Period. The Consulting Period shall commence on January 1, 1997
and terminate no earlier than December 31, 2001 After December 31, 2001, either
party may terminate this agreement upon at least 30 days written notice.
3. Duties of Consultant. During the Consulting Period, the Consultant shall use
its reasonable and best efforts to perform those actions and responsibilities
necessary to analyze, purchase, sell, refinance and manage real property
throughout the world ("Real Estate Opportunities"), and to identify, analyze,
structure and negotiate business acquisitions, including without limitation,
merger agreements, stock purchase agreements, and any agreements relating to
financing and/or the placement of debt or equity securities of the Company
("Acquisition Opportunities"), and to present such Real Estate Opportunities and
Acquisition Opportunities to the Company for its review and approval (the
"Services"). The Company shall be under no obligation to accept such
opportunities. The Company shall not retain or hire any other person to perform
services similar or related to the Services, including but not limited to, real
estate brokers, business brokers, mortgage brokers, property managers or
investment bankers without the prior written consent of Consultant. The Company
shall provide all necessary financing required in order to purchase properties
or businesses approved by the Company, including cash or freely tradable or
restricted securities. Such securities may include freely tradable Common Stock,
restricted Common Stock, preferred stock in the Company, debt, convertible debt
or any other security. Consultant shall render such Services diligently and to
the best of its ability. Consultant shall report to Dr. Alan V.
Phan, President.
4. Other Activities of Consultant. The Company recognizes that Consultant
shall perform
only those services that are reasonably required to accomplish the goals and
and entities
<PAGE>
other than the Company. Consultant shall be free to directly or indirectly own,
manage, operate, join, purchase, organize or take preparatory steps for the
organization of, build, control, finance, acquire, lease or invest or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, partner, principal, manager,
agent, representative, associate, consultant, investor, advisor or otherwise
with (collectively, be "Affiliated" with), any business or enterprise, or permit
its name or any part thereof to be used in connection with any business or
enterprise, engaged in any business, including but not limited to, any business
that is the same as, substantially similar to or otherwise competitive with,
adverse to, affiliated with, or otherwise related to the Company. Consultant may
be Affiliated with any entity which may provide services to the Company. In the
event Consultant is Affiliated with any entity which proposes to sell real
property to, or purchase real property from, the Company, Consultant shall
disclose the nature of such relationship to the Company prior to the Company
making any decision, and shall obtain the approval of the Company, which
approval shall be conclusively deemed granted upon written notice from Dr. Alan
V. Phan or his or the Company=s designated representative . The Company hereby
waives any conflict of interest that may arise from a relationship between
Consultant and any entity which Consultant is Affiliated with. This Agreement
may be assigned by Consultant to an entity designated by Consultant, whether
Affiliated or not Affiliated with Consultant, and wherever located.
Consultant shall present any real estate project which it is
considering acquiring for its own account first to the Company, and Consultant
hereby grants to the Company an exclusive right to acquire any such real estate
project prior to Consultant making such acquisition for its own acco nt. In the
event that the Company elects not to go forward with said acquisition of real
property, Consultant may, in and for its own account, acquire said property.
5. Compensation. In consideration for Consultant entering into this
Agreement, the
Company shall compensate Consultant as follows:
a. Monthly Fees and Benefits:
i. Retainer. The Company shall pay to Consultant a non-refundable monthly
retainer of $5,000.
ii. Expenses. The Company shall pay all such expenses reasonably incurred
during the Consulting Period by the Consultant for business purposes
related to or in furtherance of the goals and objectives of the Company
and/or the provision of the Services (collectively, ACompany Purposes@),
including, without limitation, expenses incurred with respect to the
Consultant=s travel (including business class travel for flights of less than
<PAGE>
three hours and first class travel for flights of three hours or more), meals
and entertainment and other customary and reasonable expenses for Company
Purposes. The Company shall pay such expenses directly, or, upon submission of
bills, receipts and/or vouchers by the Consultant, by direct reimbursement to
the Consultant. The Company shall pay such expenses directly, or, upon
submission of bills, receipts and/or vouchers by the Consultant, by direct
reimbursement to the Consultant. The Company shall advance to Consultant the
minimum sum of $12,000 per month for such expenses. iii. Automobile Allowance.
The Company shall pay to Consultant an automobile allowance of $750 per month,
and shall pay for fuel, maintenance and automobile insurance. The Company
acknowledges that Consultant may have a master automobile insurance policy
covering more than one automobile, and that, for purposes of this paragraph,
Consultant will reasonably determine the portion of the insurance premium to be
allocated to the automobile used by Consultant for Company Purposes. iv. Benefit
Plans. Two employees of Consultant, which shall be designated by Consultant,
shall be entitled to participate in and receive benefits under any retirement
plan, health and dental plan, disability plan and life insurance plan or
employee benefit plan or arrangement currently or in the future made available
by the Company to its employees and/or consultants ("Benefit Plans") and to
which Consultant is eligible, in accordance with the terms, conditions and
overall administration of such Benefit Plans; provided, however, that if under
the terms of any Benefit Plans, the Consultant is prohibited from participating
in such Benefit Plan, the Company shall provide the Consultant with benefits
that are substantially similar to the benefits that would have been provided
under such Benefit Plan. At the Company=s option, and with at least 30 days
notice, in lieu of providing the benefits under any or all of the Benefit Plans,
the Company may elect to pay to the Consultant a monthly amount equal to the
Company=s cost of providing such benefits to Consultant. Nothing in this
Agreement shall limit the Company=s ability to adopt, terminate or amend any
such benefits at any time provided the Consultant is provided with benefits that
are at least substantially similar to the benefits provided prior to such
adoption, amendment or termination. Any Benefit Plans that are determined
according to annual compensation shall be calculated assuming an annual salary
of $250,000 for each of Consultant=s two designated employees.
<PAGE>
b. Advance. The Company shall pay to the Consultant the following advance and
Warrants (as defined below). The Warrants and any unearned portion of the
advance described in this section shall not be refundable and shall be
considered earned by Consultant in the event the Agreement is terminated by the
Company, with or without cause. i. The Company shall transfer or cause to be
transferred 1,000,000 shares of the Company=s common stock (the "Common Stock")
as an advance against future fees to be earned from the acquisition, sale or
refinance of real property, or any other fees due and payable hereunder. Such
Common Stock shall not be freely tradable. The Company shall be obligated to
prepare and file a registration statement (the "Registration Statement"), and
amendments thereto, with the Securities and Exchange Commission (the
"Commission") for the registration of the Common Stock under the Securities and
Exchange Act of 1933 (the "Act") and shall be obligated to cause such
Registration Statement, and amendments thereto, to be declared effective by the
Commission on or prior to May 1, 1997. The Company shall be obligated to the
Consultant to continually maintain, at the Company's own expense, the currency
and effectiveness of such Registration Statement, including the filing of any
and all applications and other notifications, filings and post-effective
amendments and supplements (collectively, the "Current Registration Statement"),
as may be necessary, so as to permit the resale of the Common Stock until the
earlier of the time that all shares of Common Stock have been sold pursuant to
the Current Registration Statement or two years from the date of the
effectiveness of the Registration Statement. In lieu of filing such Registration
Statement, the Company may exchange the Common Stock for common stock of the
Company which is freely tradeable pursuant to a registration statement filed on
Form S-8.
As fees are earned pursuant to paragraph 5(d) below, the advance will
be conside ed earned at the rate equal to $1.50 per share.
c. Warrants. The Company shall issue warrants to purchase Common Stock (the
"Warrants"), which shall vest immediately, and which may be exercised by
Consultant at any time upon not less t an seventy-five (75) days notice through
the payment of cash or a promissory note bearing interest at six percent (6%)
per annum, at Consultant=s option. The Company shall, at its sole expense, cause
the Common Stock underlying the Warrants to be registered with the Securities
and Exchange Commission upon demand, or upon the first registration of any of
the Common Stock of the Company after the date of this Agreement if no such
demand has yet been made. In the event the Company issues or sells Common
<PAGE>
Stock or any other equity securities of the Company after the date of this
Agreement to any party other than Consultant for cash consideration or non-cash
consideration which has a fair value below the closing bid price as of the date
prior to such issuance or sale, the terms of the Warrants herein shall be
adjusted so as to protect Consultant against any dilution of its interest in the
Common Stock underlying the Warrants. If at any time there shall be a capital
reorganization of the Common Stock or merger of the Company into another
corporation, or the sale of all or substantially all of the Company's properties
or assets, then, as a part of such reorganization, merger or sale, lawful
provision shall be made so that Consultant shall thereafter be entitled to
receive upon exercise of the Warrants, the number of shares of Common Stock, or
securities of the successor corporation resulting from such reorganization,
merger or sale, to which the Consultant would have been entitled had the
Warrants been exercised immediately prior to such reorganization, merger or
sale. The Company shall issue, or has issued, the following Warrants to
Consultant and/or its assignee:
i. 400,000 Warrants with an exercise price of $0.30
ii. 400,000 Warrants with an exercise price of $0.60
iii. 400,000 Warrants with an exercise price of $1.50
iv. 400,000 Warrants with an exercise price of $1.80
v. 400,000 Warrants with an exercise price of $2.10
d. Acquisition and Disposition Fees. The Company shall pay to Consultant the
following fees for the acquisition or sale of real property in each year during
the Consulting Period, which fees may be paid in cash or Common Stock at the
closing of each transaction: i. Six percent (6%) of the first $100,000,000 of
gross purchase or sale price in each year; ii. Five percent (5%) of the second
$100,000,000 of gross purchase or sale price in each year; iii. Four percent
(4%) of the third $100,000,000 of gross purchase or sale price in each year; iv.
Three percent (3%) of the fourth $100,000,000 of gross purchase or sale price in
each year; v. Two percent (2%) of the fifth $100,000,000 of gross purchase or
sale price in each year; and vi. 1% of the aggregate gross purchase and sales
prices in each year during the Consulting Period in excess of $600,000,000 on
any one year.
<PAGE>
e. Property Management, Asset Management and Refinancing Fees. The Company
shall pay to Consultant the following fees in cash for services to be provided:
i. Management Fee: Six percent (6%) of all gross income or receipts from
all
properties owned or controlled by the Company (ACompany Properties@),
including, but not limited to, rental fees, storage fees, application fees and
any other operating income.
ii. Asset Management Fee: One percent (1%) per annum of the gross value of
all real property assets owned by the Company, including, but not limited
to, all Company Properties.
iii. Refinancing Fee: One percent (1%) of the gross amount of all
refinancings
that take place on any of the real property assets owned or controlled by
the Company.
iv. All fees under this section shall be payable monthly commencing January
1, 1997. In the event the Company shall defer payment of such fees, for a
maximum of six months from January 1, 1997, the deferred fees shall
accrue interest at 1% per month.
f. Fees for Acquisition Opportunities. The Company shall pay to the Consultant a
fee equal to ten percent (10%) of the total aggregate consideration paid for any
acquisition or sale by the Company of any business, corporation, division or
other non-real estate property (a "Target"), including, but not limited to,
acquisitions by stock purchase agreement, merger agreement, plan of
reorganization or asset purchase agreement, which fee shall be due upon closing
of the transaction. For purposes hereof, the total aggregate consideration paid
shall include all cash and stock paid to the seller or sellers of a Target upon
closing of the transaction in addition to any contingent payments to the seller
or sellers, including without limitation, earnouts, as if all performance
targets are met, as well as any debts or liabilities assumed by the Company,
including without limitation any debts for which the Company issues a guarantee.
