U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to ___________.
Commission file number 0-27282
ATLANTIC TECHNOLOGY VENTURES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 36-3898269
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Broadway, Suite 1110, New York, New York 10038
(Address of principal executive offices)
(212) 267-2503
(Issuer's telephone number)
150 Broadway, Suite 1009, New York, New York 10038
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _____
-------
Number of shares of common stock outstanding as of September 30, 2000:
Transitional Small Business Disclosure Format (check one): Yes No X
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INDEX
Page
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PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the
three months ended September 30, 2000 and 1999,
the nine months ended September 30, 2000 and 1999,
and the period from July 13, 1993 (inception) to
September 30, 2000 4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 2000 and 1999,
and the period from July 13, 1993 (inception) to
September 30, 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
PART II-- OTHER INFORMATION
Item 1. Legal Matters 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES
EXHIBIT INDEX
-2-
PART I -- OTHER INFORMATION
Item 1. Financial Statements
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
Assets 2000 1999
-------------- -------------
Current assets:
Cash and cash equivalents $ 1,700,300 3,473,321
Accounts receivable 1,037,511 337,323
Prepaid expenses 37,599 17,414
------------- ----------
Total current assets 2,775,410 3,828,058
Property and equipment, net 218,172 131,832
Investment in affiliate 91,003 --
Other assets 2,901 --
------------- ----------
Total assets $ 3,087,486 3,959,890
============= ==========
Liabilities and Stockholders' Equity
Current liabilities - accounts payable and accrued expenses $ 1,061,784 542,759
------------- ---------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 10,000,000
shares; 1,375,000 shares designated as Series A
convertible preferred stock -- --
Series A convertible preferred stock, $.001 par value.
Authorized 1,375,000 shares; 368,958 and 610,088 shares
issued and outstanding at September 30, 2000 and
December 31, 1999, respectively (liquidation preference
aggregating $4,796,454 and $7,931,144 at September 30, 2000
and December 31, 1999, respectively) 369 610
Series B convertible preferred stock, $.001 par value.
Authorized 1,647,312 shares; 344,828 shares
outstanding at September 30, 2000 (liquidation preference
aggregating $1,000,000 at September 30, 2000) 345 --
Convertible preferred stock warrants, 112,896 and 117,195
issued and outstanding at September 30, 2000 and
December 31, 1999, respectively 520,263 540,074
Common stock, $.001 par value. Authorized 50,000,000
shares; 6,091,899 and 4,815,990 shares issued and outstanding
at September 30, 2000 and December 31, 1999, respectively 6,092 4,816
Common stock subscribed. 182 shares at September 30, 2000
and December 31, 1999 -- --
Additional paid-in capital 25,727,300 21,662,272
Deficit accumulated during development stage (24,228,125) (18,790,099)
------------- -----------
2,026,244 3,417,673
Less common stock subscriptions receivable (218) (218)
Less treasury stock, at cost (324) (324)
------------- -----------
Total stockholders' equity 2,025,702 3,417,131
------------- -----------
Total liabilities and stockholders' equity $ 3,087,486 3,959,890
============= ===========
See accompanying notes to consolidated financial statements.
-3-
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Cumulative
period from
July 13, 1993
(inception) to
Three months ended September 30, Nine months ended September 30, September 30,
-------------------------------------------------------------------
2000 1999 2000 1999 2000
----------- ------------ ------------- -------------- --------------
Revenues:
Development revenue $ 1,072,716 $ 247,163 $ 3,419,831 $ 247,163 $ 4,502,341
License revenue -- -- -- -- 2,500,000
Grant revenue -- 29,787 13,009 29,787 190,010
------------ ----------- ----------- ------------- -------------
Total revenues 1,072,716 276,950 3,432,840 276,950 7,192,351
------------ ----------- ----------- ------------- -------------
Costs and expenses:
Cost of development revenue 858,173 197,730 2,735,865 197,730 3,601,873
Research and development 360,454 179,594 682,807 1,105,072 9,057,372
Acquired in-process research
and development 263,359 -- 2,653,382 -- 2,653,382
General and administrative 554,181 354,099 2,840,464 1,062,887 16,508,892
License fees -- -- -- -- 173,500
------------ ----------- ----------- -------------- -------------
Total operating
expenses 2,036,167 731,423 8,912,518 2,365,689 31,995,019
------------ ----------- ----------- -------------- -------------
Operating loss (963,451) (454,473) (5,479,678) (2,088,739) (24,802,668)
Other (income) expense:
Interest and other income (22,940) (120,066) (97,267) (242,589) (1,255,733)
Interest expense -- -- -- -- 625,575
Equity in (earnings)/loss of
affiliate 31,915 -- 55,615 -- 55,615
------------ ----------- ----------- -------------- -------------
Total other (income)
expense 8,975 (120,066) (41,652) (242,589) (574,543)
------------ ----------- ------------ --------------- -------------
Net loss $ (972,426) $ (334,407) $(5,438,026) $ (1,846,150) $ (24,228,125)
============ =========== ============ =============== =============
Imputed convertible preferred
stock dividend -- -- -- -- 5,331,555
Preferred stock dividend issued in
preferred shares 152,195 -- 811,514 -- 1,125,880
------------ ----------- ------------ -------------- -------------
Net loss applicable to
common shares $ (1,124,621) (334,407) (6,249,540) (1,846,150) (30,685,560)
============ =========== ============ =============== =============
Per share -basic and diluted:
Net loss applicable to
common shares $ (0.19) (0.07) (1.14) (0.45)
============ =========== ============ ===============
Weighted average shares of common
stock outstanding 6,033,257 4,767,138 5,504,144 4,138,836
============ =========== ============ ==============
See accompanying notes to consolidated financial statements.
-4-
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Cumulative
period from
July 13, 1993
(inception) to
Nine months ended September 30, September 30,
---------------------------------
2000 1999 2000
-------------- ----------------- ---------------
Cash flows from operating activities:
Net loss $ (5,438,026) (1,846,150) (24,228,125)
Adjustments to reconcile net loss to
net cash used in operating activities:
Acquired in-process research and development 1,800,000 -- 1,800,000
Expense relating to issuance of warrants -- -- 298,202
Expense relating to the issuance of options -- -- 81,952
Expense related to Channel merger -- -- 657,900
Change in equity of affiliate 55,615 -- 55,615
Compensation expense relating to
stock options and warrants 1,073,511 -- 1,282,293
Discount on notes payable - bridge financing -- -- 300,000
Depreciation 51,529 90,825 481,939
Loss on disposal of furniture and equipment -- -- 73,387
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (700,188) 104,195 (1,037,511)
(Increase) decrease in prepaid expenses (20,185) 25,724 (37,599)
Increase (decrease) in accrued expenses 519,025 (466,174) 1,061,784
Increase (decrease) in accrued interest -- -- 172,305
(Increase) decrease in other assets (2,901) -- (2,901)
------------ ---------- -----------
Net cash used in operating activities (2,661,620) (2,091,580) (19,040,759)
------------ ---------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment (137,869) (49,295) (779,599)
Acquisition of investment (146,618) -- (146,618)
Proceeds from sale of furniture and equipment -- -- 6,100
------------ ---------- -----------
Net cash used in investing activities (284,487) (49,295) (920,117)
------------ ---------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants -- -- 5,500
Proceeds from exercise of stock options 344,597 8 397,097
Proceeds from issuance of demand notes payable -- -- 2,395,000
Repayment of demand notes payable -- -- (125,000)
Proceeds from the issuance of notes payable -
bridge financing -- -- 1,200,000
Proceeds from issuance of warrants -- -- 300,000
Repayment of notes payable - bridge financing -- -- (1,500,000)
Repurchase of common stock -- -- (324)
Preferred stock dividend paid -- (318) (318)
Proceeds from the issuance of common stock -- -- 7,547,548
Proceeds from issuance of convertible preferred stock 828,489 -- 11,441,673
------------ ---------- ------------
Net cash provided by (used in) financing
activities 1,173,086 (310) 21,661,176
------------ ---------- ------------
Net decrease in cash and cash equivalents (1,773,021) (2,141,185) (1,700,300)
Cash and cash equivalents at beginning of period 3,473,321 5,835,669 --
------------ ---------- ------------
Cash and cash equivalents at end of period $ 1,700,300 3,694,484 (1,700,300)
============ ========== ============
Supplemental disclosure of noncash financing activities:
Issuance of common stock in exchange for
common stock subscriptions $ -- -- 7,027
Conversion of demand notes payable and the related
accrued interest to common stock -- -- 2,442,304
Cashless exercise of preferred warrants 19,811 -- 49,880
Conversion of preferred to common stock 289 -- --
Preferred stock dividend issued in shares 811,514 -- 1,125,880
============ ========== ============
See accompanying notes to consolidated financial statements.
-5-
ATLANTIC TECHNOLOGY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in accordance with Generally Accepted Accounting Principles for interim
financial information. Accordingly, the statements do not include all
information and footnotes required by Generally Accepted Accounting Principles
for complete financial statements. In the opinion of management, the
accompanying financial statements reflect all adjustments, consisting of only
normal recurring adjustments, considered necessary for fair presentation.
Interim operating results are not necessarily indicative of results that may be
expected for the year ending December 31, 2000 or for any subsequent period.
These financial statements should be read in conjunction with Atlantic
Technology Ventures, Inc., and Subsidiaries' ("Atlantic") Annual Report on Form
10-KSB as of and for the year ended December 31, 1999.
(2) LIQUIDITY
Atlantic anticipates that their current resources, together with
proceeds from an agreement between Atlantic and Bausch & Lomb Surgical, will be
sufficient to finance their currently anticipated needs for operating and
capital expenditures for at least the next nine months. In addition, Atlantic
will attempt to generate additional capital through a combination of
collaborative agreements, strategic alliances, and equity and debt financing.
However, Atlantic can give no assurance that it will be able to obtain
additional capital through these sources or upon terms acceptable to them.
(3) COMPUTATION OF NET LOSS PER COMMON SHARE
Basic net loss per common share is calculated by dividing net loss
applicable to common shares by the weighted average number of common shares
outstanding for the period. Diluted net loss per common share is the same as
basic net loss per common share, as common equivalent shares from stock options,
stock warrants, stock subscriptions and convertible preferred stock would have
an antidilutive effect because Atlantic incurred a net loss during each period
presented.
(4) RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB No. 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements, including the recognition of non-refundable fees received
upon entering into arrangements. SAB No. 101, as amended, must be adopted no
later than the fourth quarter of fiscal years beginning after December 15, 1999
with an effective date of January 1, 2000 and the recognition of a cumulative
effect adjustment calculated as of January 1, 2000. Atlantic is in the process
of evaluating this SAB and the effect it will have on its consolidated financial
statements and current revenue recognition policy.
(5) EMPLOYMENT AGREEMENTS
Atlantic entered into employment agreements with four executives during
April and May, 2000. These agreements provide for the payment of signing and
year end bonuses in 2000 totaling $225,000, and annual base salaries aggregating
$550,000. Each agreement has an initial term of three years and can be
terminated by Atlantic, subject to certain provisions, with the payment of
severance amounts that range from three to six months.
(6) PREFERRED STOCK DIVIDEND
On February 15, 2000 and August 7, 2000, Atlantic's board of directors
declared a payment-in-kind dividend of 0.065 of a share of Series A convertible
preferred stock ("Series A Preferred") for each share of Series A Preferred held
as of the record date of February 2, 2000 and August 7, 2000, respectively. The
estimated fair value
-6-
of these dividends in the aggregate of $152,195 and $811,514 were included in
Atlantic's calculation of net loss per common share for the three and nine
months ended September 30, 2000, respectively.
During the nine months ended September 30, 2000, 4,299 Series A
convertible preferred stock warrants were exercised in cashless transactions for
9,453 shares of Atlantic's common stock.
(7) ISSUANCE OF STOCK WARRANTS
As more fully described in Note 8 to Atlantic's Annual Report on Form
10-KSB as of and for the year ended December 31, 1999, on January 4, 2000,
Atlantic entered into a Financial Advisory and Consulting Agreement with Joseph
Stevens & Company, Inc. pursuant to which Atlantic issued to Joseph Stevens &
Company, Inc. three warrants to purchase an aggregate of 450,000 shares of its
common stock. In accordance with EITF Issue No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services and other relative accounting
literature, Atlantic is required to measure the expense associated with these
warrants at each reporting date and recognize the appropriate portion of the
expense at the end of each reporting period until the final measurement date is
reached (December 4, 2000 in this transaction). As a result, Atlantic recorded a
general and administrative expense of $11,857 and $1,073,511 for the three and
nine month periods ended September 30, 2000, respectively.
(8) INVESTMENT IN PREFERRED STOCK
On May 12, 2000, Atlantic acquired shares of preferred stock
representing a 35% ownership interest in TeraComm Research, Inc., a
privately-held company that is developing next-generation high-speed fiberoptic
communications technologies. The purchase price for this ownership interest was
$5,000,000 in cash, 200,000 shares of Atlantic's common stock, and a warrant to
purchase a further 200,000 shares of Atlantic's common stock. The warrants have
a term of three years and are exercisable at $8.975 per share of common stock,
but only if the market price of Atlantic common stock is $30 or more. Of the
$5,000,000 cash portion of the purchase price, Atlantic has paid $1,000,000.
On July 18, 2000, Atlantic and TeraComm amended the purchase agreement.
In the amendment, the parties agreed that the $4,000,000 balance of the
$5,000,000 cash component of the purchase price, including the $1,000,000
payments due on August 12, 2000 and November 12, 2000, would not be due until
TeraComm achieves a specified milestone. Within ten days after TeraComm achieves
that milestone, Atlantic must pay TeraComm $1,000,000 and must thereafter make
to TeraComm three payments of $1,000,000 at three-month intervals. If Atlantic
fails to make any of these payments, TeraComm's only recourse remains reducing
proportionately Atlantic's ownership interest. Atlantic's failure to make the
first $1,000,000 payment by midnight at the end of December 30, 2000 (whether or
not TeraComm has reached the milestone) will at the option of TeraComm be deemed
to constitute failure by Atlantic to timely make that payment.
On November 10, 2000, TeraComm informed Atlantic that it does not
expect to achieve by midnight at the end of December 30, 2000, the milestone
specified in the amendment to the purchase agreement. If TeraComm does not
achieve the milestone, and Atlantic does not make by midnight at the end of
December 30, 2000, a $1,000,000 payment towards the balance of the cash portion
of the purchase price, Atlantic will be deemed to have surrendered to TeraComm a
proportion of Atlantic's TeraComm shares equal to the proportion of the dollar
value of the purchase price for Atlantic's TeraComm shares ($6,795,000) that is
represented by the unpaid $4,000,000 of the cash portion of the purchase price.
This would have the effect of reducing to 14.4% Atlantic's ownership interest in
TeraComm. Atlantic expects that if TeraComm does not achieve the milestone,
Atlantic will not make any further payments towards the cash portion of the
purchase price.
Of the $1,000,000 cash and common stock and common stock warrants
valued at $1,800,000 currently invested in TeraComm, Atlantic has expensed
approximately $2,650,000 as acquired in-process research and development as
TeraComm's product development activity is in the very early stages. The
majority of future investments, if any, will likely represent additional
acquired in-process research and development.
-7-
(9) PRIVATE PLACEMENT OF SERIES B PREFERRED SHARES
On September 28, 2000, Atlantic entered into a convertible preferred
stock and warrants purchase agreement (the "Purchase Agreement") with BH Capital
Investments, L.P. and Excalibur Limited Partnership (together, the "Investors")
pursuant to which Atlantic agreed to sell, and the Investors agreed to purchase
for up to $3,000,000, shares of Atlantic's Series B preferred stock and warrants
to purchase 201,000 shares of Atlantic's common stock (those warrants, "Investor
Warrants"). At the first closing, which occurred on September 28, 2000, for a
$2,000,000 purchase price Atlantic issued to the Investors and to the Escrow
Agent 689,656 shares of Series B preferred stock and Investor Warrants to
purchase 134,000 shares of common stock. Of these, half the shares of Series B
preferred stock and Investor Warrants exercisable for half the shares of common
stock are being held in escrow, pending approval by Atlantic's stockholders of
the proposals to be voted on at a special meeting to be held on December 20,
2000, and have therefore not been recorded or included as outstanding in the
accompanying financial statements. These proposals include the ratification and
approval of the Series B preferred stock financing with the Investors and the
potential issuance in connection therewith of 20% or more of our outstanding
common stock or voting power before issuance of the Series B preferred stock,
and approval of the amendment of the certificate of designations, preferences
and rights of Series A convertible preferred stock to subordinate the rights of
the Series A preferred stock to the rights of the Series B preferred stock with
respect to dividend rights and rights upon liquidation, winding up, or
dissolution. If the stockholders fail to approve either proposal, the Investors
will be entitled to have returned to them the $1,000,000 held in escrow from the
first closing, and, as stated in the Purchase Agreement, certain penalties will
be imposed. As of September 30, 2000, net proceeds of approximately $830,000
were received by Atlantic. At the second closing, if any, Atlantic will, for a
$1,000,000 purchase price, issue to the Investors further shares of Series B
preferred stock (the number of shares being a function of the market price) and
Investor Warrants to purchase a further 67,000 shares of common stock. The
Investors' obligation in connection with the second closing is subject to
certain conditions.
The exercise price of the Investor Warrants is equal to 110% of the
lower of (1) the market price on the issue date and (2) the market price 180
days after the applicable closing date. Each Investor Warrant may be exercised
any time during the five years from the date of granting. The Investor Warrants
may not be exercised if doing so would result in Atlantic's issuing a number of
shares of common stock in excess of the limit imposed by the rules of the Nasdaq
SmallCap Market.
Holders of shares of Atlantic's outstanding Series B convertible
preferred stock can convert each share into shares of common stock without
paying us any cash. The conversion rate is equal to $2.90 divided by the
conversion price. The conversion price per share of Series B preferred stock on
any given day is the lower of (1) $3.00, (2) the average closing bid price of
our common stock during the five trading days ending the immediately preceding
trading day, or (3) the average of the two lowest closing bid prices on the
principal market of the common stock out of 15 trading days immediately prior to
conversion. The conversion price may be adjusted in favor of holders of shares
of Series B stock upon certain triggering events.
In addition, each March 31, June 30, September 30, and December 31,
Atlantic is obligated to pay dividends, in arrears, to holders of shares of
Series B preferred stock, and the dividends consist of 8% annually of the
original purchase price paid for the Series B preferred stock. These dividends
must be paid either in cash or in shares of Series B preferred stock. If these
dividends are paid in shares of Series B preferred stock, those shares will be
valued at 85% of the two lowest consecutive closing bid prices of our common
stock during the 20 trading days prior to the applicable dividend date. Atlantic
must also pay to holders of Series B preferred stock, on an as-converted basis,
any dividends (other than dividends payable in shares of our capital stock) that
Atlantic proposes to distribute to the holders of Series A preferred stock,
common stock, or other junior securities.
If Atlantic is liquidated, sold to or merged with another entity (and
Atlantic is not the surviving entity after the merger), Atlantic will be
obligated to pay holders of shares of Series B preferred stock a liquidation
preference equal to the original purchase price paid per share of Series B
preferred stock for each share of Series B preferred stock held, before any
payment is made to holders of shares of the Series A preferred stock or common
stock. In addition, Series B preferred stock issued to the Investors is subject
to redemption under certain circumstances.
(10) COST OF DEVELOPMENT REVENUE
In accordance with a license and development agreement, as amended,
Bausch & Lomb Surgical reimburses Atlantic's subsidiary, Optex Ophthalmologics,
Inc. ("Optex"), for costs Optex incurs in developing its Catarex(TM) technology,
plus a profit component. For the three and nine months ended September 30, 2000,
this agreement provided $1,072,716 and $3,419,831 of development revenue, and
related cost of development revenue of $858,173 and $2,735,865, respectively.
For the three and nine months ended September 30, 1999, this agreement provided
$247,163 of development revenue, and related cost of development revenue of
$197,730.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion of our results of operations
and financial condition in conjunction with our Annual Report on Form 10-KSB for
the year ended December 31, 1999.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000 VS. 1999
In accordance with a license and development agreement, as amended,
Bausch & Lomb Surgical reimburses our subsidiary, Optex Ophthalmologics, Inc.
("Optex"), for costs Optex incurs in developing its Catarex(TM) technology, plus
a profit component. In the third quarter of 2000, this agreement provided
$1,072,716 of development revenue, and the related cost of development revenue
was $858,173. For the quarter ended September 30, 1999, this agreement provided
$247,163 of development revenue, and the related cost of development revenue was
$197,730.
For the quarter ended September 30, 2000, research and development
expense was $360,454 as compared to $179,594 in the third quarter of 1999. This
increase is due to increased expenditures on certain development projects
including CT-3.
As of September 30, 2000, we have made an investment in TeraComm
Research, Inc., a privately held company that is developing next-generation high
speed fiberoptic communications technologies, of $1,000,000 cash and common
stock and common stock warrants valued at $1,800,000. For the quarter ended
September 30, 2000, we have expensed approximately $263,359 ($2,650,000 has been
expensed through September 30, 2000) of this payment as acquired in-process
research and development as TeraComm's product development activity is in the
very early stages.
For the quarter ended September 30, 2000, general and administrative
expense was $554,181 as compared to $354,099 in the third quarter of 1999. This
increase is largely due to an increase in payroll costs over last year of
approximately $106,000, an increase in fees for professional services of
approximately $69,000 attributable to fund raising diligence, and the $11,857 of
expense associated with warrants issued to Joseph Stevens & Company.
For the third quarter of 2000, interest and other income was $22,940
compared to $120,066 in the third quarter of 1999, a decrease of 55%. This
decrease is primarily due to the decline in our cash reserves which resulted in
decreased interest income.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 VS. 1999
In accordance with a license and development agreement, as amended,
Bausch & Lomb Surgical reimburses our subsidiary, Optex, for costs Optex incurs
in developing its Catarex(TM) technology, plus a profit component. In the nine
month period ended September 30, 2000, this agreement provided $3,419,831 of
development revenue, and the related cost of development revenue was $2,735,865.
For the nine month period ended September 30, 1999, this agreement provided
$247,163 of development revenue, and the related cost of development revenue was
$197,730.
For the nine month period ended September 30, 2000, research and
development expense was $682,807 as compared to $1,105,072 net of Bausch & Lomb
reimbursements of $878,199 in the nine month period ended September 30, 1999.
This decrease is due to reduced expenditures for the overall nine month period
on certain development projects.
As of September 30, 2000, we have made an investment in TeraComm
Research, Inc. of $1,000,000 cash and common stock and common stock warrants
valued at $1,800,000. For the nine month period ended September 30, 2000, we
have expensed approximately $2,650,000 of this payment as acquired in-process
research and development as TeraComm's product development activity is in the
very early stages.
-9-
For the nine month period ended September 30, 2000, general and
administrative expense was $2,840,464 as compared to $1,062,887 net of Bausch &
Lomb reimbursements of $43,720 in the nine month period ended September 30,
1999. This increase is largely due to the $1,073,511 of expense associated with
warrants issued to Joseph Stevens & Company, costs of approximately $159,000
incurred in hiring and relocating executives, an increase in payroll costs over
last year of approximately $71,000 and an increase in fees for professional
services of approximately $387,000 attributable to fundraising, due diligence
and closing of the TeraComm investment.
For the nine month period ended September 30, 2000, interest and other
income was $97,267 compared to $242,589 in the nine month period ended September
30, 1999. This decrease is primarily due to the decline in our cash reserves
which resulted in decreased interest income.
LIQUIDITY AND CAPITAL RESOURCES
From inception to September 30, 2000, we incurred an accumulated
deficit of $24,228,125, and we expect to continue to incur additional losses
through the year ending December 31, 2000 and for the foreseeable future.
Our available working capital and capital requirements will depend upon
numerous factors, including progress of our research and development programs;
our progress in and the cost of ongoing and planned preclinical and clinical
testing; the timing and cost of obtaining regulatory approvals; the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights; competing technological and market developments;
changes in our existing collaborative and licensing relationships; the resources
that we devote to developing manufacturing and commercializing capabilities;
technological advances; status of competitors; our ability to establish
collaborative arrangements with other organizations; and our need to purchase
additional capital equipment.
We anticipate that our current resources, together with proceeds from
the Bausch & Lomb agreement, will be sufficient to finance our currently
anticipated needs for operating and capital expenditures for at least the next
nine months. In addition, we will attempt to generate additional capital through
a combination of collaborative agreements, strategic alliances and equity and
debt financing. However, we can give no assurance that we will be able to obtain
additional capital through these sources or upon terms acceptable to us. At
September 30, 2000, we had $1,700,300 in cash and cash equivalents and working
capital of $1,713,626.
On September 28, 2000, Atlantic entered into a convertible preferred
stock and warrants purchase agreement (the "Purchase Agreement") with BH Capital
Investments, L.P. and Excalibur Limited Partnership (together, the "Investors")
pursuant to which Atlantic agreed to sell, and the Investors agreed to purchase
for up to $3,000,000, shares of Atlantic's Series B preferred stock and warrants
to purchase 201,000 shares of Atlantic's common stock (those warrants, "Investor
Warrants"). At the first closing, which occurred on September 28, 2000, for a
$2,000,000 purchase price Atlantic issued to the Investors and to the Escrow
Agent 689,656 shares of Series B preferred stock and Investor Warrants to
purchase 134,000 shares of common stock. Of these, half the shares of Series B
preferred stock and Investor Warrants exercisable for half the shares of common
stock are being held in escrow, pending approval by Atlantic's stockholders of
the proposals to be voted on at a special meeting to be held on December 20,
2000, and have therefore not been recorded or included as outstanding in the
accompanying financial statements. As of September 30, 2000, net proceeds of
approximately $830,000 were received by Atlantic. At the second closing, if any,
Atlantic will, for a $1,000,000 purchase price, issue to the Investors further
shares of Series B preferred stock (the number of shares being a function of the
market price) and Investor Warrants to purchase a further 67,000 shares of
common stock. The Investors' obligation in connection with the second closing
are subject to certain conditions.
On May 12, 2000, we acquired shares of preferred stock representing a
35% ownership interest in TeraComm Research, Inc., a privately-held company that
is developing next-generation high-speed fiberoptic communications technologies.
The purchase price for this ownership interest was $5,000,000 in cash, 200,000
shares of our common stock, and a warrant to purchase a further 200,000 shares
of our common stock. The warrants have a term of three years and are exercisable
at $8.975 per share of common stock, but only if the market price of our common
stock is $30 or more. Of the $5,000,000 cash portion of the purchase price, we
have paid $1,000,000.
On July 18, 2000, Atlantic and TeraComm amended the purchase agreement.
