REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of September ,
1996 by and among ProtoSource Corporation, a California corporation (the
"Company"), and each of the signatures to this Agreement (collectively, the
"Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders are the purchasers of an aggregate of a minimum
of 2,000,000 shares of Common Stock and a maximum of 6,000,000 shares of Common
Stock of the Company (the "Shares") issued in connection with this private
placement of the Company, in the aggregate amount of up to $1.5 million (the
"Private Placement"); and
WHEREAS, the Company and the Stockholders desire that certain terms and
provisions be applicable to these Shares and to 400,000 shares of Common Stock
issued in connection with a bridge loan completed on August 23, 1996 (together
referred to as "Registrable Securities") held by the Stockholders;
NOW, THEREFORE, in consideration of the covenants and agreements set forth
herein, and for other good and valuable consideration, the adequacy and receipt
of which are hereby acknowledged, the parties hereby agree as follows:
Section 1. Registration Rights. The Company covenants and agrees with the
Stockholders that the Company will file with the Securities and Exchange
Commission ("SEC") a Registration Statement (the "Registration Statement"), a
post-effective amendment to an existing Registration Statement (the
"Amendment"), or a Regulation A Offering Statement (an "Offering Statement")
under the Securities Act of 1933, as amended (the "Act"), registering or
qualifying the Registrable Securities for sale within 60 days of completion of
this Private Placement, to be placed by Andrew, Alexander, Wise & Company,
Incorporated (the "Placement Agent"). The Company will use its best efforts,
through its officers, directors, auditors and counsel in all matters necessary
or advisable, to cause to become effective such Registration Statement as
promptly as practicable, and, for a period of one year thereafter, to reflect in
the Amendment, Registration Statement or Offering Statement, financial
statements which are prepared in accordance with Section 10(a)(3) of the Act and
any facts or events arising that, individually, or in the aggregate, represent a
fundamental and/or material change in the information set forth in the
Amendment, Registration Statement or Offering Statement to enable any
Stockholders of the Registrable Securities to sell such Registrable Securities
during said two-year period.
Section 2. Piggyback Registration Rights. The Company covenants and agrees
with the Stockholders and any other holders of the Registrable Securities that
if, at any time within the period commencing from the date hereof, and ending
five (5) years thereafter, it proposes to file a Registration Statement,
Amendment or Offering Statement, as the case may be (collectively, a
"Registration Statement") with respect to any class of security (other than
pursuant to a Registration Statement on Forms S-4 or S-8 or any successor form)
under the Act in a primary registration on behalf of the Company and/or in a
secondary registration on behalf of holders of securities, and the Registration
Statement to be used may be used for registration of the Registrable Securities,
the Company will give written notice to the holders of the Registrable
Securities at least thirty (30) days prior to the filing of such Registration
Statement at the addresses appearing on the records of the Company of its
intention to file a Registration Statement, and will offer to include in such
Registration Statement, all or any portion of the Shares, and limited, in the
case of a Regulation A offering, to the amount of the available exemption. The
offer to include the Shares is limited by subparagraphs (a) and (b) of this
Section 2. In any event, the maximum number of Registrable Securities which
shall be registered shall not exceed that number for which the Company has
received written requests for inclusion therein within fifteen (15) days after
the giving of notice by the Company. The Company will use its best efforts,
through its officers, directors, auditors and counsel in all matters necessary
or advisable, to cause to become effective such Registration Statement as
promptly as practicable. All registrations requested pursuant to this section 2
are referred to herein as "Piggyback Registrations." All Piggyback Registrations
pursuant to this Section 2 will be made solely at the Company's expense, except
for the Stockholders' counsel fees and sales commissions incurred if the
Registrable Securities are sold.
(a) Priority on Primary Registrations. If a Piggyback
Registration includes an underwritten primary registration on behalf
of the Company and the underwriter so requests, the Company and such
holder of Registrable Securities will enter into an underwriting
agreement with such underwriter for such offering, which shall be
reasonably satisfactory in substance and form to the Company, such
holder of Registrable Securities and the underwriter, and such
agreement shall contain such representations and warranties by the
Company and such holder of Registrable Securities and such other terms
and provisions as are customarily contained in underwriting agreements
with respect to secondary distributions, including, without
limitation, indemnities substantially to the effect and to the extent
provided in Section 8. Furthermore, if the underwriter(s) for the
offering being registered by
-2-
the Company shall determine in good faith and advise the Company in
writing that in its/their opinion the number of Registrable Securities
requested to be included in such registration exceeds the number that
can be sold in such offering without materially adversely affecting
the distribution of such securities by the Company (such opinion to
state the reasons therefor), then the Company will promptly furnish
the holders of the Registrable Securities with a copy of such opinion
and the Company will include in such registration (1) first, the
securities that the Company proposes to sell and (ii) second, the
Registrable Securities requested to be included in such registration,
apportioned pro rata among the holders of the Registrable Securities,
but in any event not less than 50% of the Shares, and (iii) third,
securities of the holders of other securities requesting registration.