In addition, Consultant shall also be entitled to a financing fee equal to ten
percent (10%) of any private or public placement of debt or equity securities of
the Company, including without limitation, promissory notes, debentures,
convertible debt, common stock or preferred stock, or any other securities owned
by the Company, including without limitation securities of other corporations.
g. Third Party Commissions. Consultant and/or its Affiliates shall be
entitled to
share in any fees or commissions payable by third parties on any transaction
contemplated herein, including, but not limited to, real estate or mortgage
brokerage commissions payable by third party sellers or purchasers arising from
any acquisition or sale of real property by the Company, or any fees payable to
<PAGE>
Consultant by a third party lender, financing partner, or other party, or a
seller of a corporation or business, including, without limitation, investment
banking fees or commissions, business brokerage fees or commissions, finders
fees, or any other fee payable by a third party to Consultant for any reason
including the identification of the Company as a potential purchaser or seller
of such corporation or business (a "Transaction Commission"). The Company hereby
waives any conflict of interest that may arise due to any transaction wherein
Consultant receives such a Transaction Commission, including, but not limited
to, any conflict of interest which may arise as a result of the dual
representation by Consultant of the seller or purchaser of real property or a
corporation or business on the one hand, and the Company on the other.
h. Fees Paid in Common Stock. The Company, at its option, may pay fees due under
paragraph (d) and (f) of this Section 5 by issuance of restricted Common Stock
or freely tradeable, registered Common Stock. Restricted Common Stock shall be
issued at a rate equal to the lesser of (I) fifty percent (50%) of the average
Bid Price for the five trading days prior to the closing date of a transaction
which entitles the Consultant to receive such fees, or $1.50. Freely tradeable,
registered Common Stock, pursuant to an effective and current registration
statement, shall be issued at the rate equal to the lesser of (I) seventy
percent (70%) of the average Bid Price for the five trading days prior to the
closing date of a transaction which entitles the Consultant to receive such
fees, or $1.75. All fees payable hereunder shall be paid within seven business
days following the date upon which Consultant submits a written statement
setting forth the amounts due and payable to Consultant.
6. Office and Staff. The Company shall provide Consultant with a reasonable
office and staff, along with the necessary costs and expenses to carry out the
objectives of the Company. Such office and staff shall be commensurate with the
offices and staff reasonably required by other companies with similar real
estate assets and operations. It is acknowledged that until such time as
additional office space and personnel are needed to service the real estate
operations of, and properties acquired by, the Company, the Company will provide
an executive suite to Consultant in the West Los Angeles area at an approximate
cost of $2,000 per month, plus operating expenses including, but not limited to,
telephone (including cellular), utility, facsimile and copy machine charges as
well as required office staff.
7. Termination. Subject to the cure provisions contained herein, the
Company may
terminate the Consulting Period upon written notice for Cause at any time.
Cause shall
mean that during the Consulting Period, the Consultant engaged in gross and
willful
<PAGE>
misconduct that is materially and significantly injurious to the Company, and,
after written notice of such conduct, Consultant has failed to cease such
conduct within not less than 30 days. Any termination pursuant to this section
shall be communicated by written Notice of Intended Termination. For purposes of
this Agreement, a "Notice of Intended Termination" shall mean a notice which
shall clearly state the specific termination provision in this Agreement relied
upon and shall set forth in reasonable and specific detail the facts and
circumstances claimed to provide a basis for termination of the Consulting
Period. No Notice of Intended Termination shall be valid unless it is signed by
a the entire board of directors of the Company (the "Board").
a. Not less than 15 days after receipt of the Notice of Intended Termination,
Consultant shall have the opportunity to a full, complete and fair hearing in
the presence of the entire Board. The Board shall present to Consultant its
reasons for the termination, including the specific actions, inactions,
omissions or other facts relied upon by the Board in making its determination
that Consultant has engaged in gross and willful misconduct and that the Company
has the right to terminate this Agreement for Cause. Consultant shall have the
right to rebut any evidence or allegations of wrongdoing and shall have the
right to be represented by counsel of Consultant=s choice at such hearing. After
such hearing, should the Board determine that this Agreement shall be terminated
for Cause, it shall issue a written Final Notice of Termination to Consultant,
signed by all members of the Board, setting forth in detail the specific facts,
conclusions and findings of the Board in determining that Cause exists for the
termination of this Agreement. The Final Notice of Termination shall contain an
effective termination date, which effective termination date shall be no less
than thirty (30) days from the date of the Final Notice of Termination.
b. In the event the Company terminates this Agreement without Cause as defined
herein, and/or does not fully comply with the termination and hearing procedures
specified in paragraph 7(a) herein, then the Company shall pay to Consultant, as
liquidated damages, the greater of (1) 2,000,000 shares of Common Stock which
shall be registered with the Securities and Exchange Commission and freely
tradable or (2) the total value of all fees and other compensation paid to
Consultant over the twelve months prior to the date of the Notice of Intended
Termination.
c. In the event the Company terminates this Agreement prior to January 1, 1998,
then the Company shall pay to Consultant, as liquidated damages, (I) all amounts
then owing to Consultant for completed transactions, payable in cash upon
termination, (ii) 87,500 shares of freely tradeable, registered Common Stock for
<PAGE>
each month or fraction thereof commencing with January 1, 1997 through the
effective date of such termination, up to a maximum of 1,000,000 shares, and
(iii) for transactions for which negotiations are being conducted, or for which
a term sheet or other agreement (whether or not binding on the parties) has been
executed at the effective date of termination, the amount Consultant would have
earned had this Agreement not been terminated, payable upon closing of such
transactions. In addition, all compensation paid to Consultant pursuant to
Section 5 hereof shall be deemed earned, including, but not limited to, the
Warrants; provided, however, that within ten (10) business days after the
payment by the Company of all amounts owing to Consulting under this Section
7(c), Consultant shall return to the Company the unearned portion of the
1,000,000 shares advanced to Consultant pursuant to Section 5(a).
8. Notice. Any notice required, permitted or desired to be given pursuant to any
of the provisions of this Agreement shall be deemed to have been sufficiently
given or served for all purposes if delivered in person or sent by certified
mail, return receipt requested, postage and fees prepaid, or by national
overnight delivery prepaid service to the parties at their addresses set forth
above. Any party hereto may at any time and from time to time hereafter change
the address to which notice shall be sent hereunder by notice to the other party
given under this paragraph. The date of the giving of any notice sent by mail
shall be the day two days after the posting of the mail, except that notice of
an address change shall be deemed given when received. The addresses of the
parties are as follows:
TO CONSULTANT: With a Copy to:
AMERICAN EQUITIES LLC Reid Breitman, Esq.
11400 Olympic Blvd., Suite 212 1860 N. Fuller Ave. #401
Los Angeles, California 90064 Los Angeles, California 90046
Telephone: (310) 78 -0330 Telephone: (213) 850-1478
Facsimile: (310) 312-9521 Facsimile: (213) 874-7840
TO THE COMPANY:
Dr. Alan V. Phan, President
Hartcourt Companies, Inc.
19104 S. Norwalk Blvd.
Artesia, California 90701
Telephone: (310) 403-1126
Facsimile: (310) 403-1130
9. Waiver. No course of dealing nor any delay on the part of either
party in exercising any
rights hereunder will operate as a waiver of any rights of such party. No waiver
of any
default or breach of this Agreement or application of any term, covenant or
provision
<PAGE>
hereof shall be deemed a continuing waiver or a waiver of any other breach or
default or the waiver of any other application of any term, covenant or
provision.
10. Definition of "Reasonable and Best Efforts." Reasonable and best efforts
shall not include the payment of any non-reimbursable out-of-pocket costs or
other payments by Consultant. Consultant shall not guarantee, make any
representation concerning (which representation would survive the closing of any
escrow or other transaction) or warrant (1) the condition, performance, value,
or profitability of any real property or business purchased, sold by, or
otherwise considered for purchase by the Company; (2) the validity,
marketability or insurability of any title to any real property, or the validity
or authorization of any capital stock purchased, sold by, or otherwise
considered for purchase by the Company; (3) the validity, enforceability or
value of any leases of or pertaining to all or any part of any real property
purchased, sold by, or otherwise considered for purchase by the Company; (4) the
market value of any real property, business or corporation purchased, sold by,
or otherwise considered for purchase by the Company; (5) the ability to finance,
refinance or otherwise mortgage or encumber any real property, business or
corporation purchased, sold by, or otherwise considered for purchase by the
Company; or (6) that Consultant will find or present any real property, business
or corporation which the Company will consider, approve or ultimately purchase
or be able to purchase; or (7) the covenants, representations or warranties of
any party to any stock purchase, asset purchase, merger or other agreement
entered into by the Company with any third party.
11. Successors; Binding Agreements. Prior to the effectiveness of any succession
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, the
Company will require the successor to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had occurred. As used in this
Agreement, ACompany@ shall mean the Company as defined above and any successor
to its business and/or assets which executes and delivers the Agreement provided
for in this Section 10 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law or otherwise.
12. Survival of Terms. Notwithstanding the termination of this Agreement
for whatever
reason, the provisions hereof shall survive such termination, unless the context
requires
otherwise.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and
the same instrument. Any signature by facsimile shall be valid and binding as
if an
original signature were delivered.
<PAGE>
14. Captions. The caption headings in this Agreement are for convenience
of reference only
and are not intended and shall not be construed as having any substantiveeffect.
15. Governing Law. This Agreement shall be governed, interpreted and construed
in accordance with the laws of the state of California applicable to agreements
entered into and to be performed entirely therein. Any suit, action or
proceeding with respect to this Agreement shall be brought exclusively in the
state courts of the state of California or in the federal courts of the United
States which are located in Los Angeles, California. The parties hereto hereby
agree to submit to the jurisdiction and venue of such courts for the purposes
hereof. Each party agrees that, to the extent permitted by law, the losing party
in a suit, action or proceeding in connection herewith shall pay the prevailing
party its reasonable attorneys= fees incurred in connection therewith.
16. Entire Agreement/Modifications. This Agreement constitutes the entire
agreement between the parties and supersedes all prior understandings and
agreements, whether oral or written, regarding Consultant=s retention by the
Company, including, but not limited to, the prior consulting agreement and any
agreements related thereto, including the letter agreement dated December 20,
1996, the Term Sheet dated December 20, 1996, and the Amendment to Consulting
Agreement dated as of December 20, 1996. This Agreement shall not be altered or
modified except in writing, duly executed by the parties hereto.