In the amendment, the parties agreed that the $4,000,000 balance of the
$5,000,000 cash component of the purchase price, including the
-10-
$1,000,000 payments due on August 12, 2000 and November 12, 2000, would not be
due until TeraComm achieves a specified milestone. Within ten days after
TeraComm achieves that milestone, we must pay TeraComm $1,000,000 and must
thereafter make to TeraComm three payments of $1,000,000 at three-month
intervals. If we fail to make any of these payments, TeraComm's only recourse
remains reducing proportionately our ownership interest. Our failure to make the
first $1,000,000 payment by midnight at the end of December 30, 2000 (whether or
not TeraComm has reached the milestone) will at the option of TeraComm be deemed
to constitute failure by us to timely make that payment.
On November 10, 2000, TeraComm informed us that it does not expect to
achieve by midnight at the end of December 30, 2000, the milestone specified in
the amendment to the purchase agreement. If TeraComm does not achieve the
milestone, and we do not make by midnight at the end of December 30, 2000, a
$1,000,000 payment towards the balance of the cash portion of the purchase
price, we will be deemed to have surrendered to TeraComm a proportion of our
TeraComm shares equal to the proportion of the dollar value of the purchase
price for our TeraComm shares ($6,795,000) that is represented by the unpaid
$4,000,000 of the cash portion of the purchase price. This would have the effect
of reducing to 14.4% our ownership interest in TeraComm. We expect that if
TeraComm does not achieve the milestone, we will not make any further payments
towards the cash portion of the purchase price.
We do not currently have the full amount of the unpaid portion of the
cash purchase price for our TeraComm shares. If circumstances make it desirable
for us to pay the unpaid portion of the cash purchase price, we would endeavor
to raise the necessary amount through debt or equity financing, or a combination
of both. It is, however, possible that we will not be able to raise the required
amount.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Commission issued Staff Accounting
Bulletin or SAB No. 101, Revenue Recognition in Financial Statements. SAB No.101
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements, including
the recognition of non-refundable fees received upon entering into arrangements.
This SAB, as amended, must be adopted no later than the fourth quarter of fiscal
years beginning after December 15, 1999 with an effective date of January 1,
2000 and the recognition of a cumulative effect adjustment calculated as of
January 1, 2000. We are in the process of evaluating this SAB and the effect it
will have on our consolidated financial statements and current revenue
recognition policy.
RESEARCH AND DEVELOPMENT ACTIVITIES
Preclinical and clinical studies involving our primary technologies are
proceeding according to plan.
Optex
Optex's development of the Catarex device is continuing in cooperation
with Bausch & Lomb. Bausch & Lomb is preparing to file a 510(k) with the U.S.
Food and Drug Administration, or the "FDA," for the Catarex device. In a 510(k)
filing, a company requests that the FDA treat a given technology as
substantially equivalent to an already approved technology. In preparation for
this filing, Bausch & Lomb had a pre-filing meeting with the FDA in October
2000. Based on the results of this meeting Bausch & Lomb is in the process of
compiling the required data for the 510(k) and expects to file that application
when all the required data are completed.
CT-3
We are continuing to develop CT-3, a patented synthetic derivative of
tetrahydrocannabinol (THC), the active ingredient in marijuana, as an
alternative to nonsteroidal anti-inflammatory drugs (NSAIDs). In May 2000, the
FDA approved an Investigational New Drug application, or "IND," to begin
clinical trials for CT-3 in the U.S. In July 2000 we began in Paris, France, the
first Phase I clinical study to examine the effects of CT-3 on the central
nervous system. CT-3 was designed to maximize the medical properties of
marijuana without producing undesirable psychoactive effects. This trial used a
sensitive test developed by the National Institute on Drug Abuse to measure
marijuana-like effects caused by drugs, and the trial confirmed that CT-3 does
not produce any such effects. The study was completed in August, and the final
report is expected in December 2000.
-11-
Gemini
Our subsidiary Gemini Technologies, Inc. is continuing its research on
antisense enhancing technology. On August 14, 2000, Gemini was awarded a Small
Business Innovation Research (SBIR) Phase II grant by the National Institute for
Allergy and Infectious Diseases (NIAID), a unit of the National Institutes of
Health (NIH). The grant, which totals approximately $750,000, will be used to
fund a pre-clinical efficacy study using aerosolized 2-5A antisense compound for
the inhibition of respiratory syncytial virus (RSV) in monkeys. It also will
provide funds for the toxicological and pharmacological studies needed to file
an investigational new drug (IND) application with the FDA to begin clinical
studies in humans.
This research is intended to build upon research previously published
in the Proceedings of the National Academy of Sciences (PNAS) Vol. 95, July
1998, that documented the compound's effectiveness against a broad spectrum of
RSV strains. Data collected to date indicate that the molecule to be tested has
130 times greater in vitro potency than Ribavarin (Virazole), one of two
FDA-approved treatments for RSV infections (the other treatment is a monoclonal
antibody recommended for use in high-risk infants only). This molecule has also
been shown to be stable against degradative enzymes, and is capable of being
absorbed into lung tissue when administered in a droplet formulation.
The primate study will be conducted at the Tulane Regional Primate
Research Center in Covington, Louisiana. Vicki Traina-Dorge, Ph.D., will
overview the animal study. Hagen Cramer, Ph.D., of Gemini will design the study
and develop the aerosolization method. He will also act as Principle
Investigator of the grant. All of the analyses will be conducted at the Gemini
research facility in Cleveland, Ohio. Other team members of Gemini include Jim
Okicki, chemical research associate, Frank Longano, biology research associate,
Lateef Saffore, biology research associate, Robert Silverman, Ph.D., consultant,
and Doug Leaman, Ph.D., consultant.
By focusing the 2-5A antisense program on primate-oriented RSV, we will
be able to more effectively pursue corporate partnerships to develop an RSV
therapeutic treatment as a lead product candidate for our 2-5A antisense
technology. After we enter into such a partnership, we plan to expand our
research and development of 2-5A antisense technology into additional areas of
potential clinical use. These additional areas include other infectious diseases
(herpes, human immunodeficiency virus), certain cancers (chronic myelogenous
leukemia, glioblastoma), conditions modulated by 5-alpha reductase and
dihydrotestosterone receptors (acne and androgenic alopecia), and aspects of the
interferon pathway that are mediated by PKR (a protein kinase enzyme), all of
which have shown promising in vitro studies to date.
TeraComm
On May 12, 2000, we acquired a 35% ownership interest in TeraComm
Research, Inc. (See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources.") TeraComm is
developing a fiberoptic transmitter that uses a high-temperature superconductor
(HTS) material to switch a laser beam on and off with a high-speed electronic
digital signal. HTS materials have zero electrical resistance at low
temperatures (< 70 K), and also can have very high optical reflectance in their
superconducting state while they can transmit light in their normal
(non-superconducting) state. TeraComm discovered that a small electric current
in an HTS material could switch the material between states, and do so very
quickly--in less than a millionth millionth of a second. Because the HTS optical
switch works best at far infrared wavelengths and these optical waves are too
large to send through an optical fiber, the TeraComm invention employs an
optical wavelength converter to change the waves to the band that is just right
for the fiber.
Thus far, TeraComm has successfully developed methods of producing
effective HTS thin-films with metal electrodes, has successfully demonstrated
control of optical transmission in HTS films using electric current, and has
been awarded patents covering implementation of this technology for fiberoptic
telecommunications. To date, we have provided TeraComm with approximately
$1,000,000 of development funds. Our investment is enabling TeraComm to continue
its development program.
On May 23, 2000, we announced that we had appointed Walter L. Glomb,
Jr., as Vice President. Mr. Glomb is responsible for supporting our investment
in TeraComm and identifying complimentary electronic infrastructure and
communication technologies for us to develop. Mr. Glomb is based in our new
office in Vernon, Connecticut, in the center of the major cluster of photonics
companies that stretches from Boston to New Jersey.
-12-
Atlantic's new strategy focuses on our developing strategic partnerships with
early-stage companies, and we feel that this region promises to be a rich source
of such partnerships.
On November 10, 2000, TeraComm informed us that it does not expect to
achieve by midnight at the end of December 30, 2000, the milestone specified in
the amendment to the purchase agreement. We expect that if TeraComm does not
achieve the milestone, we will not make any further payments towards the cash
portion of the purchase price of our shares of TeraComm preferred stock. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.")
-13-
PART II -- OTHER INFORMATION
Item 1. Legal Matters
Litigation Brought by Christopher R. Richied
On May 13, 1999, Christopher R. Richied filed suit against a group of
defendants, including Atlantic, in the U.S. District Court for the Southern
District of New York. This lawsuit is described in our Quarterly Reports on Form
10-QSB for the quarterly periods ended June 30, 1999 and September 30, 1999. As
we reported in our Quarterly Report on Form 10-QSB for the quarterly period
ended June 30, 2000, this case was settled by the parties on August 8, 2000, and
the defendants have agreed that Atlantic is not required to contribute to any
settlement payment and will not be responsible for any costs incurred in
defending this litigation.
Arbitration Brought by the Cleveland Clinic Foundation
Our subsidiary Gemini has an exclusive worldwide sublicense from the
Cleveland Clinic Foundation to a U.S. patent and related patent applications, as
well as corresponding foreign applications, relating to 2-5A chimeric antisense
technology and its use for selective degradation of targeted RNA. On May 8,
2000, the Cleveland Clinic Foundation filed a claim for arbitration before the
American Arbitration Association to terminate this sublicense, claiming that we
have breached the sublicense by failing to fulfill our obligations under the
sublicense.
Item 2. Changes in Securities and Use of Proceeds
(c) Recent sales of unregistered securities; use of proceeds from
registered securities
On September 28, 2000, Atlantic entered into a convertible preferred
stock and warrants purchase agreement (the "Purchase Agreement") with BH Capital
Investments, L.P. and Excalibur Limited Partnership (together, the "Investors")
pursuant to which we agreed to sell, and the Investors agreed to purchase for up
to $3,000,000, shares of our Series B preferred stock and warrants to purchase
201,000 shares of our common stock (those warrants, "Investor Warrants"). The
terms of the Series B preferred stock are described in the certificate of
designations, preferences and rights of Series B convertible preferred stock. At
the first closing, which occurred on September 28, 2000, for a $2,000,000
purchase price we issued to the Investors and to the Escrow Agent 689,656 shares
of Series B preferred stock and Investor Warrants to purchase 134,000 shares of
common stock. Of these, half the shares of Series B preferred stock and Investor
Warrants exercisable for half the shares of common stock are being held in
escrow, pending approval by Atlantic's stockholders of the proposals to be voted
on at a special meeting to be held December 20, 2000, and therefore have not
been recorded or included as outstanding in the accompanying financial
statements. As of September 30, 2000, net proceeds of approximately $830,000
were received by Atlantic. At the second closing, if any, we will, for a
$1,000,000 purchase price, issue to the Investors further shares of Series B
preferred stock (the number of shares being a function of the market price) and
Investor Warrants to purchase a further 67,000 shares of common stock. The
Investors' obligations in connection with the second closing are subject to
certain conditions described in the Purchase Agreement.
Exemption
The Series B preferred stock and Investor Warrants were issued in
reliance upon exemption under Regulation D of the Securities Act.
Conversion of Series B preferred stock
The Series B preferred stock is convertible, at the holder's option,
into shares of common stock. The conversion rate for the Series B preferred
stock is equal to the price per share paid for the Series B preferred stock
divided by the conversion price in effect at the time of conversion. The
conversion price is the lower of (x) $3.00, (y) the market price, and (z) the
average of the two lowest closing bid prices on the principal market of the
common stock out of the 15 trading days immediately prior to conversion, which
will be adjusted proportionately for any reorganizations, reclassifications,
stock splits, stock dividends, reverse stock splits and similar events.
-14-
The conversion price will be reduced by an additional 5% if the common
stock is not listed on either the Nasdaq SmallCap Market or Nasdaq National
Market on that date, and in no event will the conversion price be lower than the
Floor Price, if any. The Floor Price means $1.50 for the conversion of a share
of Series B preferred stock effected during the 12 months following the
applicable issue date for that share, subject to adjustment as follows:
o If the conversion price is below the Floor Price for 30 calendar days at
any time after the issue date for that share, then the Floor Price will
thereafter equal $1.00 (but in no event for longer than 12 months
following the applicable issue date).
o The conversion price will be reduced by 15% and will not be subject to the
Floor Price if any of the following events occurs:
(a) for any period of five consecutive trading days there is no closing
bid price of the common stock;
(b) the common stock ceases to be listed for trading on any of the NYSE,
the AMEX, the Nasdaq National Market or the Nasdaq SmallCap Market;
or
(c) A. Joseph Rudick resigns as Chief Executive Officer or Frederic P.
Zotos resigns as President of Atlantic (or the employment of either
of them terminations as a result of death or disability).
o The conversion price will not be subject to the Floor Price and will be as
otherwise calculated pursuant to the Series B Certificate of Designations
if any of the following events occur:
(a) Bausch & Lomb Surgical ("B&L") fails to file before January 31,
2001, an application with the U.S. Food and Drug Administration (the
"FDA") seeking approval to market our Catarex technology;
(b) the FDA does not grant final approval on or before June 1, 2001 to
B&L to market the Catarex technology; or
(c) we fail to secure by December 27, 2000 the stockholder approvals to
be voted on at the special meeting.
Additionally, the Series B Certificate of Designations provides that
the Investors may not convert their shares of Series B preferred stock if doing
so would result in our issuing a number of shares of common stock in excess of
the limit imposed by the rules of the Nasdaq Smallcap Market.
Exercise of Investor Warrants
The Investor Warrants may be exercised for shares of common stock. The
exercise price for one share of common stock is equal to 110% of the lower of
(1) the market price on the issue date or (2) the market price one hundred
eighty days after the applicable closing date. Each Investor Warrant is
exercisable five years from the date of granting. The Investor Warrants may not
be exercised if doing so would result in our issuing a number of shares of
common stock in excess of the limit imposed by the rules of the Nasdaq SmallCap
Market.
Item 4. Submission of Matters to a Vote of Security Holders
On September 5, 2000, Atlantic filed with the Securities and Exchange
Commission a definitive proxy statement seeking stockholder approval of the
following two proposals at the annual meeting of stockholders held on September
29, 2000:
1. RESOLVED, that A. Joseph Rudick, Frederic P. Zotos, Steve H. Kanzer
and Peter O. Kliem are hereby elected as directors of Atlantic, to serve until
their respective successors are duly elected and qualified.
2. RESOLVED, that the board of directors' selection of KPMG LLP to
serve as Atlantic's independent auditors for the year ending December 31, 2000,
hereby is ratified.
-15-
Both proposals were approved by our stockholders. Tabulated below are
the number of shares and votes in favor of these proposals, with the total
voting power represented by the common stock and the preferred stock as of the
record date of August 24, 2000, being 7,274,836:
- --------------------------------------------------------------------------------------------------------
Proposal 1 Proposal 2
- --------------------------------------------------------------------------------------------------------
Consenting shares of common stock All nominees: 4,024,983 4,023,108
- --------------------------------------------------------------------------------------------------------
Votes represented by those shares of All nominees: 4,024,983 4,023,108
common stock
- --------------------------------------------------------------------------------------------------------
Consenting shares of preferred stock A. Joseph Rudick: 350,983 329,920
Steve H. Kanzer: 329,920
Frederic P. Zotos: 329,920
Peter O. Kliem: 350,983
- --------------------------------------------------------------------------------------------------------
Votes represented by those shares of A. Joseph Rudick: 1,147,714 1,078,838
preferred stock Steve H. Kanzer: 1,078,838
Frederic P. Zotos: 1,078,838
Peter O. Kliem: 1,147,714
- --------------------------------------------------------------------------------------------------------
Aggregate votes represented A. Joseph Rudick: 5,172,697 5,101,946
Steve H. Kanzer: 5,103,821
Frederic P. Zotos: 5,103,821
Peter O. Kliem: 5,172,697
- --------------------------------------------------------------------------------------------------------
Aggregate votes represented, expressed A. Joseph Rudick: 98.7% 98.2%
as percentage of votes represented by Steve H. Kanzer: 98.2%
all shares Frederic P. Zotos: 98.2%
Peter O. Kliem: 98.7%
- --------------------------------------------------------------------------------------------------------
Item 5. Other Information
On July 18, 2000, Atlantic and TeraComm Research, Inc. amended the
Preferred Stock Purchase Agreement dated May 12, 2000, pursuant to which we
purchased 1,400 shares of TeraComm preferred stock representing a 35% ownership
interest in TeraComm.
In this amendment, the parties agreed that the $4,000,000 balance of
the $5,000,000 cash component of the purchase price, including the $1,000,000
payments due on August 12, 2000 and November 12, 2000, would not be due until
TeraComm achieves a certain milestone. Within ten days after TeraComm achieves
that milestone, we must pay TeraComm $1,000,000 and must thereafter make to
TeraComm three payments of $1,000,000 at three-month intervals. If we fail to
make any of these payments, TeraComm's only recourse remains reducing
proportionately our ownership interest. Our failure to make the first $1,000,000
payment by midnight at the end of December 30, 2000 (whether or not TeraComm has
reached the milestone) will at the option of TeraComm be deemed to constitute
failure by us to timely make that payment.
This amendment allows Atlantic to limit its financial commitment to
TeraComm until such time as TeraComm has been able to demonstrate in practice
some of the theoretical potential of its technology.
-16-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Designations, Preferences and Rights of Series
B Convertible Preferred Stock of Atlantic filed on September
28, 2000 (filed herewith).
3.2 Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock
of Atlantic filed on November 17, 2000 (filed herewith).
10.1 Amendment dated as of July 18, 2000, to the Preferred Stock
Purchase Agreement dated May 12, 2000, between Atlantic and
TeraComm Research, Inc. (filed herewith).
10.2 Convertible Preferred Stock and Warrants Purchase Agreement
dated September 28, 2000, between Atlantic, BH Capital
Investments, L.P. and Excalibur Limited Partnership (filed
herewith).
10.3 Amendment No. 1, dated October 31, 2000, to Convertible
Preferred Stock and Warrants Purchase Agreement dated
September 28, 2000, between Atlantic, BH Capital Investments,
L.P. and Excalibur Limited Partnership (filed herewith).
10.4 Registration Rights Agreement dated September 28, 2000 between
Atlantic, BH Capital Investments, L.P. and Excalibur Limited
Partnership (filed herewith).
10.5 Escrow Agreement dated September 28, 2000 between Atlantic, BH
Capital Investments, L.P. and Excalibur Limited Partnership
(filed herewith).
10.6 Form of Stock Purchase Warrants issued on September 28, 2000
to BH Capital Investments, L.P., exercisable for shares of
common stock of Atlantic (filed herewith).
10.7 Form of Stock Purchase Warrants issued on September 28, 2000
to Excalibur Limited Partnership, exercisable for shares of
common stock of Atlantic (filed herewith).
(b) Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
-17-
SIGNATURES
In accordance with the requirements of the Exchange Act, Atlantic
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ATLANTIC TECHNOLOGY VENTURES, INC.
Date: November 20, 2000 /s/ Frederic P. Zotos
----------------------
Frederic P. Zotos
President
Date: November 20, 2000 /s/ Nicholas J. Rossettos
--------------------------
Nicholas J. Rossettos
Chief Financial Officer
-18-
Exhibit 3.1
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
ATLANTIC TECHNOLOGY VENTURES, INC.
I. Creation of Series B Convertible Preferred Stock.
The undersigned officer of Atlantic Technology Ventures, Inc., a
Delaware corporation (the "Corporation"), pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, does hereby make
this Certificate of Designations, Preferences and Rights (the "Series B
Certificate of Designations") and does hereby state and certify that pursuant to
the authority expressly vested in the Board of Directors of the Corporation by
the Certificate of Incorporation, as amended, the Board of Directors duly
adopted the following resolutions:
RESOLVED: That, pursuant to the Certificate of Incorporation, as
amended, of the Corporation (the "Amended Certificate of Incorporation"), which
authorizes 10,000,000 shares of undesignated Preferred Stock, par value $0.001
per share (the "Preferred Stock"), of which 1,375,000 shares are designated
Series A Convertible Preferred Stock, par value $0.001 per share (the "Series A
Preferred Stock"), the Board of Directors is authorized, within the limitations
and restrictions stated in the Amended Certificate of Incorporation, to fix by
resolution or resolutions the designation of each series of Preferred Stock and
the powers, preferences and relative participating, optional, or other special
rights, and qualifications, limitations, and restrictions thereof; and
RESOLVED: That the Corporation hereby fixes the designations and
preferences and relative, participating, optional, and other special rights, and
qualifications, limitations, and restrictions of the Preferred Stock consisting
of Two Million (2,000,000) shares to be designated Series B Convertible
Preferred Stock, par value $0.001 per share (the "Series B Preferred Stock");
and
RESOLVED: That the Series B Preferred Stock is hereby authorized on the
terms and with the provisions herein set forth.
II. Provisions Relating to the Series B Preferred Stock.
1. Number of Shares. Of the 8,625,000 remaining shares of authorized
but undesignated Preferred Stock of the Corporation, Two Million (2,000,000)
shares shall be designated and known as shares of Series B Preferred Stock. Any
shares of Series B Preferred Stock repurchased by the Corporation shall be
cancelled and shall revert to authorized but
unissued shares of Preferred Stock, undesignated as to series, subject to
reissuance by the Corporation as shares of Preferred Stock of any one or more
series other than Series B Preferred Stock.
2. Rank. Subject to approval of an amendment, to the extent required,
of the Certificate of Designations of the Company's Series A Preferred Stock to
subordinate the rights, preferences and privileges of the Series A Preferred
Stock to the rights, preferences and privileges of the Series B Preferred Stock
as set forth herein, the Series B Preferred Stock shall, with respect to
dividend rights and with respect to rights upon liquidation, winding up or
dissolution, rank senior and prior in right to the Series A Preferred Stock, the
Common Stock and any other equity interests (including, without limitation,
warrants, stock appreciation rights, phantom stock rights, profit participation
rights in debt instruments or other rights with equity features, calls or
options exercisable for or convertible into such capital stock or equity
interests) in the Corporation that by its terms rank junior to the Series B
Preferred Stock (all of such classes or series of capital stock and other equity
interests are collectively referred to as "Junior Securities").
3. Dividends. The holders of the Series B Preferred Stock shall be
entitled to receive cumulative annual dividends (the "Series B Dividends") at an
annual rate per share equal to eight percent (8%) of the original purchase price
paid per share for the Series B Preferred Stock (which amount shall be subject
to adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series B Preferred Stock,
the "Quarterly Dividend Amount"), payable on each March 31, June 30, September
30 and December 31 (each, a "Quarterly Dividend Date") after the date on which
such share of Series B Preferred Stock was issued (the "Original Issue Date" for
such share), provided that the amount of dividends on the first Quarterly
Dividend Date after the any Original Issue Date shall equal the Quarterly
Dividend Amount multiplied by a fraction (A) the numerator of which shall equal
the number of days from and including the Original Issue Date for such share to
and including such first Quarterly Dividend Date, and (B) the denominator of
which is ninety (90). Dividends with respect to the Series B Preferred Stock
must be paid quarterly on each Quarterly Dividend Date. Such accrued dividends
shall also become payable upon any conversion or redemption of the shares of
Series B Preferred Stock. The Corporation, at its option, must pay each dividend
either (A) in cash on each Quarterly Dividend Date (or other payment date), or
(B) in shares of Series B Preferred Stock (for which the shares of Common Stock
issuable upon conversion thereof have been registered for resale under the
Securities Act of 1933, as amended) valued at 85% of the two lowest consecutive
closing bid prices of the Common Stock during the twenty trading days prior to
the applicable dividend date. Such dividends shall be deemed to accrue on the
Series B Preferred Stock and be cumulative, whether or not earned or declared
and whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. With respect to the declaration,
payment and setting apart of dividends, other than in Common Stock, whether of
cash, securities of other persons, evidences of indebtedness, assets,
Convertible Securities (as defined below), Stock Purchase Rights (as defined
below) or rights to acquire any of the above, the holders of Series B Preferred
Stock shall be entitled to participate with the Series A Preferred Stock, Common
Stock or other Junior Securities and receive, before any dividends shall be
declared and paid upon or set aside for the
2
Series A Preferred Stock, Common Stock or other Junior Securities, the same
dividends or distributions, on an as-converted basis, as are proposed to be
distributed to the holders of Series A Preferred Stock, Common Stock or other
Junior Securities, in addition to the Series B Dividends set forth above. Each
share of Series B Preferred Stock shall be treated for purposes of such
participation as being equal to the number of shares of Common Stock (which may
be a fraction) into which such share could then be converted. The rights of the
holders of Series B Preferred Stock with respect to dividends of Common Stock
are set forth in Section 7 hereof.
4. Liquidation.
(a) Upon the occurrence of any Liquidating Event (as defined
below), each holder of Series B Preferred Stock then outstanding shall be paid,
out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made in respect of the Series A
Preferred Stock or Common Stock, an amount equal to the original purchase price
paid (the "Series B Original Price") per share of Series B Preferred Stock
pursuant to the Convertible Preferred Stock and Warrants Purchase Agreement
dated September 28, 2000 entered into between the Corporation and the investors
signatory thereto (the "Purchase Agreement"), plus all accrued dividends that
are then unpaid for each share of Series B Preferred Stock then held by them
(the "Series B Preference Amount"), subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares.
(b) Written notice of any such Liquidating Event stating a
payment date, the place where such payment shall be made, the amount of each
payment in liquidation and the amount of dividends to be paid shall be given by
first class mail, postage prepaid, not less than thirty (30) days prior to the
payment date stated therein, to each holder of record of the Series B Preferred
Stock at such holder's address as shown in the records of the Corporation,
provided that any holder of Preferred Stock may convert its shares of Preferred
Stock to Common Stock during such period at any time prior to the payment date
stated in such notice. If upon the occurrence of a Liquidating Event, the assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of the Series B Preferred Stock the full Series
B Preference Amount to which they shall be entitled, the holders of the Series B
Preferred Stock shall share ratably in any distribution of assets (so that each
holder receives the same percentage of the Series B Preference Amount per
share). After payment has been made to the holders of the Series B Preferred
Stock of the full Series B Preference Amount to which they shall be entitled as
aforesaid, any remaining assets shall be distributed ratably among the holders
of the Corporation's Common Stock, Series A Preferred Stock, Series B Preferred
Stock and other Junior Securities as if such shares of Series B Preferred Stock
had been converted voluntarily into Common Stock immediately prior to such
Liquidating Event.
(c) A "Liquidating Event" shall mean (i) any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
or (ii) a sale, transfer or other disposition of all or substantially all the
assets of the Corporation to, or a merger or consolidation into, an entity that
is not controlled, directly or indirectly, by the stockholders of the
Corporation; for purposes of this definition, "control" shall mean ownership of
more than 50% of the voting power of an entity; provided, however, if the
holders of a majority of the shares of Series B
3
Preferred Stock so elect by giving written notice to the Corporation before the
effective date of a merger or consolidation that would otherwise be a
Liquidating Event as defined herein, such merger or consolidation shall not be
deemed a Liquidating Event and the provisions of Section 6(h) shall apply. Upon
the occurrence of any Liquidating Event that would involve the distribution of
assets other than cash with respect to the outstanding shares of Series B
Preferred Stock, the amount of such distribution shall be deemed to be the fair
market value thereof at the time of such distribution determined in accordance
with the provisions of Section 3(b) of the Corporation's Certificate of
Designations relating to its Series A Preferred Stock.