(b) Priority on Secondary Registrations. If a Piggyback
Registration consists only of an underwritten secondary registration
on behalf of holders of securities of the Company and the
underwriter(s) for the offering being registered by the Company advise
the Company in writing that in its/their opinion the number of
Registrable Securities requested to be included in such registration
exceeds the number which can be sold in such offering without
materially adversely affecting the distribution of such securities by
the Company (such opinion to state the reasons therefor) then the
Company will promptly furnish the holders of the Registrable
Securities with a copy of such opinion and, the Company will include
in such registration (i) first, the securities requested to be
included therein by the holders requesting such registration and the
Registrable Securities requested to be included in such registration
above, pro rata, among all such holders on the basis of the number of
shares requested to be included by each such holder, but in any event
not less than 50% of the Registrable Securities and (ii) second, other
securities requested to be included in such registration.
Notwithstanding the foregoing, if any such underwriter shall determine in
good faith and advise the Company in writing that the distribution of the
Registrable Securities requested to be included in the registration concurrently
with the securities being registered by the Company would materially adversely
affect the distribution of such securities by the Company, then the holders of
such Registrable Securities shall delay their offering and sale for such period
ending on the earliest of (i) 90 days following the effective date of the
-3-
Company's registration statement, (ii) the day upon which the underwriting
syndicate, if any, for such offering shall have been disbanded or, (iii) such
date as the Company, managing underwriter and holders of Registrable Securities
shall otherwise agree. In the event of such delay, the Company shall file such
supplements, post-effective amendments and take any such other steps as may be
necessary to permit such holders to make their proposed offering and sale for a
period of 120 days immediately following the end of such period of delay. If any
party disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Company, the underwriter, and the
Stockholders. Notwithstanding the foregoing, the Company shall not be required
to file a registration statement to include Shares pursuant to this Section 2 if
an opinion of independent counsel, reasonably satisfactory to counsel for the
Company and counsel for the Stockholders, that all of the Registrable Securities
proposed to be disposed of may be transferred pursuant to the provisions of Rule
144 under the Act shall have been delivered to counsel for the Company.
Section 3. Other Registration Rights. In addition to the rights above
provided, the Company will cooperate with the then Stockholders in preparing and
signing any Registration Statement, in addition to the Registration Statements
and Offering Statements discussed above, required in order to sell or transfer
the Registrable Securities and will supply all information required therefor,
but such additional Registration Statement shall be at the then Holders' cost
and expense; provided, however, that if the Company elects to register and
qualify additional shares of Common Shares, the cost and expenses of such
Registration Statement will be pro rated, between the Company and the Holders of
the Registrable Securities according to the aggregate sales price of the
securities being registered.
Section 4. Certain Understandings. The Stockholders understand that the
Company makes no representations of any kind concerning its intent or ability to
offer or sell any of the Registrable Securities in a public offering or
otherwise and that its sole rights to have the Registrable Securities registered
under the Act are contained in this Agreement. So long as there are Registrable
Securities outstanding and the Company is subject to the reporting requirements
of the Act and the Securities Exchange Act of 1934 (the "Exchange Act"), the
Company will file the reports required to be filed by it under the Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder, and
will take such further action as the holders of Registrable Securities may
reasonably request, all to the extent required from time to time to enable the
holders of Registrable Securities to sell Registrable Securities without
registration under the Act within the limitation of the exemptions provided by
(i) Rule 144 under the Act, as such Rule may be amended from time to time, or
(ii) any similar rule or regulation hereafter adopted by the SEC. Upon the
-4-
request of the holders of Registrable Securities, the Company will deliver to
the holders of Registrable Securities a written statement as to whether it has
compiled with such information requirements.