17. Warranty. The Company and Consultant each hereby warrant and agree that each
is free to enter into this Agreement, that the parties signing below are duly
authorized and directed to execute this agreement, and that this Agreement is a
valid, binding and enforceable against the parties hereto.
18. Severability. If any term, covenant or provision, or any part thereof, is
found by any court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, the same shall not affect the remainder of such
term, covenant or provision, any other terms, covenants or provisions or any
subsequent application of such term, covenant or provision which shall be given
the maximum effect possible without regard to the invalid, illegal or
unenforceable term, covenant or provision, or portion thereof. In lieu of any
such invalid, illegal or unenforceable provision, the parties hereto intend that
there shall be added as part of this Agreement a term, covenant or provision as
similar in terms to such invalid, illegal or unenforceable term, covenant of
provision, or part thereof, as may be possible and be valid, legal and
enforceable.
<PAGE>
IN WITNESS HEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
AMERICAN EQUITIES LLC HARTCOURT COMPANIE , INC.
By: /S/ REID BREITMAN By: /S/ DR. ALAN V. PHAN
Reid Breitman, President Dr. Alan V. Phan, President
<PAGE>
THE HARTCOURT COMPANIES, INC.
AMERICAN EQUITIES LLC
WARRANT AGREEMENT
Dated as of December 20, 1996
Warrant Agreement
<PAGE>
[GRAPHIC OMITTED]
Warrant Agreement
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement"), dated as of December 20,
1996, is made and entered into by and between THE HARTCOURT COMPANIES, INC., a
Utah corporation (the "Company") and AMERICAN EQUITIES LLC, a California limited
liability company (the AConsultant").
ssue and sell to the Consultant and
the Consultant agrees to purchase from the Company, for the price of $100, a
warrant, as hereinafter described (the "Warrant" and together with any warrants
subsequently issued hereunder, the "Warrants"), to purchase up to 2,000,000
shares, as may be adjusted from time to time as set forth herein, of the
Company's common stock, $0.01 par value (the "Common Stock"). The Warrant is
being issued in connection with a consulting agreement between the Company and
the Consultant of even date herewith. The shares of Common Stock issuable upon
exercise of the Warrants are hereinafter referred to as the "Warrant Stock." The
Warrants shall be issued pursuant to this Agreement on or within five business
days of the date hereof.
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants, the Warrant Stock and the respective
rights and obligations thereunder, the Company and the Consultant, for value
received, hereby agree as follows:
Section 1. Transferability and Form of Warrants.
1.1 Registration. All Warrants shall be numbered and
shall be registered on the books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on the
books of the Company maintained at its principal office, wherever its principal
office may then be located, upon delivery thereof duly endorsed by a
Warrantholder ( "Warrantholder") or by its duly authorized attorney or
Consultant and with the signatures properly guaranteed, accompanied by proper
evidence of succession, assignment or authority to transfer. Upon any
<PAGE>
registration of transfer, the Company shall execute and deliver a new
certificate evidencing each such Warrant to each person entitled thereto.
1.3 Limitations on Transfer of the Warrants. The Warrants and
Warrant Stock may be sold, transferred, assigned or hypothecated by the
Consultant at any time. The Warrants may be divided or combined, upon request to
the Company by a Warrantholder, into a certificate or certificates representing
the right to purchase the same aggregate number of Warrant Stock. Unless the
context indicates otherwise, the term "Warrant holder" shall include the
Consultant and any transferee or transferees of the Warrants pursuant to this
subsection 1.3 and as otherwise permitted by this Agreement, and the term
"Warrants" shall include any and all Warrants outstanding pursuant to this
Agreement, including those evidenced by a certificate or certificates issued
upon division, exchange, substitution or transfer pursuant to this Agreement.
1.4 Form of Warrants. The text of the Warrant certificates and
of the form of election to purchase Warrant Stock shall be substantially as set
forth in Exhibit A attached hereto. The aggregate number of shares of Common
Stock issuable upon exercise of the Warrants is subject to adjus ment upon the
occurrence of certain events, all as hereinafter or therein provided. The
Warrants shall be executed on behalf of the Company by its President or by a
Vice President and attested to by its Secretary or by an assistant Secretary. A
Warrant certificate bearing the signature of an individual who was at any time
the proper officer of the Company shall bind the Company, notwithstanding that
such individual shall have ceased to hold such office prior to the delivery of
such Warrant certificate or did not hold such office on the date of this
Agreement or at any time thereafter.
The Warrant certificate shall be dated as of the
date of signature thereof by the Company either upon initial issuance or upon
division, exchange, substitution or transfer.
1.5 Legends. Each certificate for any of the
<PAGE>
Securities and Warrant Stock shall not bear a legend.
Section 2. Exchange of Warrant Certificate. Any Warrant
certificate may be exchanged for ano her certificate or certi-
ficates entitling the Warrant holder to purchase a like aggregate number of
shares of Warrant Stock as the certificate or certificates surrendered then
entitled such Warrant holder to purchase. Any Warrant holder desiring to
exchange a Warrant certificate shall make such request in writing delivered to
the Company, and shall surrender, properly endorsed, the certificate evidencing
the Warrant to be so exchanged. Thereupon, the Company shall execute and deliver
to the person entitled thereto a new Warrant certificate or certificates as so
requested.
Section 3. Term of Warrants; Exercise of Warrants.
3.1 Exercise of Warrants. Subject to the terms of this
Agreement, the Warrant holder shall have the right, at any time and from time to
time until 5:00 p.m., Pacific Time, on December 20, 2002 (the "Termination
Date"), to purchase from the Company up to the number of fully paid and
nonassessable shares of Warrant Stock to which the Warra t holder may at the
time be entitled to purchase pursuant to this Agreement, upon surrender to the
Company, at its principal office, of the certificate evidencing the Warrants to
be exercised, together with the purchase form on the reverse thereof duly
completed and executed, and upon payment to the Company of the respective
Warrant Price (as defined in and determined in accordance with the provisions of
this Section 3 and Sections 7 and 8 hereof) for the number of shares of Warrant
Stock in respect of which such Warrants are then exercised, but in no event for
less than 100 shares of Warrant Stock (unless less than an aggregate of 100
shares of Warrant Stock are then purchasable under all outstanding Warrants held
by such Warrant holder). This Warrant may be exercised from time to time in
whole or in part, upon 75 days written notice.
3.2 Payment of Warrant Price. Payment of the Warrant Price
shall be made in cash, by certified or official bank check (next day funds),
business check issued by American Equities LLC, a promissory note issued by
American Equities LLC bearing
<PAGE>
interest at six percent (6%) per annum and due in five equal annual
installments, or any combination thereof.
3.3 Cashless Exercise. In addition to the method of payment
set forth in Section 3.2 above and in lieu of any cash payment required
thereunder, unless otherwise prohibited by law, the Warrantholders shall have
the right at any time and from time to time to exercise the Warra ts in full or
in part (i) by receiving from the Company the number of shares of Warrant Stock
equal to the number of shares of Warrant Stock otherwise issuable upon such
exercise less the number of shares of Warrant Stock having an aggregate value on
the date of exercise equal to the respective Warrant Price multiplied by the
number of shares of Warrant Stock for which this Warrant is being exercised
and/or (ii) by delivering to the Company the number of shares of Common Stock
having an aggregate value on the date of exercise equal to the respective
Warrant Price multiplied by the number of shares of Warrant Stock for which this
Warrant is being exercised.
Upon surrender of the Warrants and payment of the
respective Warrant Price as aforesaid, and after the expiration of a 75 day
period commencing upon the date Consultant notifies the Company of its exercise
of the Warrant, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Warrant holder, and in
such name or names as the Warrant holder may designate, certificates for the
number of full shares of Warrant Stock so purchased upon such exercise of the
Warrant, together with cash, as provided in Section 9 hereof, in respect of any
fractional shares otherwise issuable upon such surrender. Such certificate or
certificates, to the extent permitted by law, shall be deemed to have been
issued and any person so designated to be named therein shall be defined to have
become a holder of record of such securities as of the date of surrender of the
Warrants and payment of the respective Warrant Price, as aforesaid,
notwithstanding that the certificate or certificates representing such
securities shall not actually have been delivered or that the stock transfer
books of the Company shall then be closed. The Warrants shall be exercisable, at
the election of the Warrant holder, either in full or from time to time in part
for Common Stock and, in the
<PAGE>
event that a Warrant is exercised in respect of less than all of the shares of
Warrant Stock specified therein at any time prior to the Termination Date, a new
Warrant evidencing the remaining shares of the Warrant Stock purchasable by such
Warrantholders hereunder shall be issued by the Company to such Warrantholders.
Section 4. Validity; Payment of Taxes. All securities delivered upon
exercise of a Warrant shall be duly and validly issued and non-assessable. The
Company shall pay all documentary stamp taxes, if any, attr butable to the
initial issuance of the Warrants and the shares of Warrant Stock issuable upon
the exercise of the Warrants; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants, the Warrant Stock.
Section 5. Mutilated or Missing Warrants. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warr nt holder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certi-
ficate or certificates, or in lieu of and substitution for the certificate or
certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and repre-
senting an equivalent right or interest, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction of
such Warrant. A written declaration executed and acknowledged by a Warrantholder
shall be deemed reasonably satisfactory evidence of such loss, theft or
destruction.
Section 6. Reservation of Shares. The Company represents and warrants
to the Warrant holder that there has been reserved, and the Company shall at all
times keep reserved so long as the Warrants remain outstanding, out of its
authorized Common Stock, such number of shares of Common Stock as shall be
subject to purchase under the Warrants. Every transfer agent for the Common
Stock and o her securities of the Company issuable upon the exercise of the
Warrants shall be irrevocably authorized and directed at all times to reserve
such number of authorized shares
<PAGE>
and other securities as shall be required for such purpose. The Company shall
keep a copy of this Agreement on file with every transfer agent for the Common
Stock and other securities of the Company issuable upon the exercise of the
Warrants. The Company shall supply every such transfer agent with duly executed
stock and other certificates, as appropriate, for such purpose and shall provide
or otherwise make available any cash which may be payable in lieu of the
issuance of fractional shares, as provided in Section 9 hereof.
Section 7. Warrant Price. The price per share at which
shares of Warrant Stock shall be purchasable upon the exercise of
the Warrants shall be as follows:
(A) $0.30 per share for 400,000 shares
(B) $0.60 per share for 400,000 shares
(C) $1.50 per share for 400,000 shares
(D) $1.80 per share for 400,000 shares
(E) $2.10 per share for 400,000 shares
The prices above are each subject to adjustment pursuant to Section 8
hereof (as so adjusted from time to time, the "Purchase Price" or AWarrant
Price@).
Section 8. Adjustment of Purchase Price and Number of
Shares of Common Stock Deliverable.