5. Voting.
(a) Voting Rights. Except as otherwise expressly provided
herein or as required by law, the holder of each share of Series B Preferred
Stock shall be entitled to the number of votes equal to the number of shares of
Common Stock into which such share of Series B Preferred Stock could then be
converted and shall have voting rights and powers equal to the voting rights and
powers of the Common Stock (except as otherwise expressly provided herein or as
required by law, voting together with the Common Stock as a single class) and
shall be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation. Fractional votes shall not, however, be permitted and
any fractional voting rights resulting from the above formula (after aggregating
all shares of Common Stock into which shares of Series B Preferred Stock held by
each holder could be converted) shall be reduced to the nearest whole number.
(b) Protective Provisions. In addition to any other rights
provided by law or as set forth in this Series B Certificate of Designations, so
long as at least 10% of the shares of Series B Preferred Stock shall remain
outstanding, the Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of not less than two-thirds (2/3rds) of
the then-outstanding shares of the Series B Preferred Stock affected by such
action
(i) take any action that materially and adversely
alters or changes the powers, rights, preferences or privileges of the Series B
Preferred Stock.
(ii) redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose), or declare and
pay or set aside funds for the payment of any dividend (except dividends payable
in Common Stock or preferred stock) with respect to, any share or shares of
capital stock, except as required or permitted hereunder with respect to Series
B Preferred Stock and except for repurchasing shares of Common Stock from
employees or consultants of the Corporation at the original purchase price
thereof pursuant to vesting agreements approved by the Board of Directors;
(iii) authorize or issue, or obligate itself to
authorize or issue, additional shares of Series A Preferred Stock or Series B
Preferred Stock (except as permitted under the terms of the Purchase Agreement);
(iv) authorize or issue, or obligate itself to
authorize or issue, any equity or debt security on a parity with or having
preference or priority over the Series B
4
Preferred Stock as to liquidation preferences, redemption rights, dividend
rights, voting rights or otherwise; provided, however, that this provision shall
not apply to, and stockholder consent pursuant to this Section shall not be
required for, debt securities representing up to $1,000,000 in indebtedness
incurred by the Corporation after the date of filing of this Series B
Certificate of Designations (provided, this limitation shall not apply to trade
payables incurred in the ordinary course;
(v) consent to any liquidation, dissolution or winding
up of the Corporation; or
(vi) amend, restate, modify or alter the Bylaws of the
Corporation in any way which adversely affects the rights of the holders of the
Series B Preferred Stock.
For this purpose, without limiting the generality of the
foregoing, the authorization of any shares of capital stock with preference or
priority over, or on a parity with, Series B Preferred Stock as to the right to
receive either dividends or amounts distributable upon liquidation, dissolution
or winding up of the Corporation shall be deemed to affect adversely such
series.
6. Conversion Rights. The holders of Series B Preferred Stock shall
have the following conversion rights:
(a) Right to Convert.
(i) Subject to the terms, conditions, and
restrictions of Sections 6 and 7 hereof, at any time after the Original Issue
Date the holder of any shares of Series B Preferred Stock shall have the right
to convert each whole share of Series B Preferred Stock into that number of
fully paid and nonassessable shares of Common Stock at the Conversion Rate (as
defined below).
(ii) Anything in Subsection 6(a)(i) to the contrary
notwithstanding, in no event shall any holder be entitled to convert Series B
Preferred Stock in excess of that number of shares of Series B Preferred Stock
that, upon giving effect to such conversion, would cause the aggregate number of
shares of Common Stock beneficially owned by the holder and its "affiliates" (as
defined in Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act")) to exceed 9.99% of the outstanding shares of the Common Stock
following such conversion. For purposes of this Subsection, the aggregate number
of shares of Common Stock beneficially owned by the holder and its affiliates
shall include the number of shares of Common Stock issuable upon conversion of
the Series B Preferred Stock with respect to which the determination is being
made, but shall exclude the number of shares of Common Stock that would be
issuable upon (i) conversion of the remaining, nonconverted Series B Preferred
Stock beneficially owned by the holder and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Corporation (including, without limitation, any warrants or convertible
preferred stock) subject to a limitation on conversion or exercise analogous to
the limitation contained herein beneficially owned by the holder and its
5
affiliates. Except as set forth in the preceding sentence, for purposes of this
Subsection 6(a)(ii), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). For purposes of this Subsection, in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Corporation's most recent Form 10-QSB or
Form 10-KSB, as the case may be, (2) a more recent public announcement by the
Corporation or (3) any other notice by the Corporation or its transfer agent
setting forth the number of shares of Common Stock outstanding. For any reason
at any time, upon the written or oral request of any holder, the Corporation
shall immediately confirm orally and in writing to any such holder the number of
shares of Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to conversions of
Series B Preferred Stock by such holder since the date as of which such number
of outstanding shares of Common Stock was reported. To the extent that the
limitation contained in this Subsection 6(a)(ii) applies, the determination of
whether shares of Series B Preferred Stock are convertible (in relation to other
securities owned by a holder) and of which shares of Series B Preferred Stock
are convertible shall be in the sole discretion of such holder, and the
submission of shares of Series B Preferred Stock for conversion shall be deemed
to be such holder's determination that such shares of Series B Preferred Stock
are convertible, in each case subject to such aggregate percentage limitation,
and the Corporation shall have no obligation or right to verify or confirm the
accuracy of such determination. Nothing contained herein shall be deemed to
restrict the right of a holder to convert such shares of Series B Preferred
Stock at such time as such conversion will not violate the provisions of this
Subsection. A holder of Series B Preferred Stock may waive the provisions of
this Subsection 6(a)(ii) as to itself (and solely as to itself) upon not less
than 75 days' prior notice to the Corporation, and the provisions of this
Subsection 6(b)(ii) shall continue to apply until such 75th day (or such later
date as may be specified in such notice of waiver). No conversion in violation
of this Subsection 6(b)(ii), but otherwise in accordance with this Certificate
of Designations, shall affect the status of the Common Stock issued upon such
conversion as validly issued, fully paid and nonassessable.
(b) Conversion Rate and Other Definitions. Each share of
Series B Preferred Stock shall be convertible at the option of the holder
thereof, at any time after the issuance of such share, into fully paid and
nonassessable shares of Common Stock of the Corporation. The number of shares of
Common Stock into which each share of the Series B Preferred Stock may be
converted (the "Series B Conversion Rate" or the "Conversion Rate") shall be
determined by dividing the Series B Original Price by the Conversion Price
(determined as hereinafter provided) in effect at the time of the conversion.
Before any adjustment is required pursuant to Section 7, the Conversion Price
shall be equal to the Series B Original Price.
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
"Market Price" means the average Closing Bid Price of the
Common Stock on the Principal Market for the five (5) days prior to the date for
which the Market Price is to be determined.
6
"Closing Bid Price" or "Closing Ask Price" means, for any
security as of any date, the last closing bid or ask price, as the case may be,
for such security on the Principal Market as reported by Bloomberg Financial
Markets ("Bloomberg"), or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid or
ask price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid or ask price of such security
in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no closing bid or ask price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid or ask prices of
any market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Bid Price or Closing Ask Price
cannot be calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price or Closing Ask Price of such security on such date
shall be the fair market value as mutually determined by the Corporation and the
holders of sixty-six and two-thirds percent (66- 2/3%)) of the shares of Series
B Preferred Stock then outstanding.
"Conversion Price" means, as of any Conversion Date or
other date of determination, the lower of (x) $3.00, (y) the Market Price or (z)
the average of the two (2) lowest Closing Bid Prices on the Principal Market of
the Common Stock out of the fifteen (15) Trading Days immediately prior to
conversion, which Conversion Price shall be adjusted proportionately for any
reorganizations, reclassifications, stock splits, stock dividends, reverse stock
splits and similar events; provided, however, that the Conversion Price will be
reduced by an additional 5% if the Common Stock is not listed on either the
Nasdaq SmallCap Market or Nasdaq National Market as of such date, and provided
further that in no event will the Conversion Price be lower than the Floor
Price, if any.
"Floor Price" means $1.50 for the conversion of a share of
Series B Preferred Stock effected during the twelve (12) months following the
applicable Issue Date for such share; provided further, however, that if: (A)
the Conversion Price, as calculated herein without regard to Floor Price, is
below the Floor Price for thirty (30) calendar days at any time after the Issue
Date for such share, then the Floor Price shall thereafter equal $1.00 (but in
no event for longer than twelve (12) months following the applicable Issue
Date), (B)(i) for any period of five consecutive trading days commencing on
after the date of this filing, there is no closing bid price of the Common Stock
on the Principal Market, (ii) the Common Stock ceases to be listed for trading
on any of the NYSE, the AMEX, the Nasdaq National Market or the Nasdaq SmallCap
Market, or (iii) there occurs the resignation of either A. Joseph Rudick as
Chief Executive Officer or Frederic P. Zotos as President of the Corporation (or
either of their terminations as a result of death or disability), then the
Conversion Price shall be reduced by 15% and shall not be subject to the Floor
Price, and (C)(i) Bausch & Lomb Surgical ("B&L") fails to file before January
31, 2001 an application with the U.S. Food and Drug Administration (the "FDA")
seeking approval to market the Corporation's Catarex technology, (ii) the FDA
does not grant final approval to B&L to market Catarex on or before June 1,
2001, or (iii) the Corporation fails to secure the stockholder approvals
contemplated by Section 6.13 of the
7
Purchase Agreement by the deadline stated therein, then the Conversion Price
shall not be subject to the Floor Price and shall be as otherwise calculated
herein.
"Principal Market" means the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market, or the Nasdaq Smallcap
Market, whichever is at the applicable time the principal trading exchange or
market for the Common Stock, based upon share volume.
"Trading Day" means any day during which the Principal
Market shall be open for business.
(c) Conversion Notice. A holder of Series B Preferred Stock
may exercise its conversion right by giving a written conversion notice in the
form of Exhibit A hereto (the "Conversion Notice") to the Corporation (x) by
facsimile confirmed by a telephone call or (y) by registered mail or overnight
delivery service, with a copy by facsimile to the Corporation's transfer agent
for its Common Stock, as designated by the Corporation from time to time. If
such conversion will result in the conversion of all of such holder's shares of
Series B Preferred Stock, such holder shall also surrender the certificate or
certificates representing the shares so to be converted (the "Preferred Stock
Certificates") to the Corporation at its principal office (or such other office
or agency of the Corporation as the Corporation may designate by notice in
writing to the holders of the Series B Preferred Stock) at any time during its
usual business hours on the date set forth in the Conversion Notice.
(d) Issuance of Certificates.
(i) Promptly, but in no event more than three (3) Trading
Days, after the receipt of the Conversion Notice referred to in Section 6(c) and
surrender of the Preferred Stock Certificates (if required), the Corporation
shall issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock into which such
shares of Series B Preferred Stock have been converted. In the alternative, if
the Corporation's transfer agent is a participant in the electronic book
transfer program, the transfer agent shall credit such aggregate number of
shares of Common Stock to which the holder shall be entitled to the holder's or
its designee's balance account with The Depository Trust Company. Such
conversion shall be deemed to have been effected, and the Conversion Date shall
be deemed to have occurred, on the date on which such Conversion Notice shall
have been received by the Corporation and at the time specified stated in such
Conversion Notice, which must be during the calendar day of such notice. The
rights of the holder of such share or shares of Series B Preferred Stock shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby, on the Conversion Date. Issuance of shares of Common Stock
issuable upon conversion that are requested to be registered in a name other
than that of the registered holder shall be subject to compliance with all
applicable federal and state securities laws.
8
(ii) The Corporation understands that a delay in the
issuance of the shares of Common Stock beyond three (3) Trading Days after the
Conversion Date could result in economic loss to the holder of shares of Series
B Preferred Stock. As compensation to the holder for such loss, the Corporation
agrees to pay liquidated damages to such holder per day of delay in the amount
of 0.2% of the product of (1) the number of shares of Common Stock for which
certificates have not been properly delivered and (2) the highest Market Price
during the delay period. The Corporation shall make all payments due under this
Subsection 6(d)(ii) in immediately available funds upon demand. Nothing herein
shall limit a holder's right to pursue injunctive relief and/or actual damages
for the Corporation's failure to issue and deliver Common Stock to such holder
as required by Subsection 6(d)(i), including, without limitation, such holder's
actual losses occasioned by any "buy-in" of Common Stock necessitated by such
late delivery. Furthermore, in addition to any other remedies that may be
available to such holder, if the Corporation fails for any reason to effect
delivery of such shares of Common Stock within five (5) Trading Days after the
Conversion Date, such holder will be entitled to revoke the relevant Conversion
Notice by delivering a notice to such effect to the Corporation. Upon delivery
of such notice of revocation, the Corporation and the holder shall each be
restored to their respective positions immediately prior to delivery of such
Conversion Notice, except that holder shall retain the right to receive both the
late payment amounts set forth above plus the actual cost of any "buy-in."
(iii) If, at any time (a) the Corporation challenges,
disputes or denies the right of a holder to effect the conversion of the Series
B Preferred Stock into Common Stock or otherwise dishonors or rejects any
Conversion Notice properly delivered in accordance with this Section 6 or (b)
any third party who is not and has never been an affiliate of a holder obtains a
judgment or order from any court or public or governmental authority that
denies, enjoins, limits, modifies, or delays the right of such holder to effect
the conversion of the Series B Preferred Stock into Common Stock, then such
holder shall have the right, by written notice to the Corporation, to require
the Corporation to promptly redeem the Series B Preferred Stock at a price equal
to the closing sale price of the Common Stock on the date immediately prior to
the date on which such notice is given. Under any of the circumstances set forth
above, the Corporation shall indemnify the holder against and hold it harmless
from, and be responsible for the payment of, all costs and expenses of the
holder, including its reasonable legal fees and expenses, as and when incurred
in disputing any such action or pursuing its rights hereunder (in addition to
any other rights of such holder). The Corporation shall not refuse to honor any
Conversion Notice unless its has actually been enjoined by a court of competent
jurisdiction from doing so, and if so enjoined, the Corporation shall post with
such court a performance bond equal to 150% of the aggregate Market Price
multiplied by the number of shares sought to be converted by the holder that are
the subject of such injunction.
(iv) The holders of Series B Preferred Stock shall be
entitled to exercise their conversion privilege notwithstanding the commencement
of any case under 11 U.S.C.ss.101 et seq. (the "Bankruptcy Code"). The
Corporation hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C.ss.362 in respect of the holder's conversion
privilege, if it becomes a debtor under the Bankruptcy Code. The Corporation
agrees
9
to take or consent to any and all action necessary to effectuate relief under 11
U.S.C.ss. 362 without cost or expense to the holder.
(e) Fractional Shares. The Corporation shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series B Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of a
fraction of a share of Common Stock. If, after such aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall round such fraction of a share of Common Stock up to the
nearest whole share.
(f) Issuance Taxes. The Corporation shall pay any and all
issue and other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series B Preferred Stock pursuant
hereto; provided that the Corporation shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than of the holder of Series B Preferred
Stock which is being converted.
(g) Reorganizations, Reclassifications, Etc. If the Common
Stock issuable upon the conversion of Series B Preferred Stock shall be changed
into the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for in Section
7(a), then and in each such event the holder of each share of Series B Preferred
Stock shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such shares of Series B Preferred Stock might
have been converted immediately prior to such reorganization, reclassification,
or change.
(h) Mergers, Consolidations, Sale of Assets. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale treated as a Liquidating
Event pursuant to Section 4 above), each share of Series B Preferred Stock shall
thereafter be convertible into the kind and amount of shares of stock or other
securities or property that a holder of the number of shares of Common Stock of
the Corporation deliverable upon conversion of Series B Preferred Stock would
have been entitled upon such consolidation, merger or sale; and in such case,
appropriate adjustment (as determined in good faith by the Board of Directors)
shall be made in the application of the provisions of Sections 6 and 7 with
respect to the rights and interest thereafter of the holders of Series B
Preferred Stock, to the end that the provisions set forth in Sections 6 and 7
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the conversion
of Series B Preferred Stock.
(i) Listing Requirements. If any shares of Common Stock to be
reserved for the purpose of conversion of shares of Series B Preferred Stock
require registration or listing with, or approval of, any governmental
authority, stock exchange or other regulatory body under
10
any federal or state law or regulation or otherwise, before such shares may be
validly issued or delivered upon conversion, the Corporation will secure such
registration, listing or approval, as the case may be.
(j) Valid Issuance. All shares of Common Stock that may be
issued upon conversion of the shares of Series B Preferred Stock will upon
issuance by the Corporation be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof.
(k) No Impairment. The Corporation will not, by amendment of
the Amended Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all of the
provisions of Sections 6 and 7 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series B Preferred Stock against impairment.
(l) Limitation on Number of Conversion Shares. Notwithstanding
any other provision herein, the Corporation shall not be obligated to issue any
shares of Common Stock upon conversion of the Series B Preferred Stock to the
extent the issuance of such shares of Common Stock would exceed the number of
shares (the "Exchange Cap") then permitted to be issued without violation of the
rules or regulations of the Nasdaq Stock Market, except that such limitation
shall not apply in the event that the Corporation (i) obtains the approval of
its stockholders as required by applicable rules and regulations of the Nasdaq
Stock Market for issuances of Common Stock in excess of the Exchange Cap, (ii)
obtains a written opinion issued to the Corporation and the holders of Series B
Preferred Stock from outside counsel to the Corporation that such approval is
not required, which opinion shall be reasonably satisfactory to the holders of
sixty-six and two-thirds percent (66-2/3%) of the shares of Series B Preferred
Stock then outstanding, or (iii) is no longer listed on the Nasdaq Stock Market
at such time. Until such approval or written opinion is obtained or such action
has been taken by the required number of holders, no original purchaser of
Series B Preferred Stock (collectively, the "Investors") shall be issued, upon
conversion of Series B Preferred Stock, shares of Common Stock in an amount
greater than the product of (x) the Exchange Cap amount multiplied by (y) a
fraction, the numerator of which is the number of shares of Series B Preferred
Stock originally issued to such Investor and the denominator of which is the
aggregate amount of all the Series B Preferred Stock issued to the Investors
(the "Cap Allocation Amount"). In the event that any Investor shall sell or
otherwise transfer any of such Investor's Series B Preferred Stock, the
transferee shall be allocated a pro rata portion of such Investor's Cap
Allocation Amount. In the event that any holder of Series B Preferred Stock
shall convert all of such holder's Series B Preferred Stock into a number of
shares of Common Stock that, in the aggregate, is less than such holder's Cap
Allocation Amount, then the difference between such holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such holder
shall be allocated to the Cap Allocation Amounts of the remaining holders of
Series B Preferred Stock on a pro rata basis in proportion to the number of
Series B Preferred Stock then held by each such holder.
11
7. Adjustment of Conversion Rate. The Series B Conversion Rate from
time to time in effect shall be subject to adjustment from time to time as
follows.
(a) Stock Splits, Dividends and Combinations. In case the
Corporation shall at any time subdivide the outstanding shares of Common Stock
or shall issue a dividend in Common Stock on its outstanding Common Stock, the
Conversion Rate in effect immediately prior to such subdivision or the issuance
of such dividend shall be proportionately decreased, and in case the Corporation
shall at any time combine the outstanding shares of Common Stock into a lesser
number of shares of Common Stock, the Conversion Rate in effect immediately
prior to such combination shall be proportionately increased, concurrently with
the effectiveness of such subdivision, dividend or combination, as the case may
be.
(b) Noncash Dividends, Stock Purchase Rights, Capital
Reorganizations and Dissolutions. In case:
(i) the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend or any other distribution, payable otherwise than in
cash; or
(ii) the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of stock of any class or to
receive any other rights; or
(iii) of any capital reorganization of the
Corporation, reclassification of the capital stock of the Corporation
(other than a subdivision or combination of its outstanding shares of
Common Stock), consolidation or merger of the Corporation with or into
another Corporation that is not a Liquidating Event or conveyance of
all or substantially all of the assets of the Corporation to another
Corporation that is not a Liquidating Event (an "Organic Change");
then, and in any such case, the Corporation shall cause to be mailed to the
transfer agent for the Series B Preferred Stock, if any, and to the holders of
record of the outstanding Series B Preferred Stock, at least ten (10) days prior
to the date hereinafter specified, a notice stating the date on which (A) a
record is to be taken for the purpose of such dividend, distribution or rights
or (B) such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up. In addition, prior to the
Organic Change, the Corporation will make appropriate provision (in form and
substance reasonably satisfactory to the holders of sixty-six and two-thirds
percent (66-2/3%) of the Series B Preferred Stock then outstanding) to insure
that each of the holders of the Series B Preferred Stock will thereafter have
the right to acquire and receive in lieu of or in addition to (as the case may
be) the shares of Common Stock otherwise acquirable and receivable upon the
conversion of such holder's Series B Preferred Stock, such shares of stock,
securities or assets as would have been
12
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock that would have been acquirable and receivable
had all of such holder's Series B Preferred Stock been converted into shares of
Common Stock immediately prior to such Organic Change (without taking into
account any limitations or restrictions on the timing or amount of conversions).
In any such case, the Corporation will make appropriate provision (in form and
substance reasonably satisfactory to the holders of sixty-six and two-thirds
percent (66-2/3%) of the Series B Preferred Stock then outstanding) with respect
to such holders' rights and interests to insure that the provisions of this
Section 7(b) will thereafter be applicable to the Series B Preferred Stock. The
Corporation will not effect any such consolidation, merger or sale, unless prior
to the consummation thereof, the successor entity (if other than the
Corporation) resulting from consolidation or merger or the entity purchasing
such assets assumes, by written instrument (in form and substance reasonably
satisfactory to the holders of sixty-six and two-thirds percent (66-2/3%) of the
Series B Preferred Stock then outstanding), the obligation to deliver to each
holder of Series B Preferred Stock such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
acquire.
(c) Issuances at Less Than the Conversion Price. Upon the
issuance or sale by the Corporation, during the period ending twelve (12) months
following the applicable Issue Date (the "MFN Period") of:
(i) Common Stock for a Per Share Selling Price less than
any Conversion Price in effect immediately prior to the time of such issue or
sale; or
(ii) any Stock Purchase Rights where the Per Share Selling
Price for which shares of Common Stock may at any time thereafter be issuable
upon exercise thereof (or, in the case of Stock Purchase Rights exercisable for
the purchase of Convertible Securities, upon the subsequent conversion or
exchange of such Convertible Securities) shall be less than any Conversion Price
in effect immediately prior to the time of the issue or sale of such Stock
Purchase Rights; or
(iii) any Convertible Securities where the consideration
per share for which shares of Common Stock may at any time thereafter be
issuable pursuant to the terms of such Convertible Securities shall be less than
any Conversion Price in effect immediately prior to the time of the issue or
sale of such Convertible Securities;
other than an issuance of Common Stock pursuant to Sections 7(a) or 7(f) hereof
(any such issuance shall be referred to hereinafter as a "Dilutive Issuance"),
then forthwith upon such issue or sale, such applicable Conversion Price shall
be reduced to such lower Per Share Selling Price.
Notwithstanding the foregoing, no Conversion Price shall at such time
be reduced if such reduction would be an amount less than $.01, but any such
amount shall be carried forward and deduction with respect thereto made at the
time of and together with any subsequent reduction that, together with such
amount and any other amount or amounts so carried forward, shall aggregate $.01
or more.
(d) For purposes of this Section 7, the following provisions
will be applicable:
13
(i) "Convertible Securities" shall mean evidences of
indebtedness, shares of stock (including, without limitation, the Series A
Preferred Stock and Series B Preferred Stock) or other securities that are
convertible into or exchangeable for, with or without payment of additional
consideration, shares of Common Stock.
(ii) "Stock Purchase Rights" shall mean any warrants,
options or other rights to subscribe for, purchase or otherwise acquire any
shares of Common Stock or any Convertible Securities.
(iii) Convertible Securities and Stock Purchase Rights
shall be deemed outstanding and issued or sold at the time of such issue or
sale.
(iv) The term "Per Share Selling Price" shall include the
amount actually paid by third parties for each share of Common Stock. In the
event the Corporation in connection with such transaction pays a fee in excess
of 6%, any such excess amount shall be deducted from the selling price pro rata
to all shares sold in the transaction to arrive at the Per Share Selling Price.
A sale in a capital raising transaction of shares of Common Stock shall include
the sale or issuance of rights, options, warrants or convertible securities
under which the Corporation is or may become obligated to issue shares of Common
Stock, and in such circumstances the Per Share Selling Price of the Common Stock
covered thereby shall also include the exercise or conversion price thereof (in
addition to the consideration received by the Corporation upon such sale or
issuance less the excess fee amount, if any, as provided above). In case of any
such security issued within the MFN Period in a "Variable Rate Transaction" or
"MFN Transaction" (each as defined below), the Per Share Selling Price shall be
deemed to be the lowest conversion or exercise price at which such securities
are converted or exercised or might have been converted or exercised in the case
of a Variable Rate Transaction, or the lowest adjustment price in the case of an
MFN Transaction, each over the life of such securities.
(v) "Variable Rate Transaction" means a transaction in
which the Corporation issues or sells (a) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (x) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the Common Stock at any time after the
initial issuance of such debt or equity securities, or (y) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such security or upon the occurrence
of specified or contingent events directly or indirectly related to the business
of the Corporation or the market for the Common Stock, or (b) any securities of
the Corporation issued or issuable pursuant to an "equity line" structure which
provides for the sale, from time to time, of securities of the Corporation which
are registered for resale pursuant to the Securities Act.
(vi) "MFN Transaction" means a transaction in which the
Corporation issues or sells any equity securities in a capital raising
transaction or series of related transactions (the "New Offering") which grants
to an investor (the "New Investor") the right to receive additional shares based
upon future equity raising transactions of the Corporation on terms more
favorable than those granted to the New Investor in the New Offering.
14
(vii) Determination of Consideration. The "consideration
actually received" by the Corporation for the issuance, sale, grant or
assumption of shares of Common Stock, Stock Purchase Rights or Convertible
Securities, irrespective of the accounting treatment of such consideration,
shall be valued as follows:
(A) Cash Payment. In the case of cash, the net
amount received by the Corporation after deduction of any accrued interest or
dividends and before deducting any expenses paid or incurred and any
underwriting commissions or concessions paid or allowed by the Corporation in
connection with such issue or sale;
(B) Noncash Payment. If shares are issued for a
consideration other than cash, the Per Share Selling Price shall be the fair
market value of such consideration as determined in good faith by independent
certified public accountants mutually acceptable to the Corporation and the
holders of a majority of shares of Series B Preferred Stock.; and
(C) Stock Purchase Rights and Convertible
Securities. The total consideration, if any, received by the Corporation as
consideration for the issuance of the Stock Purchase Rights or the Convertible
Securities, as the case may be, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the exercise of such
Stock Purchase Rights or upon the conversion or exchange of such Convertible
Securities, as the case may be, in each case after deducting any accrued
interest or dividends.
(e) Readjustment of Conversion Rate. In the event of any
change in (i) the consideration, if any, payable upon exercise of any Stock
Purchase Rights or upon the conversion or exchange of any Convertible Securities
or (ii) the rate at which any Convertible Securities are convertible into or
exchangeable for shares of Common Stock, the applicable Conversion Rate as
computed upon the original issue thereof shall forthwith be readjusted to the
Conversion Rate that would have been in effect at such time had such Stock
Purchase Rights or Convertible Securities provided for such changed purchase
price, consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the expiration of any Stock Purchase
Rights not exercised or of any right to convert or exchange under any
Convertible Securities not exercised, the applicable Conversion Rate then in
effect shall forthwith be increased to the Conversion Rate that would have been
in effect at the time of such expiration had such Stock Purchase Rights or
Convertible Securities never been issued. No readjustment of the Conversion Rate
pursuant to this Subsection 7(e) shall (i) increase the applicable Conversion
Rate by an amount in excess of the adjustment originally made to the Conversion
Rate in respect of the issue, sale or grant of the applicable Stock Purchase
Rights or Convertible Securities or (ii) require any adjustment to the amount
paid or number of shares of Common Stock received by any holder of Preferred
Stock upon any conversion of any share of Preferred Stock prior to the date upon
which such readjustment to the Conversion Rate shall occur.
(f) Exclusions. Anything herein to the contrary
notwithstanding, the Corporation shall not be required to make any adjustment of
any Conversion Rate in the case of (i) the issuance or sale of options, or the
shares of stock issuable upon exercise of such options, to purchase shares of
Common Stock to directors, officers, employees or consultants of the
15
Corporation pursuant to stock options or stock purchase plans or agreements in
existence on the date of this filing, whether "qualified" for tax purposes or
not, pursuant to plans or arrangements approved by the Board of Directors and
stockholders, (ii) the issuance of Common Stock pursuant to warrants outstanding
as of the date of filing this Series B Certificate of Designations and (iii) the
issuance of Common Stock upon conversion of the Series A Preferred Stock or
Series B Preferred Stock. The issuances or sales described in the preceding
clauses (i), (ii) and (iii) shall be ignored for purposes of calculating any
adjustment to the Conversion Rate.
(g) Notice of Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate pursuant to this Section 7,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms thereof, and prepare and furnish to
each holder of Series B Preferred Stock affected thereby a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written notice at any time of any holder of Series B Preferred Stock furnish or
cause to be furnished to such holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the applicable Conversion Rate at the time in
effect and (iii) the number of shares of Common Stock and the amount, if any, of
other property that at the time would be received upon the conversion of such
holder's shares.
8. Redemption. So long as a Registration Statement covering the resale
of the Common Stock issued or issuable upon conversion of the Series B Preferred
Stock is effective (but only for so long as such Registration Statement is
required to remain effective), at any time after the second (2nd) anniversary of
the date of this filing, at the option of the Corporation, and upon at least 30
days' written notice to the holders of Series B Preferred Stock, the Corporation
may redeem some or all of the Series B Preferred Stock, at a redemption price
equal to the greater of: (a) 125% of the Series B Original Price per share, plus
all accrued but unpaid dividends thereon; or (b) an amount equal to the product
of (1) the number of shares of Common Stock then issuable to the Investors upon
conversion of the Series B Preferred Stock being redeemed and (2) the Market
Price on the date of redemption. Holders of the Series B Preferred Stock shall
be entitled to convert their shares of Series B Preferred Stock into Common
Stock during the 30-day notice period of this Section 8.
IN WITNESS WHEREOF, Atlantic Technology Ventures, Inc. has caused this
Series B Certificate of Designations to be signed by its duly authorized officer
as of the 28th day of September 2000.
ATLANTIC TECHNOLOGY VENTURES , INC.
By: /s/ Frederic P. Zotos
-----------------------------------
Frederic P. Zotos
President
16
Exhibit A
Notice of Conversion of Series B Preferred Stock
The undersigned hereby elects to convert _____________ shares of Series
B Preferred Stock of Atlantic Technology Ventures, Inc. (the "Company") held by
the undersigned pursuant to the following terms and instructions:
Date of Conversion:____________________________________________
Applicable Conversion Price:_____________________________________
Applicable Conversion Rate:_____________________________________
Calculation of the Conversion Rate: _______________________________
-------------------------------
Number of Shares of Common Stock to be Issued:_____________________
Name in which Shares are to be Issued:______________________________
Holder:________________________________________________________
Signature:______________________________________________________
Title, if applicable:_______________________________________________
Address for delivery of shares or DTC account number for deposit of shares:
- --------------------------------------------------------------
- --------------------------------------------------------------
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES B CONVERTIBLE PREFERRED STOCK
OF
ATLANTIC TECHNOLOGY VENTURES, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
The undersigned officer of Atlantic Technology Ventures, Inc., a Delaware
corporation (the "Corporation"), pursuant to the provisions of Section 151 of
the General Corporation Law of the State of Delaware, does hereby make this
Certificate of Amendment of the Certificate Designations, Preferences and Rights
of Series B Convertible Preferred Stock filed with the office of the Secretary
of State on September 28, 2000 (the "Series B Certificate of Designations"), and
does hereby state and certify that pursuant to the authority expressly vested in
the Board of Directors of the Corporation by the Certificate of Incorporation
filed with the office of the Secretary of State on May 18, 1993, as amended, the
Board of Directors duly adopted the following resolutions
RESOLVED, the Series B Certificate of Designations is hereby amended as
follows:
(1) by striking out the sixth sentence of Section 3 of Article II in its
entirety and substituting the following:
With respect to the declaration, payment and setting apart of dividends,
other than in shares of the Corporation's capital stock, whether of cash,
securities of other persons, evidences of indebtedness, assets,
Convertible Securities (as defined below), Stock Purchase Rights (as
defined below) or rights to acquire any of the above, the holders of
Series B Preferred Stock shall be entitled to participate with the Series
A Preferred Stock, Common Stock or other Junior Securities and receive,
before any dividends shall be declared and paid upon or set aside for the
Series A Preferred Stock, Common Stock or other Junior Securities, the
same dividends or distributions, on an as-converted basis, as are proposed
to be distributed to the holders of Series A Preferred Stock, Common Stock
or other Junior Securities, in addition to the Series B Dividends set
forth above.
(2) by striking out the last sentence of Section 6(b) of Article II in its
entirety; and
(3) by striking out Section 7(a) of Article II in its entirety and
substituting the following:
(a) Stock Splits, Dividends and Combinations. In case the
Corporation shall at any time subdivide the outstanding shares of Common
Stock or shall issue a dividend in shares of its capital
stock on its outstanding shares of capital stock (other than any dividends
paid pursuant to Section 2(a) of the Certificate of Designations of the
Corporation's Series A Preferred Stock), the Conversion Rate in effect
immediately prior to such subdivision or the issuance of such dividend
shall be proportionately decreased, and in case the Corporation shall at
any time combine the outstanding shares of Common Stock into a lesser
number of shares of Common Stock, the Conversion Rate in effect
immediately prior to such combination shall be proportionately increased,
concurrently with the effectiveness of such subdivision, dividend or
combination, as the case may be.
This Amendment to the Certificate of Designations of the Corporation has
been duly adopted in accordance with Section 151 of the General Corporation Law
of the State of Delaware.
The undersigned is signing this Certificate of Amendment on behalf of the
Corporation on November 17, 2000.
/s/ Frederoc P. Zotos
----------------------
Frederic P. Zotos
President
Exhibit 10.1
AMENDMENT TO
PREFERRED STOCK PURCHASE AGREEMENT
This Amendment to the Preferred Stock Purchase Agreement dated May 12,
2000 (the "Purchase Agreement"), by and between TeraComm Research, Inc.
("TeraComm") and Atlantic Technology Ventures, Inc. ("Atlantic") is dated as of
July 18, 2000 (the "Amendment").
WHEREAS, Atlantic has since the date of the Purchase Agreement made
Subsequent Payments to TeraComm in the amount of $750,000; and
WHEREAS, the parties wish to modify their rights and obligations with
respect to Subsequent Payments under the Purchase Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Schedule 1.2 of the Purchase Agreement is hereby amended to provide
that the remaining $4 million of Subsequent Payments (including the $1 million
payments due on August 12, 2000 and November 12, 2000) are not be due and
payable until the Technology Milestone attached hereto as Attachment A has been
achieved. Within ten (10) days of TeraComm's achieving the Technology Milestone,
Atlantic shall make the $1 million Subsequent Payment currently due on August
12, 2000 (the "Second Subsequent Payment") and shall thereafter make the
remaining three $1 million Subsequent Payments on the next three-month
anniversary dates of the date of such first $1 million Subsequent Payment. The
other provisions of Section 1.2 shall remain in effect, including subparagraph
(b) with respect to failure to make timely Subsequent Payments.
2. TeraComm shall keep the representatives of Atlantic on the TeraComm
Board of Directors informed as to progress toward achieving the Technology
Milestone. If TeraComm believes it has achieved the Technology Milestone, it
will notify Atlantic in writing thereof. If Atlantic disagrees that TeraComm has
achieved the Technology Milestone, it shall so state in writing within five (5)
business days of the notice from TeraComm. If the matter cannot be resolved
within the following ten (10) business days by discussions between the parties,
the matter shall be deemed submitted to arbitration administered by the American
Arbitration Association in accordance with its commercial arbitration rules. The
place of arbitration shall be Boston, Massachusetts. With respect to the
arbitration, the parties will attempt to agree on an arbitrator with sufficient
background in fiberoptic communications development to determine the dispute. If
the parties cannot agree on such person within thirty (30) days of submission of
the matter to arbitration, each party shall pick an arbitrator with relevant
experience and those two parties shall pick a third arbitrator, and all three
will hear the arbitration.
3. Failure of Atlantic to make the Second Subsequent Payment by
midnight at the end of December 30, 2000 (whether or not TeraComm has reached
the Technology Milestone), will at the election of TeraComm be deemed to
constitute failure by Atlantic to timely make a Subsequent Payment. That
election must be voted on by the Board of Directors of TeraComm, with all
members entitled to participate in the decision (regardless of conflict of
interest).
4. All terms used as defined terms herein and not otherwise defined
herein shall have the meaning given them in the Purchase Agreement.
5. This Amendment amends the Purchase Agreement only to the extent
stated herein. All other provisions of the Purchase Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
TERACOMM RESEARCH, INC.
By: /s/ Kenneth Puzey
--------------------
Its: President
ATLANTIC TECHNOLOGY VENTURES, INC.
By: /s/ Frederic P. Zotos
-------------------------------
Its: President
2
Exhibit 10.2
CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT
between
Atlantic Technology Ventures, Inc.
and
the Investors Signatory Hereto
THIS CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT is
entered into effective as of September 28, 2000 (the "Agreement"), between the
Investors signatory hereto (each an "Investor" and together the "Investors"),
and Atlantic Technology Ventures, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate (a) up to $3,000,000 of
preferred stock of the Company and (b) warrants to purchase shares of the common
stock of the Company (as defined below)
WHEREAS, such investments will be made in reliance upon the provisions
of Regulation S and/or Section 4(2) ("Section 4(2)") and/or 4(6) of the United
States Securities Act and/or Regulation D ("Regulation D") and the other rules
and regulations promulgated thereunder (the "Securities Act"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in securities to be
made hereunder.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
In addition to the definitions set forth in the text of this Agreement,
the following capitalized terms shall have the meanings ascribed to them below:
"Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
"Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the
Company or any Warrants, options or other rights to subscribe for or purchase
Capital Shares or any such convertible or exchangeable securities.
"Closing" shall mean each closing of the purchase and sale of the
Series B Preferred Stock and Warrants pursuant to Section 2.1.
"Closing Date" shall mean the Initial Closing Date or the Second
Closing Date, as applicable.
"Common Stock" shall mean the Company's common stock, $0.001 par value
per share.
"Conversion Shares" shall mean the shares of Common Stock issuable upon
conversion of the Series B Preferred Stock purchased hereunder.
"Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency or liability, including reasonable out-of-pocket costs and expenses
(including, without limitation, reasonable attorney's fees and disbursements and
reasonable costs and expenses of expert witnesses and investigation).
"Disclosure Schedule" shall mean the written disclosure schedule, if
any, delivered on or prior to the date hereof by the Company to the Investors
that is arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Agreement.
"Effective Date" shall mean the date on which the SEC first declares
effective a Registration Statement registering the resale of the Registrable
Securities applicable to a particular Closing as set forth in the Registration
Rights Agreement.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in substantially the
form of Exhibit D hereto executed and delivered contemporaneously with this
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Initial Closing Date" shall mean the date of issuance of the Initial
Purchased Shares and the Initial Warrants.
"Initial Purchased Shares" shall mean the Purchased Shares issued on
the Initial Closing Date.
"Initial Warrants" shall mean the Warrants issued on the Initial
Closing Date.
2
"Irrevocable Transfer Agent Instructions" shall mean the Irrevocable
Transfer Agent Instructions, in the form of Exhibit F attached hereto, from the
Company to the Company's transfer agent.
"Issue Date" shall mean the date on which Purchased Shares and Warrants
are issued pursuant to Article II.
"Legend" shall mean the legend set forth in Section 9. 1.
"Market Price" on any given date shall mean the average closing bid
price on the Principal Market (as reported by such Principal Market) of the
Common Stock during the five Trading Day period ending on the Trading Day
immediately prior to the date for which the Market Price is to be determined.
"Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Series B Certificate of
Designations or the Warrants in any material respect.
"Outstanding" when used with reference to shares of Common Stock or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
"Person" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Preferred Stock" shall mean the preferred stock, par value $0.001 per
share, of the Company.
"Principal Market" shall mean the American Stock Exchange, the New York
Stock Exchange, the NASDAQ National Market, or the NASDAQ SmallCap Market,
whichever is at the applicable time the principal trading exchange or market for
the Common Stock, based upon share volume.
"Purchase Price" with respect to the issuance and sale of Series B
Preferred Stock hereunder on any given Closing Date shall mean the Market Price;
provided, however, that the Purchase Price for the shares of Series B Preferred
Stock purchased at the Initial Closing shall not exceed $3.00 per share.
3
"Purchased Shares" shall mean the Series B Preferred Stock purchased
pursuant to this Agreement.
"Registrable Securities" shall mean the Conversion Shares and the
Warrant Shares until (i) all Registration Statements have been declared
effective by the SEC, and all Conversion Shares and Warrant Shares have been
disposed of pursuant to the Registration Statements, (ii) all Conversion Shares
and Warrant Shares have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) all Conversion Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Conversion Shares and Warrant Shares may be sold within a
three-month period pursuant to Rule 144 (or any similar provision then in
effect) under the Securities Act.
"Registration Rights Agreement" shall mean the agreement regarding the
filing of each of the Registration Statements for the resale of the Registrable
Securities applicable to each particular Closing, entered into between the
Company and the Investors as of the Initial Closing Date substantially in the
form annexed hereto as Exhibit C.
"Registration Statement" shall mean any registration statement on Form
S-3 (if use of such form is then available to the Company pursuant to the rules
of the SEC and, if not, on such other form promulgated by the SEC for which the
Company then qualifies and which counsel for the Company shall deem appropriate,
and which form shall be available for the resale by the Investors of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investors under the Securities Act of
Registrable Securities issuable upon conversion of Purchased Shares, and
exercise of Warrants, issued at a Closing.
"Regulation D" shall have the meaning set forth in the recitals of this
Agreement.
"Repurchase Date" means the date of repurchase of Purchased Shares,
Warrant Shares and Conversion Shares pursuant to Section 2.4.
"Repurchase Event" means any one of the following events:
(1) The Company fails to file a Registration Statement
within 45 days after the Closing to which it relates;
(2) The Company fails to obtain effectiveness with the SEC
of a Registration Statement within120 days after the Closing to which
it relates;
(3) After the Effective Date, the inability for 30 or more
days (whether or not
4
consecutive) of any holder of Securities to sell such Securities
pursuant to the Registration Statement, but only if such inability is
attributable, directly or indirectly, to any action or omission on the
part of the Company;
(4) The Company shall fail or default in the timely
performance of any obligation (A) to issue Conversion Shares as and
when required by this Agreement, (B) to comply with Section 9.3
regarding the removal of restrictive legends and stop transfer
restrictions with respect to the Securities or (C) under the
Transaction Documents;
(5) Any consolidation or merger of the Company with or into
another entity (other than a merger or consolidation of a subsidiary of
the Company into the Company or a wholly-owned subsidiary of the
Company) where the common stock of such surviving company is not listed
for trading on the NYSE, the AMEX, the Nasdaq National Market System or
the Nasdaq SmallCap, or any sale or other transfer of all or
substantially all of the assets of the Company (provided, however, that
no transaction described in this subparagraph shall constitute a
Repurchase Event unless the Board of Directors of the Company shall
have approved such transaction);
(6) The Company amends its Certificate of Incorporation or
Bylaws, without the consent of the Investors, which amendment
materially and adversely affects the rights of any holder of the
Securities;
(7) The Company terminates the employment of A. Joseph
Rudick as Chief Executive Officer or Frederic P. Zotos as President of
the Company (including a change or diminution of his duties as such);
(8) The Company fails to comply with any of its obligations
under Section 6.13 hereof (provided, however, that failure to obtain
the stockholder approvals contemplated by Section 6.13 hereof, by
itself, will not constitute a Repurchase Event); or
(9) The Company sells, licenses, transfers (whether by
operation of law or otherwise) or otherwise disposes of all or
substantially all of its assets or technology portfolio (provided,
however, that no transaction described in this subparagraph shall
constitute a Repurchase Event unless the Board of Directors of the
Company shall have approved such transaction).
"Repurchase Notice" means a notice from an Investor to the Company
which states (1) that the Investor is thereby requiring the Company to
repurchase Purchased Shares, Warrant Shares and Conversion Shares pursuant to
Section 2.4, (2) in general terms the Repurchase Event giving rise to such
required repurchase, and (3) the number of Purchased Shares, Warrant Shares and
Conversion Shares which the Company is required to repurchase.
"Repurchase Price" means the closing sale price of the Common Stock on
the trading day prior to a Repurchase Date.
5
"SEC" shall mean the Securities and Exchange Commission.
"Second Closing" shall mean the closing of the issuance and sale of the
Second Tranche Purchased Shares and the Second TrancheWarrants.
"Second Closing Date" shall mean the date, if any, that is ninety (90)
days after the Effective Date of the original Registration Statement required to
be filed hereunder (or such later date that the conditions to the Second Closing
are satisfied or waived) or, if such date is not a Trading Day, the first
Trading Day thereafter; provided, however, if the conditions to the Second
Closing are not satisfied or waived on or before one hundred and fifty (150)
days after the Initial Closing Date, the Investors shall have no obligation to
purchase the Series B Preferred Stock or the Warrants on such date.
"Second Tranche Purchased Shares" Shall mean the Purchased Shares
issued on the Second Closing Date.
"Second Tranche Warrants" shall mean the Warrants issued on the Second
Closing Date.
"Section 4(2)" and "Section 4(6)" shall have the meanings set forth in
the recitals of this Agreement.
"Securities" shall mean the Purchased Shares, the Warrants, the Warrant
Shares and the Conversion Shares.
"Securities Act" shall have the meaning set forth in the recitals of
this Agreement.
"SEC Documents" shall mean the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1999 and each report, proxy statement or
registration statement filed by the Company with the SEC pursuant to the
Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
"Series B Certificate of Designation" shall mean the Certificate of
Designation relating to the Series B Preferred Stock attached hereto as Exhibit
A.
"Series B Preferred Stock" shall mean the Company's Series B Preferred
Stock, par value $0.001 per share, having the rights, terms, and privileges set
forth in the Company's Series B Certificate of Designations.
"Shares" shall have the meaning set forth in Section 1.16.
"Trading Day" shall mean any day during which the Principal Market
shall be open for business.
6
"Transaction Documents" shall mean this Agreement, the Registration
Rights Agreement, the Series B Certificate of Designations, the Escrow
Agreement, the Irrevocable Transfer Agent Instructions and each of the other
agreements, documents and instruments entered into and delivered by the parties
hereto in connection with the transactions contemplated by this Agreement.
"Warrants" shall mean the Warrants substantially in the form of Exhibit
B to be issued to the Investors hereunder.
"Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
Purchase and Sale of Purchased Shares and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell and the Investors agree to purchase the Purchased Shares
together with the Warrants at the Purchase Price as follows:
(i) On the Initial Closing Date, the Company shall sell,
and the Investors shall purchase, an aggregate of
$2,000,000 of Purchased Shares at the applicable
Purchase Price and Warrants in an amount and with an
exercise price as provided in Section 2.1(c),
provided, however, that $1,000,000 of the Purchase
Price, together with the Purchased Shares represented
thereby and a pro rata portion of the Warrants, shall
be held in escrow pursuant to the terms of the Escrow
Agreement.
(ii) On the Second Closing Date, if any, the Company shall
sell, and the Investors shall purchase, an aggregate
of $1,000,000 of Purchased Shares at the applicable
Purchase Price and Warrants in an amount and with an
exercise price as provided in Section 2.1(c).
(b) Each Closing shall occur on the applicable Closing Date at the
Escrow Agent's offices, at which time the Escrow Agent (x) shall release to the
Investors those Purchased Shares and Warrants to be issued on such Closing Date
which are not being escrowed pursuant to the Escrow Agreement (and/or provide
evidence satisfactory to the Investors of delivery of the Irrevocable Transfer
Agent Instructions with respect to those Purchased Shares and Warrants) and (y)
shall release to the Company the entire amount of the aggregate Purchase Price
that is not being escrowed pursuant to the Escrow Agreement in immediately
available
7
funds (after all fees have been paid as set forth in the Escrow Agreement to be
paid on such Closing Date), pursuant to the terms of the Escrow Agreement.
(c) The number of Warrants to be issued at each Closing shall be an
amount equal to 67,000 Warrants for each $1,000,000 in aggregate Purchase Price
paid for the Purchased Shares issued at that Closing, and the exercise price of
the Warrants shall be 110% of the lower of (1) the Market Price on the Issue
Date or (2) the Market Price one hundred eighty (180) days after the applicable
Closing Date. It is agreed that the aggregate number of Warrants to be issued on
the Initial Closing Date shall be 120,600. Each Warrant, upon issuance, will be
exercisable for one (1) share of the Company's Common Stock.
(d) [Intentionally Deleted]
(e) The obligation of the Company hereunder to issue and sell the
Purchased Shares and the Warrants to the Investors at each Closing is subject to
the satisfaction, at or before such Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Investor with prior written notice thereof:
(i) The Investors shall have executed each of the Transaction
Documents to be executed by them and delivered the same to the Company.
(ii) The Escrow Agent shall have delivered to the Company the
aggregate Purchase Price for those Purchased Shares and the Warrants
being purchased by the Investors at the Closing which are not being
escrowed pursuant to the Escrow Agreement by wire transfer of
immediately available funds pursuant to the written wire instructions
provided by the Company.
(iii) The representations and warranties of the Investors
shall be true and correct as of the date when made and as of such
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall have been
true and correct as of such date), and the Investors shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed,
satisfied or complied with by them at or prior to such Closing Date.
(f) The obligation of each Investor hereunder to purchase the Purchased
Shares and Warrants at each Closing is subject to the satisfaction, at or before
the Closing Date thereof, of each of the following conditions, provided that
these conditions are for each Investor's sole benefit and may be waived by such
Investor at any time in its sole discretion by providing the Company with prior
written notice thereof:
(i) The Company and each other Investor shall have executed
each of the Transaction Documents to be executed by it and delivered
the same to such Investor.
8
(ii) The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been
suspended by the Principal Market or the SEC at any time beginning on
the date hereof and through and including such Closing Date, and the
Company shall not have been notified by the Principal Market or the SEC
of any pending or threatened proceeding or other action to delist or
suspend the Common Stock.
(iii) The representations and warranties of the Company shall
be true and correct as of the date when made and as of such Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date, which shall have been true
as of such date), and the Company shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by
the Company at or prior to such Closing Date. Such Investor shall have
received a certificate, executed by the Company's President, dated as
of such Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Investor, including,
without limitation, an update as of the Closing Date regarding the
representation contained in Section 4.3 below.
(iv) Such Investor shall have received the opinion of the
Company's counsel dated as of such Closing Date, in form, scope and
substance reasonably satisfactory to such Investor and in substantially
the form of Exhibit E attached hereto.
(v) The Company shall have executed and delivered (or shall
have caused the Escrow Agent to deliver) to such Investor certificates
representing the Purchased Shares (in such denominations as such
Investor shall request) being purchased by such Investor at such
Closing.
(vi) The Company shall have executed and delivered (or shall
have caused the Escrow Agent to deliver) to such Investor the Warrants
(in such denominations as such Investor shall request) being purchased
by such Investor at such Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 4.2 below and in a form reasonably
acceptable to such Investor (the "Resolutions").
(viii) As of such Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the issuance of the shares of Common Stock
issuable in connection with this Agreement, a number of shares of
Common Stock equal to at least 200% of the number of (x) Conversion
Shares issuable upon conversion of the Purchased Shares to be
outstanding on such Closing Date (assuming all such Purchased Shares
were fully convertible on such date regardless of any limitations on
the timing or amount of such conversions) and (y) Warrant Shares
issuable upon exercise of the Warrants to be outstanding on such
Closing Date (assuming
9
all such Warrants were fully exercisable on such date regardless of any
limitation on the timing or amount of such exercises).
(ix) The Company shall have delivered the Irrevocable Transfer
Agent Instructions to its Transfer Agent, and such Transfer Agent shall
have acknowledged receipt thereof in writing.
(x) The Company shall have delivered to such Investor a
certificate evidencing good standing of the Company and each Subsidiary
in such corporation's state of incorporation and each other state in
which the nature of its business requires qualification to conduct
business therein issued by the Secretary of State of such states as of
a date within ten (10) days of such Closing Date.
(xi) The Company shall have delivered to such Investor a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten (10) days of
such Closing Date.
(xii) The Company shall have delivered to such Investor a
certificate, executed by the Company's Secretary dated such Closing
Date, as to (i) the Resolutions, (ii) the Company's Certificate of
Incorporation and (iii) the Company's Bylaws, each as in effect on the
Closing Date.
(xiii) The Company shall have delivered to such Investor such
other documents relating to the transactions contemplated by this
Agreement as such Investor or its counsel may reasonably request.
(xiv) Each other Investor shall have purchased its pro rata
share of the Securities to be purchased by it at such Closing.