8.1 Adju tment of Purchase Price.
(a) Except as hereinafter provided, in the event
the Company shall, at any time or from time to time after the date hereof, sell
any shares of Common Stock, including shares held in the Company=s treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock and shares of Common Stock
issued upon the direct or indirect conversion or exchange of securities for a
consideration per share ess than the Market Price (as defined in Section 8.8)
then in effect, or issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater
<PAGE>
or lesser number of shares (any such sale, issuance, subdivision or combination
being herein called a "Change of Shares"), then, and thereafter upon each
further Change of Shares, the Purchase Price for the Warrants in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined by
dividing (A) the sum of (x) the total number of shares of Common Stock
outstanding immediately prior to such Change of Shares, multiplied by the
Purchase Price in effect immediately prior to such Change of Shares, and (y) the
consideration, if any, received by the Company upon such sale, issuance,
subdivision or combination by (B) the total number of shares of Common Stock
outstanding immediately after such Change of Shares; provided, however, that in
no event shall the Purchase Price be adjusted pursuant to this computation to an
amount in excess of the Purchase Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock.
For the purposes of any adjustment to be made in accordance
with this Section 8.1(a) the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of
Common Stock (or of other securities deemed hereunder to involve the issuance or
sale of shares of Common Stock) for a considera-
tion part or all of which shall be cash, the amount of the cash portion of the
consideration therefor deemed to have been received by the Company shall be (i)
th subscription price, if shares of Common Stock are offered by the Company for
subscrip-
tion, or (ii) the public offering price (before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith), if such securities are sold to
under-
writers or dealers for public offering without a subscription offering, or (iii)
the gross amount of cash actually received by the Company for such securities,
in any other case.
(ii) In case of the issuance or sale (otherwise
<PAGE>
than as a dividend or other distribution on any stock of the Company of shares
of Common Stock (or of other securities deemed hereunder to involve the issuance
or sale of shares of Common Stock) for a consideration part or all of which
shall be other than cash or as part of a unit, the amount of the consideration
therefor other than cash deemed to have been received by the Company or the
amount received per share as part of a unit shall be the value of such
consideration as determined in good faith by the Board of Directors of the
Company on the basis of a record of values of similar property, services or
securities. Such determination shall be subject to change in the event the
Warrantholder elects, at its own expense, to retain a qualified appraiser to set
the value of such consideration.
(iii) Shares of Common Stock issuable by way of
dividend or ot er distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of the
Company other than shares of Common Stock into securities including shares of
Common Stock shall be deemed to involve the issu nce of such shares of Common
Stock for a consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such shares
of Common Stock shall be determined as provided in Section 8.1(a)(ii) hereof.
(v) The number of shares of Common Stock at any
one time outstanding shall be deemed to include the aggregate maximum number of
shares issuable subject to readjustment upon the actual issuance thereof) upon
the exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
(b) Upon each adjustment of the Purchase Price
<PAGE>
pursuant to this Section 8, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock purchasable immediately prior to such
adjustment by the Purchase
rice in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Purchase Price.
8.2 Adjustments for Options, etc. In case the Company shall at
any time after the date hereof issue options, rights or warrants to subscribe
for shares of Common Stock, or issue any securities convertible into or
exchangeable for shares of Common Stock, for a consideration per share
(determined as provided in Section 8.1(a) hereof and as provided below) less t
an the Market Price (as defined in Section 8.8) in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration (including the issuance of any
such securities by way of dividend or other distribution), the Purchase Price in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of Section 8.1(a) hereof, provided that:
(a) The aggregate maximum number of shares of
Common Stock, as the case may be, issuable or that may become issuable under
such options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum p rchase price per share provided for
in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been exercised,
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (a) (and for the purposes of Section 8.1(a)(v)
hereof) shall be reduced by the number of shares as to which options, warrants
and/or rights shall have
<PAGE>
expired, and such number of shares shall no longer be deemed to be issued and
outstanding, and the Purchase Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon the exercise of those options, rights or warrants as to
which the exercise rights shall not have expired or terminated unexercised.
(b) The aggregate maximum number of shares of
Common Stock issuable or that may become issuable upon conversion or exchange of
any convertible or exchangeable securities (assum-
ing conversion or exchange in full even if not then currently convertible or
exchangeable in full) shall be deemed to be issued and outstanding at the time
of issuance of such securities, for a consideration equal to the consideration
received by the Company f r such securities, plus the minimum consideration, if
any, receivable by the Company upon the conversion or exchange thereof;
provided, however, that upon the termination of the right to convert or exchange
such convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (b) (and for the purposes of Section
8.1(a)(v) hereof) shall be reduced by the number of shares as to which the
conversion or exchange rights shall have expired or terminated unexercised, and
such number of shares shall no longer be deemed to be issued and outstanding,
and the Purchase Price then in effect shall forthwith be readjusted and
thereafter be the price that it would have been had adjustment been made on the
basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(c) If any change shall occur in the price per
share provided for in any of the options, rights or warrants referred to in
Section 8.2(a) hereof, or in the price per share or ratio at which the
securities referred to in Section 8.2(b) hereof are convertible or exchangeable,
such options, rights or
<PAGE>
warrants or conversion or exchange rights, as the case may be, to the extent not
theretofore exercised, shall be dee ed to have expired or terminated on the date
when such price change became effective in respect of shares not theretofore
issued pursuant to the exercise or conversion or exchange thereof, and the
Company shall be deemed to have issued upon such date new options, rights or
warrants or convertible or exchangeable securities.
(d) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or fr m par value to no par value, or from no par
value to par value or as a result of a subdivision or combination), or in case
of any consolidation or merger of the Company with or into another corporation
(other than a merger with a Subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants), or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Registered Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and shall forthwith file at the Corporate Office of the Warrant Agent
a statement signed by its Chairman of the Board, President or a Vice President
and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary evidencing such provision. Such provisions shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Sections 8.1 and 8.2 hereof. The above provisions of
this Section 8.2(d) shall similarly apply to
<PAGE>
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes
in the Warrant Price or the number of shares of Common Stock p rchasable upon
exercise of the Warrants, no changes shall be necessary to the face of the
Warrant Certificates theretofore and thereafter issued.
(f) After each adjustment of the Purchase Price
and the Warrant Exercise Price pursuant to this Section 8, the Company will
promptly prepare a certificate signed by the Chairman of the Board, President,
or a Vice President and by the Treasurer or the Secretary of the Company setting
forth: (i) the Purchase Price and Warrant Exercise Price, a so adjusted, (ii)
the number of shares of Common Stock purchasable upon exercise of each Warrant,
after such adjustment, and (iii) a brief statement of the facts accounting for
such adjustment. The Company will promptly file such certificate with the
Company's Transfer Agent and cause a brief summary thereof to be sent by
ordinary first class mail to each Registered Holder at his last address as it
shall appear on the registry books of the Warrant Agent or the Company. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(g) No adjustment of the Purchase Price shall be
made as result of or in connection with the issuance or sale of shares of Common
Stock if the amount of said adjustment shall be less than one cent ($.01);
provided, however, that in such case, any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment that shall amount, together
with any adjustment so carried forward, to at least one
<PAGE>
cent ($.01). In addition, Registered Holders shall not be entitled to cash
dividends paid by the Company prior to the exercise of any Warrant or Warrants
held by them.
8.3 Intentionally Left Blank.
8.4 Preservation of Purchase Rights upon Reclassifica-
tion, Consolidation, etc. In case of any consolidation of the Company with or
merger of the Company into another corporation or other entity or in case of any
sale, lease, conveyance or other transfer to another corporation, person or
other enti y of the property, assets or business of the Company as an entirety
or substantially as an entirety, the Company or such successor or purchasing
corporation, person or other entity, as the case may be, shall execute with the
Warrantholder, and the agreements governing such consolidation, merger, sale,
lease, conveyance or other transfer shall require such execution of, an
agreement that the Warrantholder shall have the right thereafter upon payment of
the Warrant Price in effect immediately prior to such event, upon exercise of
the Warrants, to receive the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, lease, conveyance or other
transfer had the Warrants (and each underlying security) been exercised
immediately prior to such action. The Company shall promptly mail to each
Warrantholder by first class mail, postage prepaid, notice of the execution of
any such agreement. In the event of a merger described in Section 368(a)(2)(E)
of the Internal Revenue Code of 1986, in which the Company is the surviving
corporation, the right to purchase shares of Warrant Stock under the Warrants
shall terminate on the date of such merger and thereupon the Warrants shall
become null and void, but only if the controlling corporation shall agree to
substitute for the Warrants its warrant which entitles the holder thereof to
purchase upon its exercise the kind and amount of shares and other securities
and property which it would have owned or been entitled to receive had the
Warrants been exercised immediately prior to such merger. Any such agreements
referred to in this Section 8.4 shall provide for adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments
<PAGE>
provided for in Section 8 hereof, and shall provide for terms and provisions at
least as favorable to the Warrantholder as those contained in this Agreement.
The provisions of this Section 8.4 shall similarly apply to successive
consolidations, mergers, sales, leases, conveyances or other transfers.
8.5 Par Value of Shares of Common Stock. Before taking any
action which would cause an adjustment effectively reducing the portion of the
Warrant Price allocable to each share of Warrant Stock below the then par value
per share, if any, of the Warrant Stock issuable upon exercise of the Warrants,
the Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in rder that the Company may validly and legally issue
fully paid and nonassessable Warrant Stock upon exercise of the Warrants.
8.6 Independent Public Accountants. The Company may retain
Coopers & Lybrand L.L.P. (or such other accounting firm qualified to practice in
front of the Securities and Exchange Commission (the "Commission") as is
reasonably acceptable to the Consultant) to make any computation required under
this Section 8, and a certificate signed by such firm shall be onclusive
evidence of the correctness of any computation made under this Section 8.
8.7 Redemption of Warrants. Notwithstanding anything to the
contrary contained in this Agreement or elsewhere, the Warrants cannot be
redeemed by the Company under any circumstances.
8.8 Market Price. For purposes of this Agreement, the term
ACurrent Market Price@ shall mean (i) if the Common Stock is traded on the
Nasdaq National Market (ANNM ) or on a national securities exchange, the per
share closing price of the Common Stock in the NNM or on the principal stock
exchange on which it is listed, as the case may be, on the date of exercise of
the Warrant or, with respect to any adjustment pursuant to Section 8.1 or 8.2
hereof, on the date immediately preceding the announcement of the event causing
such adjustment or (ii) if the Common Stock is traded in the over-the-counter
market and not in
<PAGE>
the NNM or on any national securities exchange, the average of the per share
closing bid prices of the Common Stock on the thirty (30) consecutive trading
days immediately preceding the date in question, as reported by The Nasdaq Small
Cap Market (or an equivalent generally accepted reporting service if quotations
are not reported on the Nasdaq Small Cap Market). The closing price referred to
in clause (i) above shall be the last reported sale price or, in the case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices, in either case in the NNM or on the principal stock
exchange on which the Common Stock is then listed. For purposes of clause (ii)
above, if trading in the Common Stock is not reported by The Nasdaq Small Cap
Market, the bid price referred to in said clause shall be the lowest bid price
as reported in the Nasdaq Electronic Bulletin Board or, if not reported thereon,
as reported in the Apink sheets@ published by National Quotation Bureau,
Incorporated, and, if such Common Stock is not so reported, shall be the price
of a share of Common Stock determined by the Company=s Board of Directors in
good faith.