(g) In addition to the conditions to Closing set forth in Section
2.1(f) above, each Investor's obligation hereunder to purchase the Securities to
be purchased by it on the Second Closing Date shall be subject to the
satisfaction, on or before the Second Closing Date, of each of the following
additional conditions, provided that these conditions are for the Investor's
sole benefit and may be waived by it at any time in its sole discretion by
providing the Company with prior written notice thereof:
(i) the original Registration Statement required to be filed
hereunder with respect to the shares of Common Stock issuable upon
conversion of the Initial Purchased Shares and the Initial Warrants
shall be effective on the Second Closing Date;
(ii) the Company shall have received stockholder approval of
the Company's issuance of all of the Securities in excess of any
limitation or cap imposed by the Principal Market as contemplated by
Section 6.13;
10
(iii) each of the Transaction Documents shall be and remain in
full force and effect on and as of such Closing Date;
(iv) average of the closing bid prices of the Common Stock on
the Principal Market for the period of twenty (20) consecutive trading
days ending on the trading day immediately preceding the Second Closing
Date shall be not less than the Market Price on the Initial Closing
Date;
(v) the average daily trading volume of the Common Stock on
the Principal Market for the forty (40) trading days immediately
preceding such Closing Date shall be not less than the average daily
trading volume for the forty (40) trading days immediately preceding
the Initial Closing Date; and
(vi) Such Investor shall have received a certificate, executed
by the Company's Chief Executive Officer, dated as of the Second
Closing Date, to the effect that since the Initial Closing Date, (i) no
Material Adverse Effect has occurred or exists, except as disclosed in
any SEC Documents filed at least five (5) days prior to the Second
Closing Date, and available on EDGAR, and (ii) the Company has not
taken any steps, and does not currently expect to take any steps, to
seek protection pursuant to 11 U.S.C. ss.ss. 101 et seq. (the
"Bankruptcy Code") or any similar state bankruptcy law nor does the
Company have any knowledge or reason to believe that its creditors
intend to an initiate involuntary proceeding under the Bankruptcy Code
or any such state law.
Section 2.2. Liquidated Damages. The parties hereto acknowledge and agree that
the sums payable pursuant to the Registration Rights Agreement shall constitute
liquidated damages and not penalties. The parties further acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to precisely estimate, (b) the amounts specified in such agreement bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
both this Agreement and the Registration Rights Agreement at arm's length.
Section 2.3. [Intentionally Deleted]
Section 2.4 Repurchase at Option of the Investors.
(a) Repurchase Right. If a Repurchase Event occurs while any of an
Investor's Purchased Shares, Warrant Shares or Conversion Shares are
outstanding, then, in addition to any other right or remedy of the Investors,
each Investor shall have the right, at such Investor's option, to require the
Company to repurchase all of such Investor's Purchased Shares, Warrant Shares
and Conversion Shares then owned by such Investor, or any portion thereof, on
the date that is three business days after the date such Investor gives the
Company a Repurchase Notice
11
with respect to such Repurchase Event at any time, for an aggregate amount (the
"Repurchase Amount") equal to the greater of (a) 125% of the aggregate Purchase
Price and Exercise Price, as the case may be, paid for the Securities to be
repurchased or (b) the aggregate Repurchase Price for the number of Conversion
Shares held by or issuable to the Investors and the Warrant Shares being
repurchased on the Repurchase Date.
(b) Notices; Method of Exercising Optional Repurchase Rights, Etc. (1)
On or before the fifth business day after the occurrence of a Repurchase Event,
the Company shall give to each of the Investors a notice of the occurrence of
such Repurchase Event and of the repurchase right set forth herein arising as a
result thereof. Such notice from the Company shall set forth:
(i) the day by which the optional repurchase right must be
exercised, and
(ii) a description of the procedure (set forth below) which an
Investor must follow to exercise the Investor's optional repurchase right.
No failure of the Company to give such notice or defect therein shall limit the
right of an Investor to exercise the optional repurchase right or affect the
validity of the proceedings for the repurchase of an Investor's Securities.
To exercise its optional repurchase right, an Investor shall
deliver to the Company on or before the 30th day after the notice required by
Section 2.4(b)(1) is given to such Investor (or if no such notice has been given
by the Company to such Investor, within 40 days after such Investor first learns
of such Repurchase Event) a Repurchase Notice to the Company. A Repurchase
Notice may be revoked by an Investor giving such Repurchase Notice by giving
notice of such revocation to the Company at any time prior to the time the
Company pays the Repurchase Price to such Investor.
If an Investor shall have given a Repurchase Notice, on the
date which is three business days after the date such Repurchase Notice is given
(or such later date as such Investor surrenders its certificates for the
Securities repurchased) the Company shall pay the Repurchase Amount in
immediately available funds to such account as specified by such Investor in
writing to the Company at least one business day prior to the applicable
Repurchase Date.
(c) Other. (1) In connection with a repurchase pursuant to this Section
2.4 of less than all of the shares evidenced by a particular certificate,
promptly, but in no event later than five business days after surrender of such
certificate to the Company, the Company shall issue and deliver to the Investor
a replacement certificate for the shares evidenced by such certificate which
have not been repurchased.
(2) A Repurchase Notice given by an Investor shall be deemed
for all purposes to be in proper form unless the Company notifies such Investor
in writing within three business days after such Repurchase Notice has been
given (which notice shall specify all defects in such Repurchase Notice), and
any Repurchase Notice containing any such defect shall nonetheless be effective
on the date given if such Investor promptly corrects all such defects. No such
claim of
12
error shall limit or delay performance of the Company's obligation to repurchase
all Securities if that obligation is not in dispute whether or not the Investor
makes such corrections.
(3) The Company agrees that if it shall repurchase any of the
Securities that it shall make such redemption pro-rata among all Investors in
proportion their initial purchases of such Securities pursuant to this
Agreement.
ARTICLE III
Representations and Warranties of the Investors
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Securities. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Securities to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold such securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with federal and state securities laws applicable to such
disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and the Investor has such experience
in business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Securities. The Investor acknowledges
that an investment in the Securities is speculative and involves a high degree
of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an exhibit
hereto that is required to be executed by Investor has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Disclosure; Access to Information. The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Investor has reviewed copies of all SEC Documents deemed relevant by
Investor.
13
Section 3.6. Manner of Sale. At no time was the Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.7. No Conflicts. The execution, delivery and performance of this
Agreement by the Investor and the consummation by the Investor of the
transactions contemplated hereby do not and will not (i) result in a violation
of the Investor's organizational documents or any material agreement, contract
or other instrument to which the Investor is a party or (ii) result in a
violation of any federal, state or local law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations)
applicable to the Investor or by which any material property or asset of the
Investor is bound or affected, nor is the Investor otherwise in violation of,
conflict with or default under any of the foregoing (except in each case for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not have, individually or in the aggregate, a Material
Adverse Effect). The Investor is not required under any federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or to purchase the Purchased Shares or the Warrants in accordance with
the terms hereof.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and Warrants to the Investors that, except as set forth
on the Disclosure Schedule, if any, prepared by the Company and delivered
herewith:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Securities pursuant to the terms of the Transaction
Documents, (ii) the execution, issuance and delivery of this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Purchased Shares
certificates and the Warrants by the Company, the filing of the Series B
Certificate of Designations with the Delaware Secretary of State, and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this
14
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Purchased Shares certificates and the Warrants have been duly executed and
delivered by the Company and at the Closing shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company has duly and validly authorized and reserved
for issuance shares of Common Stock sufficient in number to comply with the
terms of the Transaction Documents with respect to the conversion of the
Purchased Shares and for the exercise of the Warrants. The Company understands
and acknowledges the potentially dilutive effect to the Common Stock of the
potential future issuance of the Conversion Shares. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Purchased Shares and Warrant Shares upon exercise of the Warrants in
accordance with this Agreement is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under the Bankruptcy Code. The Company shall not seek judicial relief from its
obligations hereunder except pursuant to the Bankruptcy Code. In the event the
Company is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C. ss.
362 in respect of the conversion of the Purchased Shares and the exercise of the
Warrants. The Company agrees, without cost or expense to the Investors, to take
or consent to any and all action necessary to effectuate relief under 11 U.S.C.
ss. 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, of which 6,059,886 shares were
issued and outstanding as of September 28, 2000 and 10,000,000 shares of
Preferred Stock, 1,375,000 of which are designated Series A Preferred Stock,
371,544 of which were issued and outstanding as of September 28, 2000, and
2,000,000 of which are designated Series B Preferred Stock, none of which were
issued and outstanding prior to the transactions contemplated hereby. Except for
outstanding options and warrants as set forth in the SEC Documents, as of the
date of this Agreement there are no outstanding Capital Shares Equivalents nor
any agreements or understandings pursuant to which any Capital Shares
Equivalents may become outstanding. Except as set forth in the SEC Documents,
the Company is not a party to any agreement granting registration or
anti-dilution rights to any person with respect to any of its equity or debt
securities. All of the outstanding shares of Common Stock and Preferred Stock
have been duly and validly authorized and issued and are fully paid and
nonassessable and were issued in registered transactions or transactions exempt
from the registration provision of the Securities Act and in compliance with
applicable state securities or "blue sky" laws, except as would not have a
Material Adverse Effect.
Section 4.4. Common Stock. The Company has registered the Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of the Common
Stock, and the Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq SmallCap
Market and the Company has not received any notice regarding, and to its
15
knowledge there is no threat of, the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has made available to the Investors true
and complete copies of the SEC Documents. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
(a) complied in all material respects with the requirements of the Exchange Act,
and rules and regulations of the SEC promulgated thereunder, and (b) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
interim statements, to normal year-end audit adjustments). Neither the Company
nor any of its subsidiaries has any material indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due) that would have been required to be reflected in,
reserved against or otherwise described in the financial statements or in the
notes thereto in accordance with GAAP, which was not fully reflected in,
reserved against or otherwise described in the financial statements or the notes
thereto included in the SEC Documents or was not incurred in the ordinary course
of business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Purchased Shares and Warrants pursuant to this Agreement will not require
registration under the Securities Act and/or any applicable state securities
law. When issued and paid for in accordance with the Warrants and validly
converted in accordance with the terms of the Series B Certificate of
Designations, the Conversion Shares and the Warrant Shares will be duly and
validly issued, fully paid, and nonassessable. Neither the sales of the
Purchased Shares and Warrants pursuant to, nor the Company's performance of its
obligations under, this Agreement, the Registration Rights Agreement, Series B
Certificate of Designations, the Escrow Agreement, or the Warrants will (i)
result in the creation or imposition by the Company of any liens, charges,
claims or other encumbrances upon the Securities or, except as contemplated
herein, any of the assets of the Company, or (ii) entitle the holders of
Outstanding Capital Shares to preemptive or other rights to subscribe for or
acquire the Capital Shares or other securities of the Company. The Securities
shall not subject the Investors to personal liability to the Company or its
creditors by reason of the possession thereof.
16
Section 4.7. No Directed Selling, General Solicitation or Advertising in Regard
to this Transaction. Neither the Company nor any of its affiliates nor, to the
knowledge of the Company, any person acting on its or their behalf (i) has
engaged or will engage in any directed selling efforts in violation of the
requirements of Regulation S, (ii) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to the sale of the Purchased Shares or the Warrants, or
(iii) made any offers or sales of any security or solicited any offers to buy
any security under any circumstances that would require registration of the sale
of the Securities under the Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not (i) result in a violation of the
Company's Certificate of Incorporation or Bylaws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state or local law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any material property or asset of the Company is bound or
affected, nor is the Company otherwise in violation of, conflict with or default
under any of the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not have, individually or in the aggregate, a Material Adverse Effect). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not have a Material
Adverse Effect. The Company is not required under any federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Purchased Shares or the Warrants in accordance
with the terms hereof (other than any SEC, Principal Market or state securities
filings that may be required to be made by the Company subsequent to any
Closing, any Registration Statement that may be filed pursuant hereto, and any
shareholder approval required by the rules applicable to companies whose common
stock trades on the Principal Market); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investors
herein.
Section 4.9. No Material Adverse Change. Since June 30, 2000, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since June 30, 2000, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
17
Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, (a) the
Company has not issued, offered or sold any Capital Shares (including for this
purpose any securities of the same or a similar class as the Purchased Shares,
the Warrants or Common Stock, or any securities convertible into a exchangeable
or exercisable for Common Stock) within the six-month period next preceding the
date hereof, and (b) the Company shall not permit any of its directors, officers
or affiliates directly or indirectly to take, any action so as to make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Investors of the Purchased Shares (and the
Conversion Shares) and the Warrants (and the Warrant Shares) as contemplated by
this Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are as of the date of this Agreement no lawsuits or proceedings
pending or, to the knowledge of the Company, threatened, against the Company or
any subsidiary, nor has the Company received any written or oral notice of any
such action, suit, proceeding or investigation, which could reasonably be
expected to have a Material Adverse Effect. Except as set forth in the SEC
Documents, as of the date of this Agreement, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect. There is as of the date of this Agreement
no action, proceeding or investigation by the Company currently pending or that
the Company intends to initiate.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Purchased Shares or the Warrants in
connection with the transaction contemplated by this Agreement, have not made to
the Investors, at any time, any oral communication in connection with the offer
or sale of the same which, together with all such communications, including the
SEC Documents, taken as a whole, contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Investors any material non-public information that (i) if disclosed, would
reasonably be expected to have a material effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate and consistent with industry standards and
the Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
18
Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns which it
is required to file prior to the date of this Agreement under applicable laws;
all such Tax Returns are true and accurate in all material respects and have
been prepared in compliance with all applicable laws; the Company has paid all
material amounts of Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all material amounts of Taxes which
it is required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third parties; and since December 31, 1999, the
charges, accruals and reserves for Taxes with respect to the Company (including
any provisions for deferred income taxes) reflected on the books of the Company
are adequate to cover any material Tax liabilities, individually or
collectively, of the Company if its current tax year were treated as ending on
the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file Tax Returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local Tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any subsidiary; and no
written notice indicating an intent to open an audit or other review has been
received by the Company or any subsidiary from any foreign, federal, state or
local taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to and is not required to make any
adjustments pursuant to ss. 481(a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries, does not have any
knowledge that the IRS has proposed any such adjustment or change in accounting
method, and does not have any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United States
real property holding corporation within the meaning of ss. 897(c)(2) of the
Internal Revenue Code during the applicable period specified in ss.
897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another Person
that is not a subsidiary of the Company (A) under Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
not obligated to make payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
19
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its subsidiaries owns any
real property. Each of the Company and its subsidiaries has good and marketable
title to all personal property owned by it, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company; and to the Company's knowledge any real
property held under lease by the Company as tenant are held by it under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and intended to be made of such property,
mineral or water rights, and buildings by the Company.
Section 4.18. Intellectual Property Rights. The Company has sufficient title and
ownership of or license rights to all patents, patent applications, trademarks,
service marks, trade names, copyrights, and all registrations and applications
for registration of any of the foregoing, and all trade secrets, information,
inventions, computer programs of the Company, documentation, proprietary rights
and processes (collectively, "Intellectual Property") necessary for its business
as now conducted without any conflict with and without infringement of the
rights of others. The Company has not received any communications alleging that
it has violated or, by conducting its businesses as currently proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other Person. The Company
does not believe it is or will be necessary to use any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company (unless made prior to employment as an independent
contractor to the Company).
Section 4.19 Proprietary Information; Noncompetition Covenants.
(a) To the knowledge of the Company, the Company has done
nothing to compromise the secrecy, confidentiality or value of any of its trade
secrets, know-how, inventions, prototypes, designs, processes or technical data
required to conduct its business as now conducted or as proposed to be
conducted. The Company has taken in the past and will take in the future
reasonable security measures to protect the secrecy, confidentiality and value
of all its trade secrets, know-how, inventions, prototypes, designs, processes,
and technical data important to the conduct of its business.
20
(b) Each current employee of the Company's subsidiaries has
executed a nondisclosure and assignment of inventions agreement in the form
previously provided by the Company to the Investors. Each scientific consultant
to the Company has executed a confidentiality and assignment agreement
restricting the disclosure of proprietary information of the Company and
assigning to the Company all inventions made by such scientific consultant in
the course of consulting for the Company. The Company is not aware that any of
the employees, officers or scientific consultants of the Company, past or
present, is in violation of such agreements, and the Company will use its best
efforts to prevent any such violation.
4.20. Company Software.
(a) The Company has all technical and descriptive materials
for all software used in connection with the business of the Company other than
off-the-shelf software acquired for less than $10,000 per application (the
"Company Software") as is necessary to run its business in accordance with its
historical practices, except as would not have a material adverse effect on the
Company.
(b) The use of the Company Software does not breach any terms
of any contract or agreement. The Company either owns or has been granted under
license agreements relating to the Company Software (the "Company License
Agreements") valid and subsisting rights with respect to all software comprising
the Company Software and such rights may be exercised anywhere in the world. The
Company is in compliance with each of the terms and conditions of each of the
Company License Agreements except to the extent failure to so comply,
individually or in the aggregate, would not have a material adverse effect on
the Company. In the case of any commercially available "shrink-wrap" software
programs (such as Lotus 1-2-3 or Microsoft Word), the Company has not made and
is not using any unauthorized copies of any such software programs and, to the
knowledge of the Company, none of the employees, agents or representatives of
the Company have made or are using any such unauthorized copies in the conduct
of the Company's business, except as would not have a material adverse effect on
the Company.
(c) The Company Software and the related computer hardware
used by the Company in its operations (the "Company Hardware") are adequate in
all material respects, when taken together with the other assets, resources and
personnel of the Company, to run the business of the Company in the same manner
as such business has operated since inception. The Disclosure Schedule contains
a summary description of any unusual problems experienced by the Company in the
past twelve months with respect to the Company Software or Company Hardware that
would result in an adverse effect on the Company.
Section 4.21. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are
21
recorded as necessary to permit preparation of the financial statements of the
Company in accordance with U.S. generally accepted accounting principles.
Section 4.22. Payments and Contributions. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.23. Acknowledgment Regarding Investors' Purchase of the Securities.
The Company acknowledges and agrees that each of the Investors is acting solely
in the capacity of arm's-length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Investor is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
of the Investors or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to such Investor's purchase of the Purchased Shares
and Warrants. The Company further represents to each Investor that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
Section 4.24. Employees. To the best of the Company's knowledge, no employee of
the Company is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would conflict with
such employee's obligation to use his best efforts to promote the interests of
the Company or that would conflict with the Company's business as conducted or
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as currently proposed, will,
to the Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. To
the best of the Company's knowledge, no employee or consultant of the Company is
in violation of any term of any employment contract, proprietary information and
inventions agreement, noncompetition agreement or any other contract or
agreement relating to the relationship of any such employee or consultant with
the Company or any previous employer. To the best of the Company's knowledge, as
of the date of this Agreement, no officer of the Company nor any Key Employee
(as hereinafter defined) of the Company, the termination of whose employment,
either individually or in the aggregate, would have a materially adverse effect
on the Company, has expressed to the Company any intention of terminating his or
her employment with the Company. The Company has no collective bargaining
agreements with any of its employees and to the best of the Company's knowledge
there is no labor-union-organizing activity pending or threatened with respect
to the Company. For purposes of this Agreement, "Key Employee" means and
includes each officer of the Company and each
22
employee who contributes to the invention, design or authorship of the Company's
Intellectual Property.
Section 4.25. Environmental Matters.
(a) The Company has duly complied with, and, to the best
knowledge of the Company, all the real estate leased by it either currently or
in the past (hereinafter referred to collectively as the "Premises") are in
compliance in all material respects with, the provisions of all federal, state
and local environmental, health and safety laws, codes and ordinances and all
rules and regulations promulgated thereunder.
(b) The Company has been issued all material federal, state
and local permits, licenses, certificates and approvals known to the Company to
be required relating to (i) air emissions, (ii) discharges to surface water or
ground water, (iii) noise emissions, (iv) solid or liquid waste disposal, (v)
the use, generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (intended hereby and hereafter to include any and all such
materials listed in any federal, state or local law, code or ordinance and all
rules and regulations promulgated thereunder, as hazardous or potentially
hazardous), or (vi) other environmental, health and safety matters.
(c) The Company has not received notice of, nor does the
Company know of any facts that might constitute, any violation of any federal,
state or local environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder, that relate to the use,
ownership or occupancy of any of the Premises, and the Company is not in
violation of any covenants, conditions, easements, rights-of-way or restrictions
affecting any of the Premises or any rights appurtenant thereto, except for
violations that would not reasonably be expected to have a Material Adverse
Effect.
(d) Except in accordance with a valid governmental permit,
license, certificate or approval, to the best of the Company's knowledge, the
Company has not caused any emission, spill, release or discharge into or upon
(i) the air, (ii) soils or any improvements located thereon, (iii) surface water
or ground water, or (iv) the sewer, septic system or waste treatment, storage or
disposal system servicing any of the Premises, of any toxic or hazardous
substances or wastes at or from any of the Premises.
(e) There has been no complaint, order, directive (other than
directives applicable to the general public), claim, citation or notice by any
governmental authority or any other Person with respect to (i) air emissions,
(ii) spills, releases or discharges to soils or any improvements located
thereon, surface water, ground water or the sewer, septic system or waste
treatment, storage or disposal systems servicing any of the Premises, (iii)
noise emissions, (iv) solid or liquid waste disposal, (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or wastes
or (vi) other environmental, health or safety matters affecting the Company, any
of the Premises or any improvements located thereon, or the businesses thereon
conducted.
23
Section 4.26. Regulatory Permits. The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such items would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
Section 4.27. No Materially Adverse Contracts, Etc. Neither the Company nor any
of its subsidiaries is subject to any contractual restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company's
officers has a Material Adverse Effect. Except as disclosed in the SEC
Documents, neither the Company nor any of its subsidiaries is a party to any
contract or agreement that in the reasonable judgment of the Company's officers
has or is expected to have a Material Adverse Effect.
Section 4.28. Certain Transactions. Except as set forth in the SEC Documents
filed at least ten (10) days prior to the date hereof and except for
arm's-length transactions pursuant to which the Company makes payments in the
ordinary course of business upon terms no less favorable than the Company could
obtain from third parties, none of the officers or directors of the Company is
presently a party to any transaction with the Company or any of its subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer or director or, to the
best knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer or director has a substantial interest or is an
officer, director, trustee or partner.
Section 4.29. Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the laws of the state of its incorporation
which is or could become applicable to the Investors as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities and the Investor's ownership of the
Securities.
Section 4.30. No Other Agreements. The Company has not, directly or indirectly,
made any agreements with any Investors relating to the terms or conditions of
the transactions contemplated by the Transaction Documents, except as set forth
in the Transaction Documents.
Section 4.31. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
24
Section 4.32 Finders' Fees. The Company (a) represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated by
this Agreement other than Mr. Serge Cook of Gardner Resources Ltd. The Company
hereby agrees to indemnify and to hold the Investors harmless of and from any
liability for any commission or compensation in the nature of a finder's fee to
this broker or any other broker or other person or firm (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its employees or representatives is responsible.
Section 4.33 Absence of Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change of control of the Company.
ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants with the Company that:
Section 5.1. Compliance with Law. The Investor's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2 Regulation S Compliance. Each Investor agrees that any hedging
transactions it conducts with respect to the Common Stock will only be conducted
in compliance with Regulation S. Each investor certifies that it is not a U.S.
Person (as defined for purposes of Regulation S) and is not acquiring the
securities issuable hereunder for the account or benefit of a U.S. Person. The
Investors understand and acknowledge that the Company may refuse to register the
transfer of any securities unless made in accordance with the registration or
exemption provisions of the Securities Act.
ARTICLE VI
Covenants of the Company
Section 6.1. Best Efforts. The Company shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Article II
of this Agreement.
Section 6.2. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof
25
Section 6.3. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Conversion Shares and the Warrant Shares
pursuant to any conversion of the Purchased Shares or exercise of the Warrants.
The number of shares so reserved from time to time, as theretofore increased or
reduced as hereinafter provided, may be reduced by the number of shares actually
delivered pursuant to any conversion of the Purchased Shares or exercise of the
Warrants and the number of shares so reserved shall be increased or decreased to
reflect potential increases or decreases in the Common Stock that the Company
may thereafter be obligated to issue by reason of adjustments to the Warrants.
The Company further agrees that if at any time 200% of the number of shares of
Common Stock issuable upon conversion of the Purchased Shares and exercise of
the Warrants would cause the Company to be obligated to issue a number of shares
of Common Stock in excess of its authorized capital (after taking into account
all other Capital Shares Equivalents then existing), it shall promptly commence
all necessary corporate and shareholder action necessary to increase its
authorized capital so as to eliminate the aforesaid condition.
Section 6.4. Listing of Common Stock. The Company hereby agrees to maintain the
listing of the Common Stock on a Principal Market, and as soon as reasonably
practicable following the Closing to list the Conversion Shares and the Warrant
Shares on the Principal Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Conversion Shares and the Warrant Shares, and
will take such other action as is necessary or desirable in the opinion of the
Investors to cause the Conversion Shares and Warrant Shares to be listed on such
other Principal Market as promptly as possible. The Company will use its best
efforts to continue the listing and trading of its Common Stock on a Principal
Market (including, without limitation, maintaining sufficient net tangible
assets) and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Principal Market and shall
provide Investors with copies of any correspondence to or from such Principal
Market which questions or threatens delisting of the Common Stock, within three
(3) Trading Days of the Company's receipt thereof, until the Investors have
disposed of all of their Registrable Securities.
Section 6.5. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under the Exchange Act until the Investors
have disposed of all of their Registrable Securities.
Section 6.6. [Intentionally Deleted]
Section 6.7. Corporate Existence; Conflicting Agreements. The Company will take
all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or
26
ability of the Company to perform any of its obligations under this Agreement or
any of the other agreements attached as exhibits hereto.
Section 6.8. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the Company's obligations under this Agreement, including the obligation to
deliver to the Investors such shares of stock and/or securities as the Investors
are entitled to receive pursuant to this Agreement.
Section 6.9. Issuance of Purchased Shares and Warrant Shares. The Company shall
make any necessary SEC and "blue sky" filings required to be made by the Company
in connection with the sale of the Purchased Shares and Warrants to the
Investors as required by all applicable laws, and shall provide a copy thereof
to the Investors promptly after such filing.
Section 6.10. Relief in Bankruptcy. The Company shall not seek judicial relief
from its obligations hereunder except pursuant to the Bankruptcy Code. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. ss. 362 in respect of the conversion of the Purchased Shares and the
exercise of the Warrants. The Company agrees, without cost or expense to the
Investors, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. ss. 362.
Section 6.11. Use of Proceeds. The Company will use the proceeds from the sale
of the Securities for working capital and general corporate purposes.
Section 6.12. Financial Information. Until all Registrable Securities have
either been sold or may be sold without registration under the Securities Act,
the Company shall send the following to each holder of Registrable Securities:
(i) within five (5) days after the filing thereof with the SEC, a copy of its
Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any Current
Reports on Form 8-K and any registration statements or amendments (other than on
Form S-8) filed pursuant to the Securities Act; (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries; and (iii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
Section 6.13 Proxy Statement. The Company shall prepare and file with the SEC
and shall provide to each stockholder entitled to vote at the next meeting of
stockholders of the Company, which shall be not later than ninety (90) days from
the Initial Closing Date (the "Stockholder Meeting Deadline"), a proxy statement
in accordance with Section 14 of the Exchange Act, which has been previously
reviewed by the Investors and a counsel of their choice, soliciting each such
stockholder's affirmative vote at such stockholder meeting for approval of: (a)
the Company's issuance of all of the Conversion Shares and the Warrant Shares in
excess of any
27
limitation or cap imposed by the Principal Market or otherwise, and (b) an
amendment to the Company's Series A Certificate of Designations to subordinate
the rights, preferences and privileges of the shares of Series A Preferred Stock
of the Company to the rights, preferences and privileges of the Series B
Preferred Stock, including, without limitation, with respect to dividends and
liquidation rights, and the Company shall use its best efforts to solicit its
stockholders' approval of such proposals and cause the Board of Directors of the
Company to recommend to the stockholders that they approve such proposals. If
the Company fails to hold a meeting of its stockholders or fails to secure
stockholder approvals as contemplated hereby by the Stockholder Meeting Deadline
(unless such failure is the result solely of the actions of the Investors),
then, as partial relief (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to each Investor
an amount in cash per share equal to 2.5% of the aggregate Purchase Price paid
for the Purchased Shares purchased hereunder per month until the stockholder
approval is obtained (pro rated for partial months). The Company shall make the
payments referred to in the immediately preceding sentence within five (5) days
of the earlier of (I) the holding of the meeting of the Company's stockholders
and (II) the last day of each 30-day period beginning on the day after the
Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate of
2.5% per month (pro rated for partial months) until paid in full.
Section 6.14. Transactions With Affiliates. So long as (i) there are Purchased
Shares or Warrants outstanding or (ii) any Investor owns Conversion Shares
and/or Warrant Shares with a market value equal to or greater than $500,000, the
Company shall not, and shall cause each of its subsidiaries not to, enter into,
amend, modify or supplement, or permit any Subsidiary to enter into, amend,
modify or supplement, any agreement, transaction, commitment or arrangement with
any of its or any Subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two (2) years, stockholders who
beneficially own 5% or more of the Common Stock, or affiliates or with any
individual related by blood, marriage or adoption to any such individual or with
any entity in which any such entity or individual owns a 5% or more beneficial
interest (each, a "Related Party"), except for (a) customary employment
arrangements and benefit programs on reasonable terms, (b) any agreement,
transaction, commitment or arrangement on an arm's-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party, or (c) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company.
For purposes hereof, any director who is also an officer of the Company or any
Subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment or arrangement. "Affiliate" for
purposes of this Section means, with respect to any person or entity, another
person or entity that, directly or indirectly, (i) has a 5% or more equity
interest in that person or entity, (ii) has 5% or more common ownership with
that person or entity, (iii) controls that person or entity, or (iv) shares
common control with that person or entity. "Control" or "controls" for purposes
hereof means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity.
28
Section 6.15. Suspension of Trading. In addition any other remedies which the
Investors have under this Agreement and under applicable law, for each business
day on which trading in the shares of Common Stock is suspended or prohibited on
the Principal Market, the Company shall pay the Investors an amount equal to
0.2% of the product of (1) the number of Conversion Shares and Warrant Shares
then held by the Investors or into which the Purchased Shares are then
convertible and for which the Warrants are then exercisable and (2) the Market
Price of the Common Stock on the trading day prior to such suspension or
prohibition. The cumulative amount of such amounts which have accrued shall be
paid by the Company to the Investors every seven (7) business days after the
date of such suspension or prohibition.
Section 6.16. Right of First Refusal. The Company shall not sell any of its
securities to Persons other than the Investors during the period commencing on
the date hereof and ending one year after the Initial Closing Date unless the
Company shall first have satisfied its obligations under this Section 6.16.
(a) If the Company receives a written offer from any Person or group of
Persons other than the Investors to purchase any of the Company's securities,
the Company shall give the Investors a written notice of such offer stating the
type, terms, and purchase price of such securities and the other material terms
and conditions of the sale of such securities and attaching a copy of any offer
signed by the Person or Persons making such offer.
(b) The Investors shall have the right to purchase all or any part of
such securities on the same terms and conditions as are set forth in the
Company's written notice. Each Investor may exercise its right to purchase such
securities by giving a written notice of exercise to the Company within seven
days after such Investor's receipt of the Company's notice. Each Investor shall
have the right to purchase such securities pro rata in accordance with the
number of Conversion Shares that it may purchase under this Agreement. Each
Investor may also purchase any securities not purchased by the other Investor.
(c) If the Investors shall not have exercised their rights to purchase
all of such securities, then the Company shall have the right to sell all
securities not subscribed by the Investors on the same terms and conditions as
those set forth in the Company's notice. If the Company shall not have sold all
such securities within 30 days after the expiration of the 7-day period in
paragraph (b) above, then the Company shall not sell any such securities unless
it first offers to sell such securities to the Investors in accordance with the
procedures set forth in this Section 6.16.
Section 6.17. Limitation on Future Financing. The Company agrees that it will
not sell or enter into any agreement to sell any of its securities or incur any
indebtedness outside the ordinary course of business until six (6) months after
the last Closing Date, except for any sales (i) pursuant to any presently
existing employee benefit plan which plan has been approved by the Company's
stockholders, (ii) pursuant to any compensatory plan for a full-time employee or
key consultant, or (iii) with the prior approval of holders of a majority of the
Purchased Shares then outstanding, which will not be unreasonably withheld, in
connection with a strategic partnership or other business transaction, the
principal purpose of which is not financing the Company's business operations.
29
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it under
the provisions of this Agreement, irrespective of any investigation made by or
on behalf of such party on or prior to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates (as defined in SEC Rule 405)
and their respective officers, directors, partners and members (collectively,
the "Investor Indemnitees"), from and against any and all Damages, in each case
promptly as incurred by the Investor Indemnitees and to the extent arising out
of or in connection with:
(i) any misrepresentation by the Company or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement;
or
(ii) any failure by the Company to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant to
this Agreement; or
(iii) any action instituted against the Investors, or any of them, by
any stockholder of the Company who is not an Affiliate of an Investor, with
respect to any of the transactions contemplated by this Agreement, other than
actions arising out of Investor gross negligence or willful misconduct.
(b) Each Investor, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation by the Investor or breach of any of the
Investor's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits
30
hereto or any instrument, agreement or certificate entered into or delivered by
the Investor pursuant to this Agreement; or
(ii) any failure by the Investor to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement or any instrument, certificate or agreement entered into or delivered
by the Investor pursuant to this Agreement.
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof, but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. The Indemnifying Party shall be entitled to assume the defense of any
Claim. Notwithstanding the assumption of the defense of any Claim by the
Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel and to participate in the defense of such Claim, and the
Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and
expenses of such separate legal counsel to the Indemnified Party if (and only
if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment. Notwithstanding the foregoing, the
Investors, collectively, shall only be entitled to payment for the fees of one
counsel pursuant to this Article VII.
Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance
31
with the procedures and rules of the American Arbitration Association as set
forth in Article X. Judgment upon any award rendered by any arbitrators may be
entered in any court having competent jurisdiction thereof.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all SEC Documents and other filings with the SEC, and all other publicly
available corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such publicly available information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2. Nondisclosure of Nonpublic Information.
(a) The Company shall not disclose material nonpublic information to
the Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
nonpublic information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review and any Investor that accepts to review such
nonpublic information, other than any comment letters received from the SEC
staff with respect to the Registration Statement, shall as a condition to
disclosure of that information to that Investor, enter into a confidentiality
agreement in form and content reasonably satisfactory to the Company and the
Investors.
(b) Nothing herein shall require the Company to disclose material
nonpublic information to the Investors or their advisors or representatives, and
the Company represents that it does not disseminate material nonpublic
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material
32
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investors (without the written consent of the
Investors prior to disclosure of such information as set forth in Section
8.2(a)) may not obtain nonpublic information in the course of conducting due
diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that, based on such due diligence by such persons or entities, the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or
equivalent:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. At each Closing, the Company will
issue to the transfer agent for the Common Stock (and to any substitute or
replacement transfer agent for the Common Stock upon the Company's appointment
of any such substitute or replacement transfer agent) instructions substantially
in the form of Exhibit F hereto. Such instructions shall be irrevocable by the
Company from and after the issuance thereof, including to any such substitute or
replacement transfer agent, as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions,"
33
or other restrictions have been or shall be given to the Company's transfer
agent with respect thereto other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect in any
way each Investor's obligations to comply with all applicable securities laws
upon its resale of any Securities.
Section 9.5. Transfers without Registration. If an Investor provides the Company
with an opinion of counsel, in generally acceptable form, that registration of a
resale by such Investor of any Conversion Shares or Warrant Shares is not
required under the Securities Act, the Company shall permit the transfer and
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Investor and, if such
opinion provides that such legends can be removed, without any restrictive
legends.
Section 9.6. Injunctive Relief. The Company acknowledges that a breach by it of
its obligations under this Article IX will cause irreparable harm to the
Investors by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Article IX will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Article IX, that the Investors shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
ARTICLE X
Choice of Law; Arbitration
Section 10.1. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
made in Delaware by persons domiciled in Delaware and without regard to its
principles of conflicts of laws.
Section 10.2. Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by arbitration by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules. In the event of any conflict between those Rules and this
Agreement, this Agreement will govern.
Arbitration will be conducted by a panel of three (3) arbitrators (the
"Panel"). Within fifteen (15) days after the commencement of arbitration, each
party shall select one person to act as arbitrator and the two selected shall
select a third arbitrator within ten (10) days of their appointment. The members
of the Panel shall decide on one member to act as Chair. If the arbitrators
selected by the parties are unable or fail to agree on a third arbitrator, the
third arbitrator shall be selected by the American Arbitration Association.
The place of arbitration shall be New York, New York. Each party may,
without waiving any remedy under this Agreement, seek from any court having
jurisdiction any interim or
34
provisional relief that is necessary to protect the rights or property of that
party, pending the Panel's determination of the merits of the controversy. If
any such provisional relief is sought, the non-prevailing party shall pay the
expenses of the prevailing party, including reasonable attorney's fees, in
connection with that proceeding.
Consistent with the expedited nature of arbitration, each party will,
upon the written request of the other party, promptly provide the other with
copies of documents relevant to the issues raised by any claim or counterclaim.
Any dispute regarding discovery, or the relevance or scope thereof, shall be
determined by the Chair of the Panel, which determination shall be conclusive.
Document exchange shall be completed within forty-five (45) days following
selection of the last member of the Panel. At the request of a party, the Panel,
through its Chair, shall have the discretion to order examination by deposition
of witnesses to the extent the Panel deems such discovery relevant and
appropriate. Depositions shall be limited to a maximum of three per party and
shall be held within thirty (30) days of authorization by the Panel. Additional
depositions may be scheduled only with the permission of the Chair of the Panel
for good cause shown. Each deposition shall be limited to one day's duration.
All objections are reserved for the arbitration hearing except for objections
based on privilege.
The award of the arbitrators shall be accompanied by a written reasoned
opinion, which, to the extent practical, shall be rendered no more than thirty
(30) calendar days following the close of the Panel's adjudicatory hearing on
the issues submitted for arbitration. The decision of the Panel will be final,
binding, conclusive and non-appealable. The decision of the Panel will be
entitled to be enforced to the fullest extent permitted by law and entered in
any court of competent jurisdiction. The Panel (or the sole arbitrator selected,
if there is no timely response by the responding party) is authorized and
directed to enter a default judgment against a party who fails to take action or
to participate in any proceeding hereunder within the time periods prescribed by
this Agreement, and by the AAA Rules and/or the Panel.
The Panel shall award to the prevailing party, as determined by the
Panel, all that party's costs and expenses. "Costs and expenses" means all
reasonable pre-award expenses of arbitration, including discovery and deposition
expenses, witness fees, costs and expenses, and attorneys' fees. If the Panel is
unable to determine which party is the "prevailing party," the Panel shall
apportion the costs and expenses as it deems appropriate.
ARTICLE XI
Assignment
Neither this Agreement nor any rights of the Investors or the Company
hereunder may be assigned by either party to any other Person. Notwithstanding
the foregoing, (a) the provisions of this Agreement shall inure to the benefit
of, and be enforceable by, any permitted transferee of any of the Purchased
Shares or Warrants purchased or acquired by any Investor hereunder, and (b) each
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any Affiliate (as defined under the Securities Act) of the Investor,
or to not more than three (3)
35
accredited investors, who agree to make the representations and warranties
contained in Article III and who agree to be bound by the terms of this
Agreement.
ARTICLE XII
Notices
All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) hand delivered, (ii) deposited in the
mail, registered or certified, return receipt requested, postage prepaid, or
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
If to the Company: Atlantic Technology Ventures, Inc.
150 Broadway, Suite 1009
New York, New York 10038
Attention: Frederic P. Zotos
Telephone: (212) 267-2503
Facsimile:
with a copy to (shall not constitute
notice):
Kramer Levin Naftalis & Frankel LLP
919 third Avenue
New York, New York 10022-3052
Telephone: (212) 715-9263
Facsimile: (212) 715-8000
Attention: Ezra G. Levin, Esq.
if to the Investors: As set forth on the signature pages hereto
with a copy to: Kevin A. Prakke, Esq.
(shall not Wyrick Robbins Yates & Ponton LLP
constitute notice) 4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Telephone: (919) 781-4000
Facsimile: (919) 781-4865
36
Each party hereto may from time to time change its address or facsimile number
for notices under this Article XII by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Article XII.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts; Facsimile; Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. The Transaction Documents set forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Number and Gender. There may be one or more Investors as parties
to this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Purchased Shares or any Conversion
Shares or Warrants or any Warrant Shares and (ii) in the case of any such loss,
theft or destruction of such certificate, upon delivery of an indemnity
agreement or security reasonably satisfactory in form to the Company (which
shall not include
37
the posting of any bond unless required by the Company's transfer agent) or
(iii) in the case of any such mutilation, on surrender and cancellation of such
certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new certificate of like tenor.
Section 13.7. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the execution and delivery of this Agreement
and each agreement which is an exhibit hereto, except that the Company shall pay
the fees, expenses and disbursements of Wyrick Robbins Yates & Ponton LLP,
counsel to the Investors, the accountants to the Investors and shall reimburse
BH Capital Investments, L.P. up to $5,000 in consideration of its due diligence
expenses with respect to the Company, all as set forth in the Escrow Agreement.
The Company shall reimburse the Investors for their reasonable expenses and
legal fees incurred in enforcing this Agreement or in any modifications or
waivers with respect thereto. The Company shall be responsible for all fees and
expenses of any of its financial advisors. The Company's obligations under this
Section 13.7 shall arise and remain in force whether or not any Closing occurs
hereunder, unless such failure to close is solely the result of default by the
Investors.
Section 13.8. Brokerage. Except as disclosed in Section 4.32 hereof, each of the
parties hereto represents that it has had no dealings in connection with this
transaction with any finder or broker who will demand payment of any fee or
commission from the other. The Company, on the one hand, and the Investors, on
the other hand, agree to indemnify the other against and hold the other harmless
from any and all liabilities to any person claiming brokerage commissions or
finder's fees on account of services purported to have been rendered on behalf
of the indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.9. Publicity. Each party agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the other party, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release. No release shall name the Investors without
their express consent.
Section 13.10 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company or the Investors or any subsequent
holder of any Securities upon any breach, default or noncompliance of the
Investors, any subsequent holder of any Securities or the Company under this
Agreement, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the part of the Company or the Investors of
any breach, default or noncompliance under this Agreement or any waiver on the
Company's or the Investors' part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing and that all remedies, either under this
Agreement, by law, or otherwise afforded to the Company and the Investors, shall
be cumulative and not alternative.
Section 13.11 Amendments and Waivers. Except as otherwise expressly provided
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may
38
be waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely) with
the written consent of the Company and the Investors or their transferees
holding at least sixty percent (60%) of the outstanding Purchased Shares and
Conversion Shares on a fully-diluted basis; provided, however, that no such
amendment or waiver approved by fewer than all of the outstanding Purchased
Shares and Conversion Shares shall reduce the aforesaid percentage of shares
required under this Section 13.11. Any amendment or waiver effected in
accordance with this Section 13.11 shall be in writing and shall be binding upon
the Investors and each transferee of the securities issuable hereunder. Upon the
effectuation of each such amendment or waiver, the Company shall promptly give
written notice thereof to the Investors (or their transferees) who have not
previously consented thereto in writing.
* * * * * *
39
IN WITNESS WHEREOF, the parties hereto have caused this Preferred Stock
and Warrants Purchase Agreement to be executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.
Atlantic Technology Ventures, Inc.
By: /s/ Frederic P. Zotos
---------------------------
Name: Frederic P. Zotos
Title: President
Address: 175 Bloor Street East Investor: BH Capital Investments, L.P.
South Tower, 7th Floor By: HB and Co., Inc., its General Partner
Toronto, Ontario, Canada M4W 3R8
Fax: 416-929-5314 By: /s/ Henry Brachfeld
----------------------------
Name: Henry Brachfeld, President
Shares Purchased:
Initial Closing: $1,000,000
Second Closing: $500,000
Address: 33 Prince Arthur Avenue Investor: Excalibur Limited Partnership
Toronto, Ontario, Canada M5R I B2 By: Excalibur Capital Management, Inc.
Fax: 416-964-8868
Shares Purchased: By: /s/ William Hechter
----------------------------
Initial Closing: $1,000,000 Name: William Hechter, President
Second Closing: $500,000
40
Exhibit 10.3
AMENDMENT NO. 1
to
CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT
between
Atlantic Technology Ventures, Inc.
and
the Investors Signatory Hereto
THIS AMENDMENT NO. 1 TO CONVERTIBLE PREFERRED STOCK AND WARRANTS
PURCHASE AGREEMENT is entered into effective as of October 31, 2000 (the
"Amendment"), between the Investors signatory hereto (each an "Investor" and
together the "Investors"), and Atlantic Technology Ventures, Inc., a corporation
organized and existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties entered into that certain Convertible Preferred
Stock and Warrants Purchase Agreement dated September 28, 2000 (the
"Agreement"), and desire to amend certain terms of the Agreement as provided
herein;
NOW, THEREFORE, in consideration of the mutual promises herein, and
other good and valuable consideration, the receipt and sufficiency of which the
parties hereby acknowledge, the parties hereto agree as follows:
The Agreement shall be amended as follows:
1. The definition of "Repurchase Event" under Article I of the
Agreement shall be amended by deleting in its entirety repurchase event number
(7), which formerly read as follows: "(7) The Company terminates the employment
of A. Joseph Rudick as Chief Executive Officer or Frederic P. Zotos as President
of the Company (including a change or dimunition of his duties as such)."
2. There shall be added to the Agreement an additional covenant of the
Company under Section 6.13 of the Agreement, which shall read as follows: "The
Company agrees that in addition to its other obligations under this Section
6.13, it shall hire a professional proxy solicitation firm within seven (7) days
of the date hereof for the purpose of soliciting stockholder approval for and
communicating management's recommendation in favor of the proposals contemplated
by this Section 6.13, and to undertake best efforts to ensure that such firm
contacts holders of at least a majority of the Company's outstanding voting
securities for this purpose. Management also agrees to undertake best efforts to
negotiate directly with holders of the Company's Series A Preferred Stock in an
effort to secure their vote in favor of such proposals."
Except as specifically amended or modified by this Amendment, the terms
and conditions of the Agreement shall remain in effect in every particular as
set forth in the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to Preferred Stock and Warrants Purchase Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
Atlantic Technology Ventures, Inc.
By: /s/ Frederic P. Zotos
-----------------------------
Name: Frederic P. Zotos
Title: President
Address: 175 Bloor Street East Investor: BH Capital Investments, L.P.
South Tower, 7th Floor By: HB and Co., Inc., its General
Toronto, Ontario, Canada M4W 3R8 Partner
Fax: 416-929-5314 By: /s/ Henry Brachfeld
-----------------------------
Name: Henry Brachfeld, President
Address: 33 Prince Arthur Avenue Investor: Excalibur Limited Partnership
Toronto, Ontario, Canada M5R I B2 By: Excalibur Capital Management, Inc.
Fax: 416-964-8868
By: /s/ William Hechter
----------------------------
Name: William Hechter, President
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of September
28, 2000, by and among Atlantic Technology Ventures, Inc., a Delaware
corporation, with headquarters located at 150 Broadway, Suite 1009, New York,
New York 10038 (the "Company"), and the undersigned buyers (each, a "Buyer" and
collectively, the "Buyers").
WHEREAS:
A. In connection with the Convertible Preferred Stock and Warrants
Purchase Agreement by and among the parties hereto of even date herewith (the
"Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Purchase Agreement, to issue and sell to the Buyers (i) Series
B preferred stock (the "Preferred Stock") convertible into shares of the
Company's common stock, $0.001 par value per share (the "Common Stock") (as
issued upon conversion of the Preferred Stock, the "Conversion Shares") and (ii)
warrants ("Warrants") to purchase shares of Common Stock (as issued upon
exercise of the Warrants, the "Warrant Shares");
B. To induce the Buyers to execute and deliver the Purchase Agreement,
the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended, and the rules and regulations thereunder, or
any similar successor statute (collectively, the "1933 Act"), and applicable
state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer, any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee thereof to whom a transferee or assignee assigns
its rights under this Agreement and who agrees to become bound by the provisions
of this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in
compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any
successor rule providing for offering securities on a continuous basis ("Rule
415"), and the declaration or ordering of effectiveness of such Registration
Statement(s) by the United States Securities and Exchange Commission (the
"SEC").
d. "Registrable Securities" means (i) the Common Stock issued
or issuable pursuant to the Purchase Agreement, including the Conversion Shares
and the Warrant Shares, whether issued or issuable and (ii) any shares of
capital stock issued or issuable with respect to the foregoing as a result of
any stock split, stock dividend, recapitalization, anti-dilution adjustment,
exchange or similar event or otherwise, without regard to any limitation on
conversion of Preferred Stock or exercise of Warrants. In calculating the number
of shares of Common Stock to include as Registrable Securities in the
Registration Statement, the calculation shall include 200% of the number of
shares of Common Stock initially issuable upon conversion of the Preferred
Stock..
e. "Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as soon as
practicable, but in no event later than the earlier of (i) thirty (30) days
after each applicable Closing Date (as defined in the Purchase Agreement) or
(ii) the filing of another Registration Statement (other than a Registration
Statement on Form S-4 or Form S-8 (or their equivalents at such time) relating
to securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans) (the "Scheduled Filing Date"), file with the
SEC a separate Registration Statement or Registration Statements (as is
necessary) on Form S-3 covering the resale of all of the Registrable Securities
issued or issuable in connection with each such Closing. In the event that Form
S-3 is unavailable for such registrations, the Company shall use such other form
as is available for such registrations, subject to the provisions of Section
2.e. Any Registration Statement prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to 200% of the
number of shares of Common Stock initially issuable upon conversion of the
Preferred Stock.. The Company shall use its best efforts to have each
Registration Statement declared effective by the SEC as soon as practicable, but
in no event later than ninety (90) days after the applicable Closing Date (the
"Scheduled Effective Date"). The Company represents and covenants that no Person
other than an Investor has or will have the right to include any securities of
the Company in the Registration Statement to be filed in accordance with this
Section 2.a. The Company will not include any selling stockholder other than the
Buyer in any Registration Statement it files pursuant to this Section 2.a
without the Buyer's written consent.
2
In the event that the number of shares of Common Stock so
registered and not yet issued to the Investors as Conversion Shares or Warrant
Shares shall be less than 150% of the number of shares which would be issuable
at any time upon the conversion of the remaining unconverted principal amount of
the Preferred Stock and exercise of the Warrants, then the Company shall be
obligated to file, within fifteen (15) days on notice from any Investor of such
occurrence, a further Registration Statement registering such remaining shares
and shall use diligent best efforts to have such additional Registration
Statement declared effective within sixty (60) days of such notice.
b. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company
proposes to file with the SEC a Registration Statement relating to an offering
for its own account or the account of others under the 1933 Act of any of its
securities (other than a Registration Statement on Form S-4 or Form S-8 (or
their equivalents at such time) relating to securities to be issued solely in
connection with any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee benefit plans) the
Company shall promptly send to each Investor written notice of the Company's
intention to file a Registration Statement and of such Investor's rights under
this Section 2.b and, if within twenty (20) days after receipt of such notice,
such Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, subject to the priorities set forth in this
Section 2.b below. No right to registration of Registrable Securities under this
Section 2.b shall be construed to limit any registration required under Section
2.a. The obligations of the Company under this Section 2.b may be waived by
Investors holding a majority of the Registrable Securities. If an offering in
connection with which an Investor is entitled to registration under this Section
2.b is an underwritten offering, then each Investor whose Registrable Securities
are included in such Registration Statement shall, unless otherwise agreed to by
the Company, offer and sell such Registrable Securities in an underwritten
offering using the same underwriter or underwriters and, subject to the
provisions of this Agreement, on the same terms and conditions as other shares
of Common Stock included in such underwritten offering. If a registration
pursuant to this Section 2.b is to be an underwritten public offering and the
managing underwriter(s) advise the Company in writing, that in their reasonable
good faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the proposed
offering, then the Company shall include in such registration:
(1) first, all securities the Company proposes to sell for its
own account;
(2) second, up to the full number of securities proposed to be
registered for the account of the holders of securities entitled to inclusion of
their securities in the Registration Statement by reason of demand registration
rights; and
(3) third, the securities requested to be registered by the
Investors and other holders of securities entitled to participate in the
registration, as of the date hereof, drawn from them pro rata based on the
number each has requested to be included in such registration.