Section 9. Fractional Shares; Current Market Price. The Company shall
not be required to issue fractional shares of Common Stock on the exercise of a
Warrant. If any fraction of a share of Common Stock would, except for the
provisions of this Section 9, be issuable upon the exercise of a Warrant (or
specified portion thereof), the Company shall in lieu thereof pay an amount in
cash equal to the then Current Market Price multiplied by such fraction. For
purposes of this Agreement, the term "Current Market Price" shall mean (i) if
the Common Stock is traded on the Nasdaq National Market ("NNM") or on a
national securities exchange, the per share closing price of the Common Stock in
the NNM or on the principal stock exchange on which it is listed, as the case
may be, on the date of exercise of the Warrant or, with respect to any
adjustment pursuant to Section 8.1 hereof, on the date immediately preceding the
announcement of the event causing such adjustment or (ii) if the Common Stock is
traded in the over-the-counter market and not in the NNM or on any national
securities exchange, the average of the per share closing bid prices of the
Common Stock on the thirty (30) conse-
cutive trading days immediately preceding the date in question,
<PAGE>
as reported by The Nasdaq Small Cap Market (or an equivalent generally accepted
reporting service if quotations are not reported on The Nasdaq Small Cap
Market). The closing price referred to in clause (i) above shall be the last
reported sale price or, in the case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices, in either case in
the NNM or on the principal stock exchange on which the Common Stock is then
listed. For purposes of clause (ii) above, if trading in the Common Stock is not
reported by The Nasdaq Small Cap Market, the bid price referred to in said
clause shall be the lowest bid price as reported in the Nasdaq Electronic
Bulletin Board or, if not reported thereon, as reported in the "pink sheets"
published by National Quotation Bureau, Incorporated, and, if such Common Stock
is not so reported, shall be the price of a share of Common Stock determined by
the Company's Board of Directors in good faith.
Section 10. No Rights as Stockholder; Notices to Warrantholder. Except
as expressly provided herein, nothing contained in this Agreement or in the
Warrants shall be c nstrued as conferring upon the Warrantholder or its
transferees any rights as a shareholder of the Company, including the right to
vote, receive dividends, consent or receive notices as a share-
holder in respect of any meeting of shareholders for the election of directors
of the Company or any other matter. If, however, at any time prior to the
expiration of the Warrants and prior to their exercise, any one or more of the
following events shall occur:
(a) any action which would req ire an adjustment
pursuant to Section 8 hereof;
(b) an issuance by the Company of rights,
options, warrants or convertible securities to all or substantially all holders
of its Common Stock, without any charge to such holders, containing the right to
subscribe for or purchase Common Stock; or
(c) a dissolution, liquidation or winding up of
the Company (other than in connection with a consolidation,
<PAGE>
merger or sale of its property, assets and business as an
entiret or substantially as an entirety) shall be proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 13 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to any relevant dividend,
distribution or other rights or for the determination of stockholders entitled
to vote on such proposed dissolution, liquidation or winding up. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be.
Section 11. Registration Rights; Obligations in
Registration.
11.1 Intentionally Left Blank.
11.2 Registration of Securities. The Company shall be
obligated to prepare and file a registration statement, and amendments thereto,
with the Commission for the registration of the Securities under the Act and
shall be obligated to cause such registrat on statement, and amendments thereto,
to be declared effective by the Commission on or prior to May 1, 1997. The
Company shall be obligated to the registered holders of the Securities to
continually maintain, at the Company's own expense, the currency and
effectiveness of such registration statement of the Company, including the
filing of any and all applications and other notifications, filings and
post-effective amendments and supplements (collectively, the "Current
Registration Statement"), as may be necessary, so as to permit the resale of the
Securities until the earlier of the time that all shares of Securities have been
sold pursuant to the Current Registration Statement or the Termination Date.
11.3 Further Rights of Warrant Holders. If at any time after
the date hereof the Current Registration Statement is no longer in effect other
than because all Securities have been sold pursuant to the Current Registration
Statement or because the Termination Date has already occurr d, the Company
shall be
<PAGE>
obligated to the registered holders of the Securities as follows:
(a) Whenever during the period beginning on May
1, 1997 and ending on December 20, 2002, the Company proposes to file with the
Commission a registration statement (other than as to securities issued pursuant
to an employee benefit plan or as to a transaction subject to Rule 145
promulgated under the Act), it shall, at least thirty (30) days prior to each
such filing, give written notice of such p oposed filing to each holder of the
Securities at their respective addresses as they appear on the records of the
Company, and shall offer to include and shall include in such filing any
proposed disposition of the Securities upon receipt by the Company, not more
than twenty (20) days following the receipt of such notice, of a request
therefor setting forth the facts with respect to such proposed disposition and
all other information with respect to such person reasonably necessary to be
included in such Registration Statement. In the event that such registration
statement relates to an underwritten offering on a "firm commitment" basis and
the managing underwriter for said offering advises the Company in writing that
the inclusion of such Securities in the offering would be materially and
substantially detrimental to the completion of the offering, such Securities
shall nevertheless be included in the Registration Statement, provided that the
Warrantholder and each holder of Securities desiring to have such Securities
included in the Registration Statement agrees in writing for a period of ninety
(90) days following such offering not to sell or otherwise dispose of such
Securities pursuant to such Registration Statement, which Registration Statement
the Company shall keep effective for a period of at least nine (9) months
following the expiration of such ninety (90) day period.
(b) In addition to any Registration Statement
pursuant to subparagraph (I) above, during the four-year perio beginning on
January 1, 1997 and ending on the Termination Date, the Company will, as
promptly as practicable (but in any event within sixty (60) days), after written
request (the "Request") by the Consultant, or by a person or persons holding (or
having the right to acquire by virtue of holding the Warrants) at least sixty
percent (60%) of the shares of Warrant Stock which have
<PAGE>
been (or may be) issued upon exercise of the Warrants underlying the Warrants,
prepare and file at the Company's expense a Registration Statement with the
Commission and such applications or other filings as required under applicable
state securities or blue sky laws sufficient to permit the public offering of
the Securities, and shall use its reasonable best efforts at its own expense
through its officers, directors, auditors and counsel, in all matters necessary
or advisable, to cause such Registration Statement to become effective as
promptly as practicable and to maintain such effectiveness so as to permit
resale of the Securities covered by the Request until the earlier of the time
that all such Securities have been sold or the expiration of one year from the
effective date of the Registration Statement. Notwithstanding the foregoing,
once and only once during the period the Company would have an obligation to
register the Securities pursuant to this Section 11.3(b), the Company shall not
be obligated to effect a registration pursuant to this Section 11.3(b) during
the three (3) month period starting with the date thirty (30) days prior to the
Company's estimated date of filing of an underwritten public offering of
securities solely for the account of the Company; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and that the Company's estimate of
the date of filing such registration statement is made in good faith; provided
further, that the Company shall furnish to the Warrant holder and each holder of
Securities a certificate signed by the managing underwriter stating that it
would be seriously detrimental to the Company or its shareholders for the
registration statement to be filed in the near future.
(c) All fees, disbursements and out-of-pocket
expenses (other than the Warrant holder's brokerage fees and commissions and
legal fees of counsel to the Warrant holder, if any) in connection with the
filing of any Registration Statement or maintaining the currency and
effectiveness of the Current Registration Statement ( r obtaining the opinion of
counsel and any no-action position of the commission with respect to sales under
Rule 144) and in complying with applicable federal securities and state
securities and blue sky laws shall be borne
<PAGE>
by the Company. The Company at its expense shall supply any holder of the
Securities with copies of such Registration Statement and the prospectus
included therein and other related documents and any opinions and no-action
letters in such quan-
tities as may be reasonably requested by such holder of the
Securities.
(d) The Company shall not be required by this
Section 11 to file such Registration Statement if, in the opinion of counsel for
the Consultant, which counsel shall be reasonably satisfactory to the Company,
or in the opinion of another counsel experienced in securities law matters
acceptable to counsel for such holders, the proposed public offering or other
transfer as to which such Registration Statement is requested is exempt from
applicable federal secu ities and state securities and blue sky laws and would
result in all purchasers or transferees obtaining securities which are not
"restricted securities," as defined in Rule 144 under the Act.
(e) The provisions of this Section 11 and of
Section 12 hereof shall apply to the extent provided herein if the Company
chooses to file an offering statement under Regulation A promulgated under the
Act.
(f) Notwithstanding the other provisions of this
Section 11, the Compa y may, in full satisfaction of its obligations under this
Section 11, register the Securities with the Commission pursuant to the Act on
any form then available to it so as to allow the unrestricted sale of the
Securities to the public from time to time commencing at 9:00 a.m. Pacific time
on May 1, 1997 and ending at 5:00 p.m. Pacific time on the Termination Date (the
"Registration Period"). If the Company elects to so satisfy its obligations
under this Section 11, the Company shall also file such applications and other
documents necessary to permit the sale of the Securities to the public during
the Registration Period in all states. In order to comply with the provisions of
this Section 11.3(f), the Company may, but is not required to, file more than
one Registration Statement. The Company shall file such post-effective
amendments and supplements as may be necessary to maintain the currency of such
<PAGE>
Registration Statement(s) during the period of its (their) use. In addition, if
the holders of the Securities participating in such registration are advised by
counsel that such Registration Statement, in their opinion, is deficient in any
material respect, the Company shall use its best efforts to cause such
Registration Statement to be amended to eliminate the concerns raised.
(g) The Company agrees that until all the
Securities have been sold under a Registration Statement or pursuant to Rule 144
under the Act, it shall keep current in filing all materials required to be
filed with th Commission in order to permit the holders of such securities to
sell the same under Rule 144.