3
c. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Investor's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held by
such Investors.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee as their counsel any offering pursuant
to this Section 2 ("Legal Counsel"), which shall be Wyrick Robbins Yates &
Ponton LLP or such other counsel as thereafter designated by the holders of a
majority of Registrable Securities. The Company shall reasonably cooperate with
Legal Counsel in performing the Company's obligations under this Agreement.
e. Ineligibility for Form S-3. In the event that Form S-3 is
unavailable for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.
f. Sufficient Number of Shares Registered. If the number of
shares available under a Registration Statement filed pursuant to Section 2.a at
any time is insufficient to cover all of the Registrable Securities which such
Registration Statement is required to cover, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, as soon as practicable, but in any
event not later than twenty (20) days after the necessity therefor arises (each
such date, an "Additional Scheduled Filing Date") so as to cover all Registrable
Securities then issuable on the Additional Scheduled Filing Date. The Company
shall use it best efforts to cause such amendment or new Registration Statement
to become effective as soon as practicable following the filing thereof, but in
no event later than sixty (60) days after the Additional Scheduled Filing Date
(each such date, an "Additional Scheduled Effective Date"). For purposes of the
foregoing provision, the number of shares available under a Registration
Statement shall be deemed "insufficient to cover all of the Registrable
Securities" if at any time the Conversion Price (as defined in the Certificate
of Designations, Preferences and Rights governing the Preferred Stock) has
declined 66.7% or more from the Purchase Price (as defined in the Purchase
Agreement) on the applicable Closing Date. For purposes of the calculation set
forth in the foregoing sentence, any restrictions on the
4
exercisability of the Preferred Stock or the Warrants shall be disregarded and
such calculation shall assume that the Preferred Stock is exercisable at the
then prevailing Conversion Price (as defined in the Certificate of Designations,
Preferences and Rights governing the Preferred Stock) and the Warrants are
exercisable at the then prevailing Exercise Price (as defined in the Warrant).
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2.b or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2.a or 2.f,
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall not file any other Registration Statement
with respect to any of its securities between the date hereof and ninety (90)
days after the effective date of any such Registration Statement (other than a
Registration Statement on Form S-8 (or its equivalent at such time)). The
Company shall keep each of the Registration Statements required to be filed
hereunder effective pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell all of the Registrable Securities
covered by such Registration Statement without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto) or (ii) the date on
which (A) the Investors shall have sold all the Registrable Securities covered
by such Registration Statement and (B) none of the Preferred Stock or Warrants
is outstanding (the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The term "best efforts" shall mean, among other things, that the
Company shall submit to the SEC, within two (2) business days after the Company
learns that no review of a particular Registration Statement will be made by the
staff of the SEC or that the staff has no further comments on the Registration
Statement, as the case may be, a request for acceleration of effectiveness of
such Registration Statement to a time and date not later than forty-eight (48)
hours after the submission of such request.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3.b by reason of the
5
Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous
report under the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the Company shall file such amendments or supplements with the SEC on the same
day on which the 1934 Act report is filed which created the requirement for the
Company to amend or supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and
comment upon (i) the Registration Statement at least seven (7) days prior to its
filing with the SEC and (ii) all other Registration Statements and all
amendments and supplements to all Registration Statements within a reasonable
number of days prior to their filing with the SEC and (b) not file any document
in a form to which Legal Counsel reasonably objects. The Company shall not
submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval of
Legal Counsel, which approval shall not be unreasonably withheld. The Company
shall furnish to Legal Counsel, without charge, (i) any correspondence from the
SEC or the staff of the SEC to the Company or its representatives relating to
any Registration Statement, (ii) promptly after the same is prepared and filed
with the SEC, one copy of any Registration Statement and any amendment(s)
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, all exhibits and each preliminary prospectus, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the prospectus
included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably request)
and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.
e. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3.e, (y) subject itself to
general taxation in any such jurisdiction, or (z) file a general
6
consent to service of process in any such jurisdiction. The Company shall
promptly notify Legal Counsel and each Investor who holds Registrable Securities
of the receipt by the Company of any notification with respect to the suspension
of the registration or qualification of any of the Registrable Securities for
sale under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threat of any
proceeding for such purpose.
f. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering; provided, however, that the Company shall have
the right to consent to the selection of such underwriter, which consent shall
not be unreasonably withheld.
g. As promptly as practicable after becoming aware of such
event, the Company shall notify Legal Counsel and each Investor in writing of
the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
h. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold (and, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
i. At the request of any Investor, the Company shall furnish
to such Investor, on the date of the effectiveness of any Registration Statement
and thereafter from time to time on such dates as an Investor may reasonably
request (i) if required by an underwriter, a letter,
7
dated such date, from the Company's independent certified public accountants in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors and (v) one firm of attorneys retained
by such underwriters (collectively, the "Inspectors") all pertinent financial
and other records, and pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably deemed necessary
by each Inspector, and cause the Company's officers, directors and employees to
supply all information which any Inspector may reasonably request; provided,
however, that each Inspector shall hold in strict confidence and shall not make
any disclosure (except to an Investor) or use of any Records or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this Agreement or any other agreement
of which the Inspector has knowledge. Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
8
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request.
m. The Company shall maintain a transfer agent and registrar
of all such Registrable Securities not later than the effective date of such
Registration Statement.
n. If requested by the managing underwriters or an Investor,
the Company shall: (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if requested by an Investor or any underwriter of such Registrable Securities.
o. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
p. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a 12-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
q. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
r. Within two (2) business days after a Registration Statement
is ordered effective by the SEC, the Company shall deliver, and shall cause
legal counsel for the Company to deliver, to the transfer agent for the
Registrable Securities covered thereby (with copies to the Investors whose
Registrable Securities are included in such Registration Statement)
confirmation, in the form attached hereto as Exhibit A, that such Registration
Statement has been declared effective by the SEC.
9
s. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
t. Notwithstanding anything to the contrary in Section 3.g, at
any time after the Registration Statement has been declared effective, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the best
interest of the Company and, in the opinion of counsel to the Company, otherwise
required (a "Grace Period"); provided, that the Company shall promptly (i)
notify the Investors in writing of the existence of material, non-public
information giving rise to a Grace Period and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that during any consecutive 365-day
period, there shall be only one Grace Period, such Grace Period not to exceed
twenty (20) days in the aggregate (an "Allowable Grace Period"). For purposes of
determining the length of a Grace Period above, the Grace Period shall begin on
and include the date the Investors receive the notice referred to in clause (i)
above and shall end on and include the date the Investors receive the notice
referred to in clause (ii) above. Upon expiration of the Allowable Grace Period,
the Company shall again be bound by the first sentence of Section 3.g with
respect to the information giving rise thereto. Notwithstanding anything to the
contrary contained herein, the Investors may convert Preferred Stock and
exercise Warrants during a Grace Period.
u. Each of the following events shall constitute a
"Registration Default" for purposes of this Agreement:
(i) the Company's failure to file a Registration Statement by the
applicable Scheduled Filing Date or Additional Scheduled Filing Date thereof, as
appropriate;
(ii) the SEC's failure to declare a Registration Statement effective
on or before the applicable Scheduled Effective Date or Additional Scheduled
Effective Date thereof, as appropriate, except where the failure to meet such
deadline is the result primarily of actions by the holders of Registrable
Securities or Legal Counsel;
(iii) the Company's failure to request acceleration of the
effectiveness of a Registration Statement within two (2) business days after the
SEC has notified the Company that it may file such an acceleration request as
required by Section 3.a hereof, except where the failure to meet such deadline
is a result solely of actions by the holders of Registrable Securities or Legal
Counsel;
(iv) the Investors' inability to sell all Registrable Securities
pursuant to an effective Registration Statement (whether because of a failure to
keep the Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to the Registration Statement, to
register sufficient shares of Common Stock or otherwise); or
10
(v) the aggregate days of Grace Period exceed the Allowable Grace
Period.
Upon the occurrence of a Registration Default, the Company shall pay each
Investor an amount determined in accordance with the following formula for each
30-day period of such Registration Default:
2% x P x N for the first thirty (30) days of the first Registration
Default, and 3% x P x N for all continuing subsequent Registration
Defaults
where
P = the average Closing Price (as defined in the Purchase
Agreement) of the Common Stock for the applicable thirty (30)
days; and
N = the number of Registrable Securities that such Investor holds
or may acquire pursuant of conversion to Preferred Stock and
exercise of Warrants on the last day of the applicable 30-day
period (without giving effect to any limitations on exercise).
If a Registration Default is cured before the end of a 30-day period, the
applicable formula shall be pro-rated. The Company shall pay such amount in cash
on demand by an Investor made at any time during the continuance or after
termination of such Registration Default. If the Company does not remit payment
of the amount due to such Investor, the Company will pay the Investor's
reasonable costs of collection, including attorneys' fees. An Investor's right
to demand such payment shall be in addition to any other rights it may have
under this Agreement, the Purchase Agreement or otherwise.
Notwithstanding anything in this Section 3.u to the contrary, no
payment shall be made to Investor as a result of a Registration Default under
subsection (ii) above for the first thirty (30) days of such Registration
Default in the event the SEC conducts a full review of a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) business days prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
each Investor in writing of the information the Company requires from each such
Investor if such Investor elects to have any of such Investor's Registrable
Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request.
11
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2.b, each such Investor agrees
to enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3.h
or the first sentence of Section 3.g, such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3.h or the
first sentence of Section 3.g.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.
f. Each Investor agrees not to take any action to cause such
Investor to become a registered broker-dealer as defined under the 1934 Act or
to effect any change to such Investor's status that would preclude the Company
from using Form S-3 for the Registration Statement.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than expenses incurred pursuant
to Section 3.j(iv) and (v) and underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company and reasonable fees and disbursements of Legal Counsel,
shall be paid by the Company.
12
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents, representatives of, and each Person, if any, who controls any Investor
within the meaning of the 1933 Act or the 1934 Act, and any underwriter (as
defined in the 1933 Act) for the Investors, and the directors and officers of,
and each Person, if any, who controls, any such underwriter within the meaning
of the 1933 Act or the 1934 Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, attorneys' fees, amounts paid in settlement or expenses, joint or
several, (collectively, "Claims") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency or body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto ("Indemnified
Damages"), to which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other "blue sky" laws of any jurisdiction
in which Registrable Securities are offered ("Blue Sky Filing"), or the omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any material violation
of this Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "Violations").
The Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any legal fees or reasonable other expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6.a: (i) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with
13
information furnished in writing to the Company by such Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3.d; (ii) with respect to any preliminary prospectus, shall
not inure to the benefit of any such person from whom the person asserting any
such Claim purchased the Registrable Securities that are the subject thereof (or
to the benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3.d, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a violation and such Indemnified
Person, notwithstanding such advice, used it; (iii) shall not be available to
the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3.d; and
(iv) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6.a, the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6.d, such Investor will reimburse any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6.b and the agreement with respect to contribution contained in Section
7 shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6.b for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6.b with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the
14
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus and such prospectus
was provided to Investors as required, as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the Investors, and
such legal counsel shall be selected by the Investors holding a majority of the
issued or issuable Registrable Securities included in the Registration Statement
to which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its written
consent; provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the
15
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"),
during the Registration Period, the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
16
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Purchase Agreement. No transferee in any transfer made in
reliance on Rule 144 will have any rights as an Investor under this Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold or have the right to acquire two-thirds of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two (2) or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
17
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Atlantic Technology Ventures, Inc.
150 Broadway, Suite 1009
New York, New York 10038
Telephone: (212) 267-2503
Facsimile: (212) 267-2159
Attention: Fred Zotos
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022-3852
Telephone: (212) 715-9263
Facsimile: (212) 715-8000
Attention:
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of such transmission or (C) provided by a courier or
overnight courier service shall be rebuttable evidence of personal service,
overnight or courier delivery or transmission by facsimile in accordance with
clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
in Delaware by persons domiciled
18
in Delaware and without regard to its principles of conflicts of laws. Any
dispute under this Agreement shall be governed and resolved pursuant to Section
10.2 of the Purchase Agreement
e. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
f. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
g. This Agreement may be executed in identical counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
h. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.
k. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
19
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
Atlantic Technology Ventures, INC. BH Capital Investments, L.P.
By: HB and Co., Inc. its General
Partner
By: /s/ Frederic P. Zotos By: /s/ Henry Brachfeld
--------------------------- ----------------------------
Name: Frederic P. Zotos Name: Henry Brachfeld
Its: President Its: Authorized Signatory
Excalibur Limited Partnership
By: Excalibur Capital
Management, Inc.
Its General Partner
By: /s/ William Hechter
----------------------------
Name: William Hechter,
President
20
Exhibit A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
- --------------------------
- --------------------------
Attn:
----------------------------
Re: Atlantic Technology Ventures, Inc.
---------------------------------
Ladies and Gentlemen:
We are counsel to Atlantic Technology Ventures, Inc., a Delaware
corporation (the "Company"), which has entered into that certain Convertible
Preferred Stock and Warrants Purchase Agreement (the "Purchase Agreement") by
and among the Company and the buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders Preferred Stock convertible
into shares of its common stock, $0.001 par value per share (the "Common Stock")
and warrants to purchase Common Stock. Pursuant to the Purchase Agreement, the
Company also has entered into a Registration Rights Agreement with the Holders
(the "Registration Rights Agreement") pursuant to which the Company agreed,
among other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement) under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights Agreement, on ____________ ___, 2000, the Company filed a Registration
Statement on Form S-___ (File No. 333-_____________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities which names each of the Holders as a selling
stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
----------------------------------
cc: [LIST NAMES OF HOLDERS]
Exhibit 10.5
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of
September 28, 2000, by and among Atlantic Technology Ventures, Inc., a
corporation incorporated under the laws of the State of Delaware (the
"Company"), the investors signatory hereto (each an "Investor" and together the
"Investors"), and Wyrick Robbins Yates & Ponton LLP, (the "Escrow Agent").
Capitalized terms used but not defined herein shall have the meanings set forth
in the Preferred Stock and Warrants Purchase Agreement referred to in the first
recital.
WITNESSETH:
WHEREAS, the Investors will be purchasing from the Company up
to $3,000,000 of Series B Preferred Stock of the Company (the "Purchased
Shares") and 201,000 Warrants to purchase shares of Common Stock, at the
purchase price set forth in the Preferred Stock and Warrants Purchase Agreement
(the "Purchase Agreement") dated the date hereof between the Investors and the
Company, which will be issued as per the terms contained herein and in the
Purchase Agreement; and
WHEREAS, it is intended that the purchase of the securities be
consummated in accordance with the requirements of Regulation S and/or the
requirements set forth by Sections 4(2) and/or 4(6) and/or Regulation D
promulgated under the Securities Act of 1933, as amended; and
WHEREAS, the Company and the Investors have requested that the
Escrow Agent hold the Purchase Price with respect to each Closing in escrow
until the Escrow Agent has received the certificates representing the Purchased
Shares, the Warrants and certain other closing documents specified herein and
the satisfaction and until the other conditions specified herein have been
satisfied;
NOW, THEREFORE, in consideration of the covenants and mutual
promises contained herein and other good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW
1.1. The parties hereby agree to establish an escrow account
with the Escrow Agent whereby the Escrow Agent shall hold the funds for the
purchase of the Purchased Shares and the Warrants at each Closing as
contemplated by the Purchase Agreement.
1.2. (a) At each Closing, upon Escrow Agent's receipt of the
Purchase Price for the Purchased Shares being purchased at that Closing into its
attorney trustee account
from the Investors, together with executed counterparts of this Agreement, the
Purchase Agreement and the Registration Rights Agreement, it shall
telephonically advise the Company, or the Company's designated attorney or
agent, of the amount of funds it has received into its account.
(b) Wire transfers to the Escrow Agent shall be made as follows:
Wyrick Robbins Yates & Ponton LLP
Trust Account #1301101682
ABA Number: 0531-0112-1
Address: Branch Banking & Trust Company
Fayetteville Street Mall
Raleigh, North Carolina
Re: Reichmann International (12529.004)
Attention: Jan Jones
Phone: (919) 716-9128
1.3. The Company, prior to or upon receipt of said notice,
shall deliver to the Escrow Agent the certificates representing the Purchased
Shares and the Warrants to be issued to each Investor at that Closing, in each
case registered in the name of each Investor in its pro rata share of such
Securities and duly executed on behalf of the Company, together with:
(a) the original executed Registration Rights Agreement
substantially in the form of Exhibit C to the Purchase
Agreement (for Initial Closing only);
(b) Instructions to the Transfer Agent substantially in the form
of Exhibit F to the Purchase Agreement, duly executed by the
parties thereto;
(c) the original executed opinion of Company's legal counsel
substantially in the form of Exhibit E to the Purchase
Agreement;
(d) an original counterpart of this Escrow Agreement (for Initial
Closing only); and
(e) Certification from the Delaware Secretary of State of the
filing of the Series B Certificate of Designations (for
Initial Closing only);
In the event that the foregoing items are not in the Escrow
Agent's possession within three (3) Trading Days of the Escrow Agent notifying
the Company that the Escrow Agent has custody of the Purchase Price, then each
Investor shall have the right to demand the return of said sum.
1.4. At each Closing, once the Escrow Agent confirms the
validity of the issuance of the Purchased Shares and the Warrants by means of
its receipt of a Release Notice in the form attached hereto as Exhibit X
executed by the Company and each Investor, it shall, as may be necessary, enter
the Exercise Price and Termination Date of each Warrant on the face of each
Warrant, insert the Closing Date on the certificates representing the Purchased
Shares, and then wire to the Company that amount of funds necessary to purchase
the Purchased Shares and the Warrants, less: (a) legal and escrow administrative
costs of the Escrow Agent, (b) with
respect to the Initial Closing, up to five thousand dollars ($5,000) as a due
diligence fee to BH Capital Investments. L.P., which the Company agrees may be
"net funded", and (c) with respect to the Initial Closing, $1,000,000 to be
retained in escrow by the Escrow Agent (the "Initial Closing Escrow Holdback
Amount") to be released as provided below.
(A) Once the net funds from the Initial Closing (as described
above) have been sent per the Company's instructions, the Escrow Agent shall
then promptly arrange to release and deliver to the Investors, pro rata
according to their investment amounts, certificates representing a total of
344,828 Purchased Shares (calculated as the $1,000,000 of funds released on the
Initial Closing Date divided by the Market Price on the Initial Closing Date of
$2.94) and Warrants for the purchase of a total of 67,000 shares of Common
Stock, together with the Registration Rights Agreement and the opinion of
counsel. The Escrow Agent shall retain the Initial Closing Escrow Holdback
Amount (equal to $1,000,000) and Warrants and certificates representing the
number of Purchased Shares purchased at the Initial Closing that are
attributable to the Initial Closing Escrow Holdback Amount (the "Escrow Holdback
Securities"), and shall release them only as follows:
(1) $800,000 of the Initial Closing Escrow Holdback
Amount shall be released to the Company within two (2) business days of
the Company's delivery to the Escrow Agent of written confirmation of
stockholder approval of the proposals contemplated by Section 6.13 of
the Purchase Agreement (the "Stockholder Approval Confirmation") and
that the Company has not received a delisting notice nor has their
occurred a trading suspension, both as described in Section 1.4(c)
below; provided, however, that if such approval is not obtained on or
prior to the Stockholder Meeting Deadline (as defined in the Purchase
Agreement), the Investors shall be entitled, upon written notice to the
Escrow Agent, to receive, and the Escrow Agent shall be authorized to
release to the Investors, this $800,000, together with interest accrued
thereon, and the Company shall likewise be entitled to a return of the
Escrow Holdback Securities attributable to this amount for
cancellation;
(2) the remaining $200,000 of the Initial Closing
Escrow Holdback Amount shall be released to the Company within (2)
business days of the Company's delivery to the Escrow Agent of the
Stockholder Approval Confirmation and written confirmation that the
Company has not received a delisting notice nor has their occurred a
trading suspension, both as described in Section 1.4(c) below, but only
if the Market Price on the date of stockholder approval is $3.00 or
more; provided, however, that if such approval is not obtained on or
prior to the Stockholder Meeting Deadline, the Investors shall be
entitled, upon written notice to the Escrow Agent, to receive, and the
Escrow Agent shall be authorized to release to the Investors, this
$200,000, together with interest accrued thereon, and the Company shall
likewise be entitled to a return of the Escrow Holdback Securities
attributable to this amount for cancellation;
(3) Notwithstanding the foregoing, if prior to
release of the Initial Closing Escrow Holdback Amount to the Company as
provided above, (a) the Company has been notified of any pending or
threatened proceeding or other action to delist or
suspend the Common Stock from trading on the Nasdaq SmallCap Market, or
(b) for any period of five consecutive trading days after the date
hereof there is no closing bid price of the Common Stock on the Nasdaq
SmallCap Market, then the Escrow Agent shall not release any such funds
to the Company and shall promptly following written notice from the
Investors, return such funds, together with accrued interest, to the
Investors, and the Company shall likewise be entitled to a return of
the Escrow Holdback Securities for cancellation.
(B) Once the net funds from the Second Closing have been sent
per the Company's instructions, the Escrow Agent shall then promptly arrange to
release and deliver to the Investors, pro rata according to their investment
amounts, certificates representing number of Purchased Shares (calculated as the
$1,000,000 of funds released on the Second Closing Date divided by the Market
Price on the Second Closing Date) and Warrants for the purchase of a total of
67,000 shares of Common Stock, together with the opinion of counsel.
ARTICLE 2
MISCELLANEOUS
2.1. No waiver or any breach of any covenant or provision
herein contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed any extension of
the time for performance of any other obligation or act.
2.2. All notices or other communications required or permitted
hereunder shall be in writing, and shall be sent as set forth in the Purchase
Agreement.
2.3. This Escrow Agreement shall be binding upon and shall
inure to the benefit of the permitted successors and permitted assigns of the
parties hereto.
2.4. This Escrow Agreement is the final expression of, and
contains the entire agreement between, the parties with respect to the subject
matter hereof and supersedes all prior understandings with respect thereto. This
Escrow Agreement may not be modified, changed, supplemented or terminated, nor
may any obligations hereunder be waived, except by written instrument signed by
the parties to be charged or by its agent duly authorized in writing or as
otherwise expressly permitted herein.
2.5. Whenever required by the context of this Escrow
Agreement, the singular shall include the plural and masculine shall include the
feminine. This Escrow Agreement shall not be construed as if it had been
prepared by one of the parties, but rather as if both parties had prepared the
same. Unless otherwise indicated, all references to Articles are to this Escrow
Agreement.
2.6. The parties hereto expressly agree that this Escrow
Agreement shall be governed by, interpreted under and construed and enforced in
accordance with the laws of the State of North Carolina. Any action to enforce,
arising out of, or relating in any way to, any provisions of this Escrow
Agreement shall only be brought in a state or Federal court sitting in Raleigh,
North Carolina.
2.7. The Escrow Agent's duties hereunder may be altered,
amended, modified or revoked only by a writing signed by the Company, each
Investor and the Escrow Agent.
2.8. The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein and may rely and
shall be protected in relying or refraining from acting on any instrument
reasonably believed by the Escrow Agent to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be
personally liable for any act the Escrow Agent may do or omit to do hereunder as
the Escrow Agent while acting in good faith, and any act done or omitted by the
Escrow Agent pursuant to the advice of the Escrow Agent's attorneys-at-law shall
be conclusive evidence of such good faith.
2.9. The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person or corporation, excepting only orders or process of courts of law
and is hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person, firm or corporation by reason of such
decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
2.10. The Escrow Agent shall not be liable in any respect on
account of the identity, authorization or rights of the parties executing or
delivering or purporting to execute or deliver the Purchase Agreement or any
documents or papers deposited or called for thereunder.
2.11. The Escrow Agent shall be entitled to employ such legal
counsel and other experts as the Escrow Agent may deem necessary properly to
advise the Escrow Agent in connection with the Escrow Agent's duties hereunder,
may rely upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Investors, and may continue to act as legal counsel for the Investors, from time
to time, notwithstanding its duties as the Escrow Agent hereunder. The Company
consents to the Escrow Agent in such capacity as legal counsel for the Investors
and waives any claim that such representation represents a conflict of interest
on the part of the Escrow Agent. The Company understands that the Investors and
the Escrow Agent are relying explicitly on the foregoing provision in entering
into this Escrow Agreement.
2.12. The Escrow Agent's responsibilities as escrow agent
hereunder shall terminate if the Escrow Agent shall resign by written notice to
the Company and the Investors. In the event of any such resignation, the
Investors and the Company shall appoint a successor Escrow Agent.
2.13. If the Escrow Agent reasonably requires other or further
instruments in connection with this Escrow Agreement or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
2.14. It is understood and agreed that should any dispute
arise with respect to the delivery and/or ownership or right of possession of
the documents or the escrow funds held by the Escrow Agent hereunder, the Escrow
Agent is authorized and directed in the Escrow Agent's sole discretion (1) to
retain in the Escrow Agent's possession without liability to anyone all or any
part of said documents or the escrow funds until such disputes shall have been
settled either by mutual written agreement of the parties concerned or by a
final order, decree or judgment or a court of competent jurisdiction after the
time for appeal has expired and no appeal has been perfected, but the Escrow
Agent shall be under no duty whatsoever to institute or defend any such
proceedings or (2) to deliver the escrow funds and any other property and
documents held by the Escrow Agent hereunder to a state or Federal court having
competent subject matter jurisdiction and located in the City of Raleigh, North
Carolina in accordance with the applicable procedure therefor.
2.15. The Company and each Investor agree jointly and
severally to indemnify and hold harmless the Escrow Agent and its partners,
employees, agents and representatives from any and all claims, liabilities,
costs or expenses in any way arising from or relating to the duties or
performance of the Escrow Agent hereunder or the transactions contemplated
hereby or by the Purchase Agreement other than any such claim, liability, cost
or expense to the extent the same shall have been determined by final,
unappealable judgment of a court of competent jurisdiction to have resulted from
the gross negligence or willful misconduct of the Escrow Agent.
IN WITNESS WHEREOF, the parties hereto have executed this
Escrow Agreement as of the date set forth above.
ATLANTIC TECHNOLOGY VENTURES, INC.
By: /s/ Frederic P. Zotos
------------------------------------
BH Capital Investments, L.P.
By: HB and Co., Inc., its General Partner
By: /s/ Henry Brachfeld
--------------------------------------
Henry Brachfeld, President
Excalibur Limited Partnership
By: Excalibur Capital Management, Inc.
By: /s/ William Hechter
--------------------------------------
William Hechter, President
ESCROW AGENT:
WYRICK ROBBINS YATES & PONTON LLP
By: /s/ Wyrick Robbins Yates & Ponton LLP
--------------------------------------
Exhibit X to
Escrow Agreement
RELEASE NOTICE
The UNDERSIGNED, pursuant to the Escrow Agreement, dated as of
September 28, 2000 among Atlantic Technology Ventures, Inc., the Investors
signatory thereto and Wyrick Robbins Yates & Ponton LLP, as Escrow Agent (the
"Escrow Agreement"; capitalized terms used herein and not defined shall have the
meaning ascribed to such terms in the Escrow Agreement), hereby notify the
Escrow Agent that each of the conditions precedent to the purchase and sale of
the Purchased Shares and Warrants set forth in the Purchase Agreement have been
satisfied. The Company and the undersigned Investor hereby confirm that all of
their respective representations and warranties contained in the Purchase
Agreement remain true and correct and authorize the release by the Escrow Agent
of the funds and documents to be released at the Closing as described in the
Escrow Agreement. This Release Notice shall not be effective until executed by
the Company and the Investor.
The number of Warrants to be issued to all Investors in the
aggregate is ______ and the exercise price per share is $______.
This Release Notice may be signed in one or more counterparts,
each of which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have caused this Release
Notice to be duly executed and delivered as of this 28th day of September, 2000.