(h) In the event any holder of Securities timely
elects to participate in an offering by including Securities in a Registration
Statement pursuant to Section 11.3 hereof, the Company shall use its reasonable
best efforts to effect such registration to permit the sale of Securities in
accordance with the intended method or methods of disposition thereof, and pur-
suant thereto, the Company sh ll, as expeditiously as possible:
(i) Prepare and file with the Commission a
Registration Statement or Registration Statements on a form available for the
sale of the Securities, and to cause any such Registration Statement filed under
the Act pursuant to Section 11.3 hereof to become effective at the earliest
possible date after the filing thereof and remain effective as provided herein
and to comply with all applicable rules and regulations of the Commission (the
"Rules and Regulati ns") in connection therewith, provided, however, that before
filing a Registration Statement or prospectus or any amendments or supplements
thereto, including documents which would be incorporated or deemed to be
incorporated by reference in the Registration Statement after the initial filing
of any Registration Statement, the Company will furnish to the Consultant and
the holders of the Securities, their respective counsel, and the underwriters,
if any, to be engaged in connection with the offering and sale by the Company
(for purposes of this Section 11.3(f), the "Public Underwriter"),
<PAGE>
copies of all such documents proposed to be filed, which docu-
ments will be subject to the review of the Consultant and such holders of the
Securities, their respective counsel and the Public Underwriter, if any, and the
Company will not file any Registration Statement, amendment thereto, any
prospectus or any supplement thereto (including such documents incorporated or
deemed to be incorporated by reference) to which the Consultant or the Public
Underwriter, if any, shall reasonably object;
(ii) Prepare and promptly file with the Com-
mission such amendments and post-effective amendments to a Registration
Statement as may be necessary to keep such Registration Statement continuously
effective for a period of twelve (12) months; cause the related prospectus to be
supplemented, by any required prospectus supplement, and as so supplemented, to
be filed pursuant to Rule 424 under the Act; and comply with th provisions of
the Act with respect to the disposition of all Securities covered by such
Registration Statement during the applicable period in accordance with the
intended methods of disposition as set forth in such Registration Statement or
supplement to such prospectus; the Company shall not be deemed to have used its
reasonable best efforts to keep a Registration Statement effective during the
applicable period if it intentionally or voluntarily takes any action that would
result in the Consultant or such Warrantholders not being able to sell their
Securities;
(iii) As soon as the Company is advised or
obtains knowledge thereof, advise the Consultant and confirm the same in writing
(1) when the Registration Statement, as amended, becomes effective and when any
post-effective amendment to the Registration Statement becomes effective, (2) of
the issuance by the Commission or any State or other regulatory body of any stop
order or other order, or of the initiation or the threat or contemplat on of any
proceeding, the outcome of which may result in the suspension of the
effectiveness of the Registration Statement or the issuance of any order
preventing or suspending the use of any preliminary prospectus or the
prospectus, or any amendment or supplement thereto, or the institution of any
<PAGE>
proceedings for that purpose, (3) of the issuance by the Commission or any State
or other regulatory body of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation or the threat or contemplation of any proceeding for that
purpose, (4) of the receipt of any comments from the Commission and (5) of any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the prospectus related thereto or for additional
information; if the commission or any State or other regulatory body shall enter
a stop order or other order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of any preliminary prospectus or
the prospectus, or any amendment or supplement thereto, or suspend such
qualification at any time, make every effort to obtain promptly the lifting of
such order or suspension;
(iv) If requested by the Public Underwriter,
if any, or the Consultant, or any holder of Securities (1) immediately
incorporate in a prospectus supplement or post-effective amendment such
information as the Consultant or such Warrant holder and the Public Underwriter,
if any, agree should be included therein relating to such sale and distribution
of the Securities, including, without limitation, information with respect to
the number of Securities being sold to such Public Underwriter, the purchase
price being paid therefor by such Public Underwriter and with respect to any
other terms of the underwritten offering of the Securities to be sold in such
offering; (2) make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be so
incorporated in such prospectus supplement or post-effective amendment; and (3)
supplement or amend any Registration Statement if requested by the Consultant,
the holders of Securities or any underwriter of Securities;
(v) Furnish to the Consultant, each of the
holders of Securities and their respective counsel, without charge and at such
place as the Consultant may designate, copies of each preliminary prospectus,
the Regist ation Statement and any pre-effective or post-effective amendments
thereto (two of
<PAGE>
which will be signed and will include all financial statements and exhibits, one
for the Consultant and one for the Consultant=s Counsel), the Prospectus, and
all amendments and supplements thereto, including any prospectus prepared after
the effective date of the Registration Statement and any term sheet, in each
case as soon as available and in such quantities as the Consultant and each
holder of the Securities may request;
(vi) During the time when a prospectus is
required to be delivered under the Act, it shall comply with all requirements
imposed upon it by the Act and the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the prospectus, or
any amendments or supplements thereto; if at any
ime when a prospectus relating to the Securities is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of the Company or counsel for the Company or the Consultant or counsel
for the Consultant , the prospectus, as then amended or supplemented, would
include an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances in which they were made, not misleading, or if
it is necessary at any time to amend or supplement the Prospectus to comply with
the Act, notify the underwriter and prepare and file, at the Company's expense,
with the Commission an appropriate amendment or supplement to the Registration
Statement or an amendment or supplement to the prospectus which will correct
such statement or omission, or effect such compliance, each such amendment or
supplement to be reasonably satisfactory to the Consultant and the counsel for
the Consultant; and furnish to the Consultant copies of such amendment or
supplement as soon as available and in such quantities as the Consultant may
request;
(vii) As soon as practicable, but in any
event not later than forty-five (45) days after the end of the twelve (12) month
period beginning after the effective date of the Registration Statement, make
generally available to its
<PAGE>
security holders, in the manner specified in Rule 158(b) promulgated under the
Act, and to the Consultant, n earnings statement which will comply with the
provisions of Section 11(a) of the Act and Rule 158(a) promulgated under the
Act;
(viii) Deliver to the Consultant and each
of the holders of Securities, their respective counsel and the Public
Underwriter, if any, without charge, as many copies of the prospectus or
prospectuses (including each preliminary prospec-
tus) and any amendment or supplement thereto as such persons may reasonably
request; the Company consents to the use of any such prospectus or any amendment
or supplement thereto by the Consultant, the holders of Securities and the
Public Underwriter, if any, in connection with the offering and sale of the
Securities covered by such prospectus or any amendment or supplement thereto;
(ix) Prior to any public offering of
Securities, use its best efforts, at or prior to the time the Registration
Statement becomes effective, to qualify the Securities for offering and sale
under the securities or "blue sky" law of such jurisdictions as the Consultant
may reasonably designate to permit the continuance of sales and dealings therein
for as long as may be necessary to complete the distribution, and make such
applications, file such documents and furnish such information as may be
required for such purpose; provided, however, the Company shall not be required
to qualify as a foreign corporation or to execute a general consent to service
of process in any such jurisdiction; in each jurisdiction where such
qualification shall be effected, use its best efforts to file and make such
statements or reports at such times as are or may be required by the laws of
such jurisdiction to continue such qualification;
(x) Cooperate with the Consultant, the
holders of the Securities and the Public Underwriter, if any, to facilitate the
timely preparation and delivery of certificates representing Securities to be
sold, which certificates shall not
<PAGE>
bear any restrictive legends; and enable such Securities to e in such
denominations and registered in such names as the Public Underwriter, if any,
may request at least two (2) business days prior to any sale of such Securities;
(xi) Use its reasonable best efforts to
cause the Securities covered by the Registration Statement to be registered with
or approved by such other governmental bodies, agencies or authorities as may be
necessary to enable the Consultant, the holders of the Securities or the Public
Underwriter, if any, to consummat the disposition of such Securities;
(xii) Make every reasonable effort to cause
all Securities covered by such Registration Statement to be (1) listed on each
securities exchange, if any, in which equity securities issued by the Company
are then listed or (2) quoted on the NNM if the Company's Common Stock is then
authorized to be quoted on the NNM or, if not authorized to be quoted on the
NNM, quoted on The Nasdaq Small Cap Market if the Company=s Common Stock is then
authorized to be quote on The Nasdaq Small Cap Market;
(xiii) Enter into such agreements
(including, without limitation, if applicable, an underwriting agreement, in
form, scope and substance as is customary in underwritten offerings) and take
all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Securities and, in such connection, whether
or not an underwriting agreement is entered into and whether or not the
registration is an underwritten registration, (1) mak such representations and
warranties to the Consultant and the holders of the Securities with respect to
the business of the Company and its subsidiaries and the Public Underwriter, if
any, the Registration Statement, the prospectus, the prospectus supplement (if
any) and documents, if any, incorporated or deemed to be incorporated by
reference in the Registration Statement, in each case in such form, substance
and scope as are customarily made by issuers to underwriters in underwritten
offerings and confirm the same if and when requested; (2) obtain opinions of
<PAGE>
counsel to the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the Consultant and the
holders of the Securities), addressed to the Consultant and the holders of the
Securities with respect to the matters referred to in the preceding clause in
such form, scope and substance as are customarily rendered to underwriters in
underwritten offerings and such other matters as may be reasonably requested by
counsel to the Consultant, the holders of the Securities or the Public
Underwriter, if any; (3) obtain "cold comfort" letters and updates thereof from
the independent certified public accountants of the Company (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement) addressed to the Consultant, the holders of the
Securities and each of the Public Underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters to underwriters in connection with underwritten offerings; (4)
if an underwriting agreement is entered into, the same shall set forth in full
the indemnification and contribution provisions and procedures of Section 12
hereof (or such other provisions and procedures as shall be acceptable to the
Consultant, the holders of the Securities and to the Public Underwriter of such
underwritten offering) with respect to all parties to be indemnified pursuant to
said section; and (5) deliver such documents and certificates as may be
reasonably requested by the Consultant , the holders of the Securities and the
Public Underwriter, if any, to evidence the continued validity of the
representations and warranties made pursuant to clause (1) above and to evidence
compliance with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; the above shall be done at each
closing under such underwriting or similar agreement or as and to the extent
required thereunder;
(xiv) Make available for inspection by a
representative of the Consultant or the holders of the Securities
or any Public Underwriter participating in any disposition
<PAGE>
pursuant to such Registration Statement, and any attorney or accountant retained
by the Consultant or the holders of the Securitie or such Public Underwriter,
all financial and other records, pertinent corporate documents and properties
and assets of the Company and its subsidiaries and cause the officers,
directors, agents and employees of the Company and its subsidiaries to supply
all information reasonably requested by any such Consultant, Public Underwriter,
attorney or accountant in connection with any registration of the Securities;
provided, however, that any records, information or documents that are
designated by, the Company in writing at the time of delivery of such records,
information or documents as confidential shall be kept confidential by such
persons unless (1) disclosure of such records, information or documents is
required by court or administrative order or is necessary to respond to
inquiries of governmental or regulatory bodies, agencies or authorities, (2)
disclosure of such records, information or documents is, in the opinion of
counsel to the Consultant or the holders of the Securities or to any Public
Underwriter, required by law, regulations or legal process, (3) such records,
information or documents are otherwise publicly available or (4) such records,
information or documents become available to such person from a source other
than the Company, and such source is not bound by a confidentiality agreement;
(xv) If the Company, in the exercise of its
reasonable judgment, objects to any change reasonably requested by the
Consultant, the holders of the Securities or the Public Underwrite , if any, to
any Registration Statement or prospectus or any amendments or supplements
thereto (including documents incorporated or deemed to be incorporated therein
by reference) as provided for in this Section 11.3(h), the Company shall not be
obligated to make any such change and the Consultant or the holders of the
Securities may withdraw Securities from such registration, in which event the
Company shall pay all registration expenses (including, without limitations,
attorneys' fees and expenses) incurred by the Consultant and the holders of the
Securities in connection with such Registration Statement or prospectus or any
amendment thereto or supplement thereof; provided, that if the Company provides
the Consultant and the
<PAGE>
holders of the Securities, as applicable, with a written opinion of independent
counsel (which counsel may be the Company's regular outside counsel), upon which
the Consultant and such holders of the Securities may rely, that the change so
requested is not required in order that the Registration Statement comply with
all applicable securities laws (including any rules and regulations promulgated
thereunder), the Consultant and such holders of the Securities may withdraw
Securities from such registration but the Company shall not be obligated to pay
any registration expenses incurred by the Consultant and the holders of the
Securities; and
(xvi) Pay all costs and expenses incident to
the performance of or compliance with the Company's obligations under Section
11.2 hereof nd under this Section 11.3 (collectively, "Registration Expenses")
whether or not any Registration Statement is filed or becomes effective,
including, without limitation, the fees and disbursements of the Company's
auditors, legal counsel, special legal counsel, legal counsel responsible for
qualifying the Securities under blue sky laws, all filing fees and printing
expenses, all expenses in connection with the transfer and delivery of the
Securities, and all expenses in connection with the qualification of the
Securities under applicable blue sky laws; provided, however, that the Company
shall not bear the Public Underwriter's discount or commission with respect to,
or any transfer taxes imposed on, the Securities or the fees and expenses of
counsel to the Consultant or the holders of the Securities; provided, further,
however, that the Consultant shall not be responsible in any way for any fees or
expenses of the Company's counsel, except, in each case, as provided in this
Section 11.3.
(xvii For purposes of this Section 11, a
holder of Securities shall include any holder of the Securities which have not
been offered to the public.
Section 12. Indemnification and Contribution.
12.1 Indemnification of Warrantholders. The Company
agrees to indemnify and hold harmless the Warrantholders and any
<PAGE>
Holder of Securities (for purposes of this Section 12, "Holder" shall include
such individuals and the officers, directors, partners, employees, agents and
counsel of a Warrant holder or a holder of Securities), and each person, if any,
who controls a Holder ("controlling person") within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, from and against any and all
losses, claims, damages, expenses (including, without limitation, reasonable
attorneys' fees and expenses) or liabilities and all actions, suits,
proceedings, injuries, arbitrations, investigations, litigation or governmental
or other proceedings (in this Section 12, collectively, "actions") in respect
thereof, whatsoever (including, without limitation, any and all expenses
whatsoever reasonably incurred in investigating preparing or defending against
any action, commenced or threatened, or any claim whatsoever), as such are
incurred, to which a Holder or such controlling person may become subject under
the Act, the Exchange Act or any other statute or at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained (i) in any preliminary prospectus, the Current
Registration Statement, the Registration Statement or any prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Warrants; or
(iii) in any application or other document or written communication (in this
Section 12, collectively, "application") executed by the Company or based upon
written information furnished by the Company in any jurisdiction in order to
qualify the Securities under the securities or blue sky laws thereof or filed
with the Commission, any state securities commission or agency, the National
Association of Securities Dealers, Inc. (the "NASD") or the NNM or any other
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in the case of any prospectus, in light of the circumstances in
which they were made), unless such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company with
respect to a Holder by or on behalf of such Holder
<PAGE>
expressly for use in any preliminary prospectus, the Current Registration
Statement, the Registration Statement or any prospectus, or any amendment
thereof or supplement thereto, or in any application, as the case may be. In
addition to its other obligations under this Section 12.1, the Company agrees
that, as an interim measure during the pendency of any action arising out of or
based upon any untrue statement or omission, or alleged untrue statement or
alleged omission as described in this Section 12.1, it shall reimburse the
Holders (and, to the extent applicable, each controlling person) on a monthly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such action notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligations to reimburse the Holders (and, to the extent applicable, each
controlling person) for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement is so held to have been
improper as to the Company, the Holders (and, to the extent applicable, each
controlling person) shall promptly return it to the Company, together with
interest compounded daily, based on the "reference rate" announced from time to
time by Bank of America NTSA (the "Prime Rate"). Any such interim reimbursement
payments which are not made to the applicable Holder within thirty (30) days of
a request for reimbursement shall bear interest at the Prime Rate from the date
of such request.
The indemnity agreement in this subsection 12.1
shall be in addition to any liability which the Company may have
at common law o otherwise.
12.2 Intentionally Left Blank.
12.3 Notice of Claim. Promptly after receipt by an indemnified
party under this Section 12 of notice of the commencement of any action, such
indemnified party shall notify each party against whom indemnification is to be
sought in writing of the commencement thereof (but the failure to so notify an
indemnifying party shall not relieve it from any liability
<PAGE>
which it may have under this Section 12 except to t e extent that such
indemnifying party has been materially prejudiced by such failure). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties shall be entitled to participate therein, and to the extent it
or they may elect by written notice delivered to the indemnified party or
parties promptly after receiving the aforesaid notice from such indemnified
party or parties, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, an
indemnified party shall have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party or parties in connection with
the defense of such action at the expense of the indemnifying party or parties,
(ii) the indemnifying party or parties shall not have employed counsel
reasonably satisfactory to such indemnified party to have charge of the defense
of such action within a reasonable time after notice of commencement of the
action or (iii) such indemnified party shall have reasonably concluded that
there may be one or more defenses available to it which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses of one additional counsel (in addition to
appropriate local counsel) shall be borne by the indemnifying parties. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to appropriate local counsel) separate from their
own counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. Anything in this Section 12 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent may not be unreasonably withheld.
<PAGE>
12.4 Contribution. In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes a claim for
indemnification pursuant to this Section 12, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 12 provide for indemnification in
such case or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of each of the contributing parties, on the one hand, and the
party to be indemnified, on the other hand, in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or liabilities
(or actions in respect thereof), as well as any other relevant equitable
considerations. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages, expenses or liabilities (or actions in
respect thereof) referred to in the first sentence of this Section 12.4 shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 12.4, in a registration
statement that includes a Holder's Securities pursuant to Sections 11.2 or 11.3
hereof, no Holder shall be required to contribute any amount in excess of the
net proceeds (before deducting expenses) applicable to the Securities sold by
such Holder pursuant to such registration statement and prospectus. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act
<PAGE>
and the cases and promulgations thereunder) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action against such party in respect to which a claim for
contribution may be made against another party or parties under this Section
12.4, notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this Section 12.4 except to the extent it
has been materially prejudiced by such failure. The contribution agreement set
forth above shall be in addition to any liabilities which any indemnifying party
may have at common law or otherwise.
Section 13. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed, delivered by hand or transmitted by
any standard form of telecommunication. Notices to the Warrantholders or a
holder of Securities shall be directed to:
X90701
Attention: Dr. Alan V. Phan.
<PAGE>
Section 14. Parties. This Agreement shall inure solely to the benefit
of and shall be binding upon, the Consultant, the Company and the Warrantholders
and the holders of Securities and the controlling persons, officers, directors
and others referred to in Section 12 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, re edy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained.
Section 15. Merger or Consolidation of the Company. The Company shall
not merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of Section 8.4 hereof are complied with.
Section 16. Survival of Representations and Warranties. All statements
contained in this Agreement, ny schedule, exhibit, certificate or other
instrument delivered by or on behalf of the parties hereto, or in connection
with the transactions contemplated by this Agreement, shall be deemed to be
representations and warranties hereunder. Notwithstanding any investigations
made by or on behalf of the parties to this Agreement, all representations,
warranties and agreements made by the parties to this Agreement or pursuant
hereto shall survive the termination of this Agreement and the issuance, sale
and delivery of the Warrant and the Securities.
Section 17. Construction. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the
State of California, without giving effect to conflict of laws
principles thereof.
Section 18. Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to
be an original, and all of which taken together shall be deemed
to be one and the same instrument.
Section 19. Entire Agreement, Amendments. This Agreement
<PAGE>
constitutes the entire agreement of the parties hereto concerning the subject
matter hereof and supersede all prior written or oral agreements, understandings
and negotiations with respect to the subject matter hereof. This Agreement may
not be amended, modified or altered except in a writing signed by the Consultant
and the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, al as of the day and year first above written.
HARTCOURT COMPANIES, INC.
By: /S/ DR. ALAN V. PHAN
Dr. Alan V. Phan
President
AMERICAN EQUITIES LLC
By: /S/ REID BREITMAN
Reid Breitman
President
<PAGE>
WARRANT CERTIFICATE NO. 1
WARRANT TO PURCHASE 400,000
SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.
PACIFIC TIME, ON DECEMBER 20, 2002
HARTCOURT COMPANIES, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF UTAH
This certifies that, for value received, AMERICAN EQUITIES LLC, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from HARTCOURT COMPANIES, INC. (the "Company"), at any time and upon 75
days notice, during the period commencing at 9:00 am., Pacific time, on December
20, 1996, and before 5:00 p.m., Pacific time, on December 20, 2002, at the
purchase price per share of Common Stock of $0.30 (the "Purcha e Price"),
400,000 shares of Common Stock of the Company (the "Warrant Stock"). The number
of shares of Common Stock of the Company purchasable upon exercise of each
Warrant or exercise price of such shares and Redeemable Warrants evidenced
hereby shall be subject to adjustment from time to time as set forth in the
Consultant=s Warrant Agreement, dated as of December 20, 1996, by and between
the Company and the Consultant (the "Consultant=s Warrant Agreement").
The Warrants evidenced hereby are issued under and in accordance with
the Consultant=s Warrant Agreement and a Warrant Agreement dated December 20,
1996 between the Company and American Equities LLC, as warrant agent (the
"Redeemable Warrant Agreement"), and are subject to the terms and provisions
contained in the Consultant=s Warrant Agreement, to all of which the
Warrantholder by acceptance hereof consents.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate wit the Purchase Form attached hereto
duly executed (with a signature
Warrant Agreement
<PAGE>
guarantee as provided hereon) and, after expiration of a 75 day notice period,
payment of the respective Warrant Price at the principal office of the Company.
Payment of such price shall be made at the option of the Warrantholder in any
manner allowed in the Consultant=s Warrant Agreement.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificat in respect of
the shares of Warrant Stock as to which the Warrants evidenced hereby shall not
have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of shares of Warrant Stock as
evidenced by the Warrant or Warrants exchanged. No fractional securities shall
be issued upon the exercise of rights to purchase hereunder, but the Company
shall pay the cash value of any fraction upon the exercise of one or more
Warrants. These Warrants are transferable at the office of the Company in the
manner and subject to the limitations set forth in the Consultant=s Warrant
Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a shareholder of the Company.
HARTCOURT COMPANIES, INC.
By: /S/ DR. ALAN V. PHAN
Dr. Alan V. Phan
President
Dated: December 20, 1996
Warrant Agreement
<PAGE>
WARRANT CERTIFICATE NO. 2
WARRANT TO PURCHASE 400,000
SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.