ATLANTIC TECHNOLOGY VENTURES, INC.
By:
-------------------------------------
Name: Frederic P. Zotos
Title: President
BH Capital Investments, L.P.
By: HB and Co., Inc., its General Partner
By:
------------------------------------
Henry Brachfeld, President
Excalibur Limited Partnership
By: Excalibur Capital Management, Inc.
By:
------------------------------------
William Hechter, President
Exhibit 10.6
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
REGULATION S OF THE SECURITIES ACT, AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER
THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 33,500 Shares of Common Stock of
Atlantic Technology Ventures, Inc.
(Warrant No. __)
THIS CERTIFIES that, for value received, BH Capital Investments, L.P.
(the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof (the "Initial
Exercise Date") and on or prior to the close of business on the date ending five
(5) years from the Initial Exercise Date (the "Termination Date"), but not
thereafter, to subscribe for and purchase from Atlantic Technology Ventures,
Inc., a corporation incorporated in Delaware (the "Company"), up to Thirty-Three
Thousand Five Hundred (33,500) shares (the "Warrant Shares") of Common Stock,
$.001 par value, of the Company (the "Common Stock"). The purchase price of one
share of Common Stock (the "Exercise Price") under this Warrant shall be the
lower of (x) $3.19 or (y) 110% of the Market Price of the Common Stock
immediately preceding the 180th day following the Initial Exercise Date.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth for such terms in the Preferred Stock and Warrants Purchase Agreement
as dated September 28, 2000, between the Company and the investors party thereto
(the "Purchase Agreement")). The Exercise Price and the number of shares for
which the Warrant is exercisable shall be subject to adjustment as provided
herein. In the event of any conflict between the terms of this Warrant and the
Purchase Agreement, the Purchase Agreement shall control.
1. Title to Warrant. Prior to the Termination Date and subject
to compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
Holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant.
(a) Except as provided in Sections 3(b), 3(c) or 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered Holder hereof at the address of such Holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased by wire transfer or cashier's check drawn on a United
States bank, the Holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased. This Warrant
may also be exercised in whole or in part by means of a "cashless exercise" by
tendering this Warrant to the Company to receive a number of shares of Common
Stock equal in Market Value to the difference between the Market Value of the
shares of Common Stock issuable upon such exercise of this Warrant and the total
cash exercise price of that part of the Warrant being exercised. "Market Value"
for this purpose shall be the closing price of the Common Stock as reported by
Bloomberg L.P. on the date of such cashless exercise. Certificates for shares
purchased hereunder shall be delivered to the Holder hereof within three (3)
trading days after the date on which this Warrant shall have been exercised as
aforesaid. This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and the Holder
or any other person so designated to be named therein shall be deemed to have
become the Holder of record of such shares for all purposes, as of the date the
Warrant has been exercised if the Holder has paid the Company the Exercise Price
and all taxes required to be paid by the Holder, if any, pursuant to Section 5
prior to the issuance of such shares. If this Warrant shall have been exercised
in part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
(b) Anything in Section 3(a) to the contrary
notwithstanding, in no event shall the Holder be entitled to exercise this
Warrant if, upon giving effect to such exercise, the Holder and its "affiliates"
(as defined in Rule 405 under the Securities Act) would beneficially own an
aggregate number of shares of Common Stock that would exceed 9.9% of the
outstanding shares of the Common Stock following such exercise. For purposes of
this Section 3(b), the aggregate number of shares of Common Stock beneficially
owned by the Holder and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of the Warrants with respect to which the
determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon exercise or conversion of the unexercised or
unconverted portion of any other Securities (including, without limitation, any
Purchased Shares or other Warrants), subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by the
Holder and its affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 3(b), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Act. For purposes of this
Section 3(b), in determining the number of outstanding shares of Common Stock
the Holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company's most recent quarterly or annual filing with the
SEC, as the case may be, (2) a more recent public announcement by the Company or
(3) any other notice by the Company or its transfer agent setting forth the
number of shares of Common Stock outstanding. For any reason at any time, upon
the written or oral request of the Holder, the Company shall immediately confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to conversion of the Purchased Shares and
exercises of Warrants by the Holder since the date as of which such number of
outstanding shares of Common Stock was reported. To
the extent that the limitation contained in this Section 3(b) applies, the
determination of whether this Warrant is exercisable (in relation to other
Securities owned by the Holder) shall be in the sole discretion of the Holder,
and the exercise of this Warrant shall be deemed to be the Holder's
determination of whether this Warrant is exercisable (in relation to other
Securities owned by the Holder), subject to such aggregate percentage
limitation, and the Company shall have no obligation or right to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of the Holder to exercise this Warrant at such time
as such exercise will not violate the provisions of this Section. The Holder may
waive the provisions of this Section 3(b) as to itself (and solely as to itself)
upon not less than 75 days' prior notice to the Company, and the provisions of
this Section 3(b) shall continue to apply until such 75th day (or such later
date as may be specified in such notice of waiver). No exercise in violation of
this Section, but otherwise in accordance with this Warrant, shall affect the
status of the Common Stock issued upon such exercise as validly issued, fully
paid and nonassessable.
(c) Notwithstanding any other provision herein, the Company
shall not be obligated to issue any shares of Common Stock upon exercise of this
Warrant if the issuance of such shares of Common Stock would exceed any cap or
limitation on the number of shares (the "Exchange Cap") imposed by the rules or
regulations of the Principal Market, if and to the extent applicable, except
that such limitation shall not apply in the event that the Company (i) obtains
the approval of its stockholders as required by applicable rules and regulations
of the Principal Market for issuances of Common Stock in excess of the Exchange
Cap, or (ii) obtains a written opinion from outside counsel to the Company that
such approval is not required, which opinion shall be reasonably satisfactory to
the Investors. Until such approval or written opinion is obtained or such action
has been taken by the Investors, no Holder of this Warrant shall be issued, upon
exercise this Warrant, shares of Common Stock in an amount that, when added to
all Securities issued to such Holder, is greater than the product of (x) the
Exchange Cap amount multiplied by (y) a fraction, the numerator of which is the
number of Warrant Shares issuable upon exercise to such Holder pursuant to this
Warrant and the denominator of which is the aggregate amount of all the Warrant
Shares issuable upon exercise to the Holders of all Warrants issued under the
Purchase Agreement (the "Cap Allocation Amount"). In the event that the Holder
shall sell or otherwise transfer any portion of this Warrant, the transferee
shall be allocated a pro rata portion of the Holder's Cap Allocation Amount. In
the event that the Holder shall exercise all of this Warrant into a number of
shares of Common Stock that, in the aggregate, is less than the Holder's Cap
Allocation Amount, then the difference between the Holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such Holder
shall be allocated to the respective Cap Allocation Amounts of the Investors on
a pro rata basis in proportion to the number of Warrant Shares issuable upon
exercise then held by the Investors.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which the Holder would otherwise be
entitled to purchase upon such exercise, the Company shall issue one additional
share of Common Stock.
5. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the event certificates for shares of Common
Stock are to be issued in a name other than the name of the Holder, this Warrant
when surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder; and the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.
6. Further Assurances. The Company will take all action that
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all taxes,
liens and charges with respect to the issue thereof, on the exercise of all or
any portion of this Warrant from time to time outstanding.
7. Transfer, Division and Combination. (a) Subject to
compliance with any applicable securities laws, transfer of this Warrant and all
rights hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company, together with a written assignment of this
Warrant substantially in the form attached hereto duly executed by the Holder or
its agent or attorney and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new Holder for the purchase of shares of Common Stock without
having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(d) The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of transfer of the
Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does
not entitle the Holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares
so purchased shall be and be deemed to be issued to such Holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall include the posting of a bond only if the Holder is not the
purchaser of this Warrant under the Purchase Agreement or an affiliate of such
purchaser), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or
stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant
Shares.
(a) Stock Splits, etc. The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time upon the happening of any of the
following. In case the Company shall (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to the Holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock or (iv)
issue any shares of its capital stock in a reclassification of the Common Stock,
then the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. Upon each such adjustment of the kind
and number of Warrant Shares or other securities of the Company which are
purchasable hereunder, the Holder shall thereafter be entitled to purchase the
number of Warrant Shares or other securities resulting from such adjustment at
an Exercise Price per Warrant Share or other security obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing by the number of Warrant Shares or other securities of
the Company resulting from such adjustment. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
(b) Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock), or sell,
transfer or otherwise dispose of all or substantially all its property, assets
or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock,
then the Holder shall have the right thereafter to receive, upon exercise of
this Warrant, the number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
(c) Rights of Holders Upon Dilutive Issuances. Subject to
the exclusions contained in subsection 11(d) below, if during the period ending
twelve (12) months following each Closing Date (the "MFN Period"), the Company
sells any shares of its Common Stock in a capital raising transaction at a Per
Share Selling Price (as defined in the Company's Series B Certificate of
Designations) lower than the Exercise Price per share applicable to that
Closing, then the Exercise Price of the Warrants purchased at that Closing and
then unexercised shall be adjusted downward to equal such lower Per Share
Selling Price. The Company shall give to the Holders written notice of any such
sale within 24 hours of the closing of any such sale.
(d) Exclusions. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of the
Exercise Price in the case of (i) the issuance or sale of options, or the shares
of stock issuable upon exercise of such options, to purchase shares of Common
Stock to directors, officers, employees or consultants of the Company pursuant
to stock options or stock purchase plans or agreements in existence on the date
hereof, whether "qualified" for tax purposes or not, pursuant to plans or
arrangements approved by the Board of Directors and stockholders, (ii) the
issuance of Common Stock pursuant to warrants outstanding as of the date hereof
and (iii) the issuance of Common Stock upon conversion of the Series A Preferred
Stock or Series B Preferred Stock. The issuances or sales described in the
preceding clauses (i), (ii) and (iii) shall be ignored for purposes of
calculating any adjustment to the Exercise Price.
(e) Nominal Adjustment. The Company shall not be required
to make an adjustment in the Exercise Price under this Section 11 if such
adjustment is less that $0.01. However, the Company shall be required to carry
forward on its books all adjustments that would have been made but for this
Section 11(d) and shall take such adjustment into account when making subsequent
adjustments under this Section 11. All calculations under this Section 11 shall
be made to the nearest cent.
12. Voluntary Adjustment by the Company. The Company may at
any time during the term of this Warrant, reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
13. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail, return receipt
requested, to the Holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and Other Property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and Other Property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such notice, in the absence of
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right; or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of
the Company with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Company to, another
corporation; or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in any one or more of such
cases, the Company shall give to the Holder (i) at least 30 days' prior written
notice of the date on which a record date shall be selected for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 30 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or Other Property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to the Holder at the last address of the Holder
appearing on the books of the Company and delivered in accordance with Section
16(d).
15. Authorized Shares.
(a) The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market.
(b) The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder against impairment. Without limiting the generality of the
foregoing, the Company will (i) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (iii) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.
(c) Upon the request of the the Holder, the Company will at
any time during the period this Warrant is outstanding acknowledge in writing,
in form reasonably satisfactory to the Holder, the continuing validity of this
Warrant and the obligations of the Company hereunder.
(d) Before taking any action which would cause an
adjustment reducing the current Exercise Price below the then par value, if any,
of the Warrant Shares, the Company shall take any corporate action which may be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at such adjusted Exercise Price.
(e) Before taking any action which would result in an
adjustment in the number of Warrant Shares or in the Exercise Price, the Company
shall obtain all such authorizations or exemptions thereof, or consents thereto,
as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any
successors or assigns of he Company. This Warrant shall constitute a contract
under the laws of Delaware without regard to its conflict of law principles or
rules, and be subject to arbitration pursuant to the terms set forth in the
Purchase Agreement.
(b) Restrictions. The Holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of the Holder shall
operate as a waiver of such right or otherwise prejudice the Holder's rights,
powers or remedies, notwithstanding all rights hereunder terminate on the
Termination Date. If the Company fails to comply with any provision of this
Warrant, the Company shall pay to the Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by the
Holder in collecting any amounts due pursuant hereto or in otherwise enforcing
any of its rights, powers or remedies hereunder.
(d) Notices. Any notice, request or other document required
or permitted to be given or delivered to the Holder hereof by the Company shall
be delivered in accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the
absence of affirmative action by the Holder to purchase shares of Common Stock,
and no enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of the Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
(f) Remedies. The Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and permitted assigns of the Holder. The provisions of this
Warrant are intended to be for the benefit of all holders from time to time of
this Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
(h) Indemnification. The Company agrees to indemnify and
hold harmless the Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by or
asserted against the Holder in any manner relating to or arising out of any
failure by the Company to perform or observe in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Warrant;
provided, however, that the Company will not be liable hereunder to the extent
that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a final non-appealable judgment by a court to have resulted from the
Holder's bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
(i) Amendment. This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
[Signature page follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: September 28, 2000
ATLANTIC TECHNOLOGY VENTURES, INC.
By: /S/ Frederic P. Zotos
------------------------------------
Name: Frederic P. Zotos
Title: President
NOTICE OF EXERCISE
To: Atlantic Technology Ventures, Inc.
(1) The undersigned hereby elects to purchase ________ shares
of Common Stock (the "Common Stock"), of Atlantic Technology Ventures, Inc.,
pursuant to the terms of the attached Warrant, and [ ] tenders herewith payment
of the exercise price in full OR [ ] tenders the Warrant for cashless exercise,
together with all applicable transfer taxes, if any.
(2) Calculation of cashless exercise value, if applicable:
_________________
- --------------------------------------------------------------------------------
(3) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
-------------------------------
Signature
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to exercise the Warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to____________________________ whose
address is
- ---------------------------------------------------------------.
- ---------------------------------------------------------------
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _______________________________
-------------------------------
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
Exhibit 10.7
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
REGULATION S OF THE SECURITIES ACT, AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER
THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 33,500 Shares of Common Stock of
Atlantic Technology Ventures, Inc.
(Warrant No. __)
THIS CERTIFIES that, for value received, Excalibur Limited Partnership
(the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof (the "Initial
Exercise Date") and on or prior to the close of business on the date ending five
(5) years from the Initial Exercise Date (the "Termination Date"), but not
thereafter, to subscribe for and purchase from Atlantic Technology Ventures,
Inc., a corporation incorporated in Delaware (the "Company"), up to Thirty-Three
Thousand Five Hundred (33,500) shares (the "Warrant Shares") of Common Stock,
$.001 par value, of the Company (the "Common Stock"). The purchase price of one
share of Common Stock (the "Exercise Price") under this Warrant shall be the
lower of (x) $3.19 or (y) 110% of the Market Price of the Common Stock
immediately preceding the 180st day following the Initial Exercise Date.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth for such terms in the Preferred Stock and Warrants Purchase Agreement
as dated September 28, 2000, between the Company and the investors party thereto
(the "Purchase Agreement")). The Exercise Price and the number of shares for
which the Warrant is exercisable shall be subject to adjustment as provided
herein. In the event of any conflict between the terms of this Warrant and the
Purchase Agreement, the Purchase Agreement shall control.
1. Title to Warrant. Prior to the Termination Date and subject
to compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
Holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant.
(a) Except as provided in Sections 3(b), 3(c) or 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered Holder hereof at the address of such Holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased by wire transfer or cashier's check drawn on a United
States bank, the Holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased. This Warrant
may also be exercised in whole or in part by means of a "cashless exercise" by
tendering this Warrant to the Company to receive a number of shares of Common
Stock equal in Market Value to the difference between the Market Value of the
shares of Common Stock issuable upon such exercise of this Warrant and the total
cash exercise price of that part of the Warrant being exercised. "Market Value"
for this purpose shall be the closing price of the Common Stock as reported by
Bloomberg L.P. on the date of such cashless exercise. Certificates for shares
purchased hereunder shall be delivered to the Holder hereof within three (3)
trading days after the date on which this Warrant shall have been exercised as
aforesaid. This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and the Holder
or any other person so designated to be named therein shall be deemed to have
become the Holder of record of such shares for all purposes, as of the date the
Warrant has been exercised if the Holder has paid the Company the Exercise Price
and all taxes required to be paid by the Holder, if any, pursuant to Section 5
prior to the issuance of such shares. If this Warrant shall have been exercised
in part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
(b) Anything in Section 3(a) to the contrary
notwithstanding, in no event shall the Holder be entitled to exercise this
Warrant if, upon giving effect to such exercise, the Holder and its "affiliates"
(as defined in Rule 405 under the Securities Act) would beneficially own an
aggregate number of shares of Common Stock that would exceed 9.9% of the
outstanding shares of the Common Stock following such exercise. For purposes of
this Section 3(b), the aggregate number of shares of Common Stock beneficially
owned by the Holder and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of the Warrants with respect to which the
determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon exercise or conversion of the unexercised or
unconverted portion of any other Securities (including, without limitation, any
Purchased Shares or other Warrants), subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by the
Holder and its affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 3(b), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Act. For purposes of this
Section 3(b), in determining the number of outstanding shares of Common Stock
the Holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company's most recent quarterly or annual filing with the
SEC, as the case may be, (2) a more recent public announcement by the Company or
(3) any other notice by the Company or its transfer agent setting forth the
number of shares of Common Stock outstanding. For any reason at any time, upon
the written or oral request of the Holder, the Company shall immediately confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to conversion of the Purchased Shares and
exercises of Warrants by the Holder since the date as of which such number of
outstanding shares of Common Stock was reported. To
the extent that the limitation contained in this Section 3(b) applies, the
determination of whether this Warrant is exercisable (in relation to other
Securities owned by the Holder) shall be in the sole discretion of the Holder,
and the exercise of this Warrant shall be deemed to be the Holder's
determination of whether this Warrant is exercisable (in relation to other
Securities owned by the Holder), subject to such aggregate percentage
limitation, and the Company shall have no obligation or right to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of the Holder to exercise this Warrant at such time
as such exercise will not violate the provisions of this Section. The Holder may
waive the provisions of this Section 3(b) as to itself (and solely as to itself)
upon not less than 75 days' prior notice to the Company, and the provisions of
this Section 3(b) shall continue to apply until such 75th day (or such later
date as may be specified in such notice of waiver). No exercise in violation of
this Section, but otherwise in accordance with this Warrant, shall affect the
status of the Common Stock issued upon such exercise as validly issued, fully
paid and nonassessable.
(c) Notwithstanding any other provision herein, the Company
shall not be obligated to issue any shares of Common Stock upon exercise of this
Warrant if the issuance of such shares of Common Stock would exceed any cap or
limitation on the number of shares (the "Exchange Cap") imposed by the rules or
regulations of the Principal Market, if and to the extent applicable, except
that such limitation shall not apply in the event that the Company (i) obtains
the approval of its stockholders as required by applicable rules and regulations
of the Principal Market for issuances of Common Stock in excess of the Exchange
Cap, or (ii) obtains a written opinion from outside counsel to the Company that
such approval is not required, which opinion shall be reasonably satisfactory to
the Investors. Until such approval or written opinion is obtained or such action
has been taken by the Investors, no Holder of this Warrant shall be issued, upon
exercise this Warrant, shares of Common Stock in an amount that, when added to
all Securities issued to such Holder, is greater than the product of (x) the
Exchange Cap amount multiplied by (y) a fraction, the numerator of which is the
number of Warrant Shares issuable upon exercise to such Holder pursuant to this
Warrant and the denominator of which is the aggregate amount of all the Warrant
Shares issuable upon exercise to the Holders of all Warrants issued under the
Purchase Agreement (the "Cap Allocation Amount"). In the event that the Holder
shall sell or otherwise transfer any portion of this Warrant, the transferee
shall be allocated a pro rata portion of the Holder's Cap Allocation Amount. In
the event that the Holder shall exercise all of this Warrant into a number of
shares of Common Stock that, in the aggregate, is less than the Holder's Cap
Allocation Amount, then the difference between the Holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such Holder
shall be allocated to the respective Cap Allocation Amounts of the Investors on
a pro rata basis in proportion to the number of Warrant Shares issuable upon
exercise then held by the Investors.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which the Holder would otherwise be
entitled to purchase upon such exercise, the Company shall issue one additional
share of Common Stock.
5. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the event certificates for shares of Common
Stock are to be issued in a name other than the name of the Holder, this Warrant
when surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder; and the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.
6. Further Assurances. The Company will take all action that
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all taxes,
liens and charges with respect to the issue thereof, on the exercise of all or
any portion of this Warrant from time to time outstanding.
7. Transfer, Division and Combination. (a) Subject to
compliance with any applicable securities laws, transfer of this Warrant and all
rights hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company, together with a written assignment of this
Warrant substantially in the form attached hereto duly executed by the Holder or
its agent or attorney and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new Holder for the purchase of shares of Common Stock without
having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(d) The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of transfer of the
Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does
not entitle the Holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares
so purchased shall be and be deemed to be issued to such Holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall include the posting of a bond only if the Holder is not the
purchaser of this Warrant under the Purchase Agreement or an affiliate of such
purchaser), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or
stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant
Shares.
(a) Stock Splits, etc. The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time upon the happening of any of the
following. In case the Company shall (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to the Holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock or (iv)
issue any shares of its capital stock in a reclassification of the Common Stock,
then the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. Upon each such adjustment of the kind
and number of Warrant Shares or other securities of the Company which are
purchasable hereunder, the Holder shall thereafter be entitled to purchase the
number of Warrant Shares or other securities resulting from such adjustment at
an Exercise Price per Warrant Share or other security obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing by the number of Warrant Shares or other securities of
the Company resulting from such adjustment. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
(b) Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock), or sell,
transfer or otherwise dispose of all or substantially all its property, assets
or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock,
then the Holder shall have the right thereafter to receive, upon exercise of
this Warrant, the number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
(c) Rights of Holders Upon Dilutive Issuances. Subject to
the exclusions contained in subsection 11(d) below, if during the period ending
twelve (12) months following each Closing Date (the "MFN Period"), the Company
sells any shares of its Common Stock in a capital raising transaction at a Per
Share Selling Price (as defined in the Company's Series B Certificate of
Designations) lower than the Exercise Price per share applicable to that
Closing, then the Exercise Price of the Warrants purchased at that Closing and
then unexercised shall be adjusted downward to equal such lower Per Share
Selling Price. The Company shall give to the Holders written notice of any such
sale within 24 hours of the closing of any such sale.
(d) Exclusions. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of the
Exercise Price in the case of (i) the issuance or sale of options, or the shares
of stock issuable upon exercise of such options, to purchase shares of Common
Stock to directors, officers, employees or consultants of the Company pursuant
to stock options or stock purchase plans or agreements in existence on the date
hereof, whether "qualified" for tax purposes or not, pursuant to plans or
arrangements approved by the Board of Directors and stockholders, (ii) the
issuance of Common Stock pursuant to warrants outstanding as of the date hereof
and (iii) the issuance of Common Stock upon conversion of the Series A Preferred
Stock or Series B Preferred Stock. The issuances or sales described in the
preceding clauses (i), (ii) and (iii) shall be ignored for purposes of
calculating any adjustment to the Exercise Price.
(e) Nominal Adjustment. The Company shall not be required
to make an adjustment in the Exercise Price under this Section 11 if such
adjustment is less that $0.01. However, the Company shall be required to carry
forward on its books all adjustments that would have been made but for this
Section 11(d) and shall take such adjustment into account when making subsequent
adjustments under this Section 11. All calculations under this Section 11 shall
be made to the nearest cent.
12. Voluntary Adjustment by the Company. The Company may at
any time during the term of this Warrant, reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
13. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail, return receipt
requested, to the Holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and Other Property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and Other Property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such notice, in the absence of
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right; or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of
the Company with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Company to, another
corporation; or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in any one or more of such
cases, the Company shall give to the Holder (i) at least 30 days' prior written
notice of the date on which a record date shall be selected for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 30 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or Other Property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to the Holder at the last address of the Holder
appearing on the books of the Company and delivered in accordance with Section
16(d).
15. Authorized Shares.
(a) The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market.
(b) The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder against impairment. Without limiting the generality of the
foregoing, the Company will (i) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (iii) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.
(c) Upon the request of the the Holder, the Company will at
any time during the period this Warrant is outstanding acknowledge in writing,
in form reasonably satisfactory to the Holder, the continuing validity of this
Warrant and the obligations of the Company hereunder.
(d) Before taking any action which would cause an
adjustment reducing the current Exercise Price below the then par value, if any,
of the Warrant Shares, the Company shall take any corporate action which may be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at such adjusted Exercise Price.
(e) Before taking any action which would result in an
adjustment in the number of Warrant Shares or in the Exercise Price, the Company
shall obtain all such authorizations or exemptions thereof, or consents thereto,
as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any
successors or assigns of he Company. This Warrant shall constitute a contract
under the laws of Delaware without regard to its conflict of law principles or
rules, and be subject to arbitration pursuant to the terms set forth in the
Purchase Agreement.
(b) Restrictions. The Holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of the Holder shall
operate as a waiver of such right or otherwise prejudice the Holder's rights,
powers or remedies, notwithstanding all rights hereunder terminate on the
Termination Date. If the Company fails to comply with any provision of this
Warrant, the Company shall pay to the Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by the
Holder in collecting any amounts due pursuant hereto or in otherwise enforcing
any of its rights, powers or remedies hereunder.
(d) Notices. Any notice, request or other document required
or permitted to be given or delivered to the Holder hereof by the Company shall
be delivered in accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the
absence of affirmative action by the Holder to purchase shares of Common Stock,
and no enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of the Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
(f) Remedies. The Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and permitted assigns of the Holder. The provisions of this
Warrant are intended to be for the benefit of all holders from time to time of
this Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
(h) Indemnification. The Company agrees to indemnify and
hold harmless the Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by or
asserted against the Holder in any manner relating to or arising out of any
failure by the Company to perform or observe in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Warrant;
provided, however, that the Company will not be liable hereunder to the extent
that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a final non-appealable judgment by a court to have resulted from the
Holder's bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
(i) Amendment. This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
[Signature page follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: September 28, 2000
ATLANTIC TECHNOLOGY VENTURES, INC.
By: /s/ Frederic P. Zotos
------------------------------------
Name: Frederic P. Zotos
Title: President
------------------------------
NOTICE OF EXERCISE
To: Atlantic Technology Ventures, Inc.
(1) The undersigned hereby elects to purchase ________ shares
of Common Stock (the "Common Stock"), of Atlantic Technology Ventures, Inc.,
pursuant to the terms of the attached Warrant, and [ ] tenders herewith payment
of the exercise price in full OR [ ] tenders the Warrant for cashless exercise,
together with all applicable transfer taxes, if any.
(2) Calculation of cashless exercise value, if applicable:
_________________
- --------------------------------------------------------------------------------
(3) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
-------------------------------
Signature
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to exercise the Warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to____________________________ whose
address is
- ---------------------------------------------------------------.
- ---------------------------------------------------------------
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _______________________________
-------------------------------
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.