PACIFIC TIME, ON DECEMBER 20, 2002
HARTCOURT COMPANIES, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF UTAH
This certifies that, for value received, AMERICAN EQUITIES LLC, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from HARTCOURT COMPANIES, INC. (the "Company"), at any time and upon 75
days notice, during the period commencing at 9:00 am., Pacific time, on December
20, 1996, and before 5:00 p.m., Pacif c time, on December 20, 2002, at the
purchase price per share of Common Stock of $0.60 (the "Purchase Price"),
400,000 shares of Common Stock of the Company (the "Warrant Stock"). The number
of shares of Common Stock of the Company purchasable upon exercise of each
Warrant or exercise price of such shares and Redeemable Warrants evidenced
hereby shall be subject to adjustment from time to time as set forth in the
Consultant=s Warrant Agreement, dated as of December 20, 1996, by and between
the Company and the Consultant (the "Consultant=s Warrant Agreement").
The Warrants evidenced hereby are issued under and in accordance with
the Consultant=s Warrant Agreement and a Warrant Agreement dated December 20,
1996 between the Company and American Equities LLC, as warrant agent (the
"Redeemable Warrant Agreement"), and are subject to the terms and provisions
contained in the Consultant=s Warrant Agreement, to all of which the
Warrantholder by acceptance hereof consents.
The Warrants e idenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature
Warrant Agreement
<PAGE>
guarantee as provided hereon) and, after expiration of a 75 day notice period,
payment of the respective Warrant Price at the principal office of the Company.
Payment of such price shall be made at the option of the Warrantholder in any
manner allowed in the Consultant=s Warrant Agreement.
Upon any partial exercise of the Warra ts evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the shares of Warrant Stock as to which the Warrants evidenced hereby shall
not have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of shares of Warrant Stock as
evidenced by the Warrant or Warrants exchanged. No fractional securities shall
be issued upon the exercise of rights to purchase hereunder, but the Company
shall pay the cash value of any fraction upon the exercise of one or more
Warrants. These Warrants are transferable at the office of the Company in the
manner and subject to the limitations set forth in the Consultant=s Warrant
Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a shareholder of the Company.
HARTCOURT COMPANIES, INC.
By: /S/ DR. ALAN V. PHAN
Dr. Alan V. Phan
President Dated: December 20, 1996
Warrant Agreement
<PAGE>
WARRANT CERTIFICATE NO. 3
WARRANT TO PURCHASE 400,000
SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.
PACIFIC TIME, ON DECEMBER 20, 2002
HARTCOURT COMPANIES, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF UTAH
This certifies that, for value received, AMERICAN EQUITIES LLC, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from HARTCOURT COMPANIES, INC. (the "Company"), at any time and upon 75
days notice, duri g the period commencing at 9:00 am., Pacific time, on December
20, 1996, and before 5:00 p.m., Pacific time, on December 20, 2002, at the
purchase price per share of Common Stock of $1.50 (the "Purchase Price"),
400,000 shares of Common Stock of the Company (the "Warrant Stock"). The number
of shares of Common Stock of the Company purchasable upon exercise of each
Warrant or exercise price of such shares and Redeemable Warrants evidenced
hereby shall be subject to adjustment from time to time as set forth in the
Consultant=s Warrant Agreement, dated as of December 20, 1996, by and between
the Company and the Consultant (the "Consultant=s Warrant Agreement").
The Warrants evidenced hereby are issued under and in accordance with
the Consultant=s Warrant Agreement and a Warrant Agreement dated December 20,
1996 between the Company and American Equities LLC, as warrant agent (the
"Redeemable Warrant Agreement"), and are subject to the terms and provisions
contained in the Consultant=s Warrant Agr ement, to all of which the
Warrantholder by acceptance hereof consents.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature
Warrant Agreement
<PAGE>
guarantee as provided hereon) and, after expiration of a 75 day notice period,
payment of the respective Warrant Price at the principal office of the Company.
Payment of such price shall be made at the option of the Warrantholder in any
manne allowed in the Consultant=s Warrant Agreement.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the shares of Warrant Stock as to which the Warrants evidenced hereby shall
not have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of shares of Wa rant Stock as
evidenced by the Warrant or Warrants exchanged. No fractional securities shall
be issued upon the exercise of rights to purchase hereunder, but the Company
shall pay the cash value of any fraction upon the exercise of one or more
Warrants. These Warrants are transferable at the office of the Company in the
manner and subject to the limitations set forth in the Consultant=s Warrant
Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a hareholder of the Company.
HARTCOURT COMPANIES, INC.
By: /S/ DR. ALAN V. PHAN
Dr. Alan V. Phan
President
Dated: December 20, 1996
Warrant Agreement
<PAGE>
WARRANT CERTIFICATE NO. 4
WARRANT TO PURCHASE 400,000
SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.
PACIFIC TIME, ON DECEMBER 20, 2002
HARTCOURT COMPANIES, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF UTAH
This certifies that, for value received, AMERICAN EQUITIES LLC, the
registered holder hereof or assigns (the "Warrantholder"), is entitled t
purchase from HARTCOURT COMPANIES, INC. (the "Company"), at any time and upon 75
days notice, during the period commencing at 9:00 am., Pacific time, on December
20, 1996, and before 5:00 p.m., Pacific time, on December 20, 2002, at the
purchase price per share of Common Stock of $1.80 (the "Purchase Price"),
400,000 shares of Common Stock of the Company (the "Warrant Stock"). The number
of shares of Common Stock of the Company purchasable upon exercise of each
Warrant or exercise price of such shares and Redeemable Warrants evidenced
hereby shall be subject to adjustment from time to time as set forth in the
Consultant=s Warrant Agreement, dated as of December 20, 1996, by and between
the Company and the Consultant (the "Consultant=s Warrant Agreement").
The Warrants evidenced hereby are issued under and in accordance with
the Consultant=s Warrant Agreement and a Warrant Agreement dated December 20,
1996 between the Company and American Equities LLC, as warrant agent (the
"Redeemable Warran Agreement"), and are subject to the terms and provisions
contained in the Consultant=s Warrant Agreement, to all of which the
Warrantholder by acceptance hereof consents.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature
Warrant Agreement
<PAGE>
guarantee as provided hereon) and, after expiration of a 75 day notice period,
payment of the respective Warrant Price at the principal office f the Company.
Payment of such price shall be made at the option of the Warrantholder in any
manner allowed in the Consultant=s Warrant Agreement.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the shares of Warrant Stock as to which the Warrants evidenced hereby shall
not have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Cer ificate properly endorsed for one or
more new Warrants of the same aggregate number of shares of Warrant Stock as
evidenced by the Warrant or Warrants exchanged. No fractional securities shall
be issued upon the exercise of rights to purchase hereunder, but the Company
shall pay the cash value of any fraction upon the exercise of one or more
Warrants. These Warrants are transferable at the office of the Company in the
manner and subject to the limitations set forth in the Consultant=s Warrant
Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a shareholder of the Company.
HARTCOURT COMPANIES, INC.
By: /S/ DR. ALAN V. PHAN
Dr. Alan V. Phan
President
Dated: December 20, 1996
Warrant Agreement
<PAGE>
WARRANT CERTIFICATE NO. 5
WARRANT TO PURCHASE 400,000
SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.
PACIFIC TIME, ON DECEMBER 20, 2002
HARTCOURT COMPANIES, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF UTAH
This certifies that, for value received AMERICAN EQUITIES LLC, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from HARTCOURT COMPANIES, INC. (the "Company"), at any time and upon 75
days notice, during the period commencing at 9:00 am., Pacific time, on December
20, 1996, and before 5:00 p.m., Pacific time, on December 20, 2002, at the
purchase price per share of Common Stock of $2.10 (the "Purchase Price"),
400,000 shares of Common Stock of the Company (the "Warrant Stock"). The number
of shares of Common Stock of the Company purchasable upon exercise of each
Warrant or exercise price of such shares and Redeemable Warrants evidenced
hereby shall be subject to adjustment from time to time as set forth in the
Consultant=s Warrant Agreement, dated as of December 20, 1996, by and between
the Company and the Consultant (the "Consultant=s Warrant Agreement").
The Warrants evidenced hereby are issued under and in accordance with
the Consultant=s Warrant Agreement and a Warrant Agreement dated Dece ber 20,
1996 between the Company and American Equities LLC, as warrant agent (the
"Redeemable Warrant Agreement"), and are subject to the terms and provisions
contained in the Consultant=s Warrant Agreement, to all of which the
Warrantholder by acceptance hereof consents.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature
Warrant Agreement
<PAGE>
guarantee as provided hereon) and, after e piration of a 75 day notice period,
payment of the respective Warrant Price at the principal office of the Company.
Payment of such price shall be made at the option of the Warrantholder in any
manner allowed in the Consultant=s Warrant Agreement.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the shares of Warrant Stock as to which the Warrants evidenced hereby shall
not have been exer ised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of shares of Warrant Stock as
evidenced by the Warrant or Warrants exchanged. No fractional securities shall
be issued upon the exercise of rights to purchase hereunder, but the Company
shall pay the cash value of any fraction upon the exercise of one or more
Warrants. These Warrants are transferable at the office of the Company in the
manner and subject to the limitations set forth in the Consultant=s Warrant
Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a shareholder of the Company.
HARTCOURT COMPANIES, INC.
By: /S/ DR. ALAN V. PHAN
Dr. Alan V. Phan
President
Dated: December 20, 1996
Warrant Agreement
<PAGE>
HARTCOURT COMPANIES, INC.
PURCHASE FORM
HARTCOURT COMPANIES, INC. (the "Company")
19104 S. Norwalk Blvd.
Artesia, California 90701
Attention: President
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, shares of common stock of the Company (the "Warrant Stock") provided
for therein, and requests that certificates for the W rrant Stock be issued in
the name of:
------------------------------------------
(Please print or Type Name, Address and Social Security Number)
------------------------------------------
------------------------------------------
and, if said number of shares of Warrant Stock shall not be all the Warrant
Stock purchasable hereunder, that a new Warrant Certificate for the balance of
the Warrant Stock purchasable under the within Warrant Certificate be registered
in the name of the undersigned Warrantholder or his Assignee as below indicated
and delivered to the address stated below.
Dated:_________________
Name of Warrantholder or Assignee:
- -------------------------
(Please Print)
Address: _________________________
-------------------------
Signature: _________________________
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Warrant Agreement
<PAGE>
Signature Guaranteed:_____________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange of the National Association of Securities Dealers, Inc.)
Warrant Agreement
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase shares of Warrant Stock represented by the within Warrant
Certificate unto, and requests that a c rtificate for such Warrant be issued in
the name of:
-------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-------------------------------------
-------------------------------------
hereby irrevocably constituting and appointing _______________ Attorney to
transfer said Warrants on the books of the Company, with full power of
substitution in the premises and, if said number of warrant Stock shall not be
all of the Securities purchasable under the within Warrant Certificate, that a
new Warrant Certificate for the balance of the Securities purchasable under the
within Warrant Certificate be registered in the name of the undersigned
Warrantholder and delivered to such Warrantholder's address as then set forth on
the Company's books.
Dated:_______________
____________________________
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
Signature Guaranteed:_____________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.
Warrant Agreement
<PAGE>