Section 5. Company Obligations. In connection with the registration of the
Registrable Securities pursuant to this Agreement, the Company shall:
(a) furnish to the holders of the Registrable Securities and to the
underwriter(s), if any, thereof such reasonable number of copies of the
Registration Statement, preliminary prospectus, final prospectus and such other
documents as such holders and underwriters may request in order to facilitate
the public offering of such securities;
(b) use its best efforts to register or qualify the Registrable Securities
under state securities laws of the jurisdictions which the holders thereof may
reasonably request in writing within 20 days following the original filing of
such Registration Statement, and do any and all other acts and things which may
be necessary or advisable to enable the holders of Registrable Securities to
consummate the disposition of Registrable Securities in such jurisdictions,
except that the Company shall not be required to execute a general consent to
service of process or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(c) notify the holders of the Registrable Securities promptly when such
Registration Statement has become effective or a supplement to any prospectus
forming a part of such Registration Statement has been filed; and
(d) advise the holders of the Registrable Securities, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the SEC suspending the effectiveness of such Registration Statement, or
the initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
(e) prepare and file with the SEC such amendments and supplements to such
Registration Statement, and the prospectus used in connection therewith as may
be necessary to keep such Registration Statement effective and to comply with
the provisions of the Act with respect to the disposition of all Registrable
Securities and other securities covered by such Registration Statement, until
the earlier of (a) such time as all of such Registrable Securities and
securities have been disposed of in accordance with the intended methods of
disposition by seller or sellers thereof set forth in such Registration
Statement, or (b) the expiration of 90 days after such Registration Statement
becomes effective;
-5-
(f) furnish to the holders of the Registrable Securities a signed
counterpart, addressed to the holders of the Registrable Securities, of (A) an
opinion of counsel for the Company dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
dated the date of the closing of such underwritten public offering), and (B) a
"cold comfort" letter signed by the independent public accountants who have
certified the Company's financial statements included in such Registration
Statement, covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities and, in the case of the accountants' letter, such other
financial matters, as the holders of the Registrable Securities may reasonably
request;
(g) promptly notify the holders of the Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the Act, of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, would include an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the reasonable request of the holders of the
Registrable Securities prepare and furnish to the holders of the Registrable
Securities such number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities or securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made;
(h) in connection with the preparation and filing of the Registration
Statement registering Registrable Securities under the Act, the Company will
give the holders of Registrable Securities and their counsel and accountants,
the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the SEC, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be reasonably necessary, in the
opinion of the holders of Registrable Securities, or their counsel, to conduct a
reasonable investigation within the meaning of the Act.
-6-
(i) otherwise use of all of its or their reasonable efforts to comply with
all applicable rules and regulations of the SEC and make available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning after the effective date
of such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act; and
(j) provide and cause to be maintained a transfer agent and registrant for
such Registrable Securities from and after a date not later than the effective
date of such registration statement.
Section 6. Expenses. The Company will bear all expenses attendant to
registering the Registrable Securities, including, without limitation, all
registration and filing fees, all listing fees, all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses and the fees and
disbursements of counsel for the Company and its independent public accountants,
including the expenses of "cold comfort" letters and expenses of any special
audits required by or incident to such performance and compliance, premiums and
other costs of policies of insurance against liabilities arising out of the
public offering of the Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers and sellers of
securities, but excluding underwriting discounts and commissions, if any,
applicable to the sale of such securities. Furthermore, the Company shall not be
required to pay the fees and disbursements of counsel and accountants for any
holder of Registrable Securities or other expenses incurred by any holder
thereof that are not customarily paid by an issuer in response to the exercise
of registration rights.
Section 7. Indemnification and Contribution. The Stockholders understand
that indemnification and contribution provisions such as the following are
customarily included in an underwriting agreement and agree that they will enter
into an agreement containing such provisions or provisions substantially similar
thereto as a condition precedent to the registration by the Company of any of
their Registrable Securities:
(a) The Company will indemnify and hold harmless each holder of Registrable
Securities which are included in a Registration Statement pursuant to the
provisions of this Agreement and any underwriter (as defined in the Act) for
such holder, each officer, director, employee, agent and counsel, if any, of
each such holder and underwriter, and each pe,son, if any, who controls such
holder or such underwriter within the meaning of Section 15 of the Act or
-7-
Section 20(a) of the Exchange Act (each, a "person who controls" or a
"controlling person"), from and against, any and all loss, claim, damage,
liability, cost and expense (including, without limitation, reasonable legal
expenses) to which such holder or any such underwriter, officer, director,
employee, agent, counsel or controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages, liabilities, costs or
expenses (or actions or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in such Registration Statement, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage, liability, cost or expense arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
so made in reliance upon and in strict conformity with information furnished by
or on behalf of such holder, underwriter, officer, director, employee, agent,
counsel or controlling person in writing specifically for use in the preparation
thereof.
(b) Each holder of Registrable Securities included in a registration
pursuant to the provisions of this Agreement will indemnify and hold harmless
the Company, any underwriter, each officer, director, employee, agent, counsel
of and each person who controls the Company or such underwriter from and
against, any and all losses, damages, liabilities, costs or expenses to which
the Company or such officer, director, employee, agent, counsel or controlling
person may become subject under the Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such Registration
Statement, any prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein 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, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
so made in reliance upon and in strict conformity with written information
furnished by or on behalf of such holder specifically for use in the preparation
thereof.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of Sections 7(a) or (b) of notice of the commencement of any action
involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said subparagraph (a) or (b),
promptly notify the indemnifying party of the commencement thereof; but the
-8-
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than hereunder.
In case such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or in addition to those available
to the indemnifying party, or if there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
to such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of Sections 7(a) or (b) for any legal or other expense subsequently
incurred by such indemnified party in connection with the defense thereof, other
than reasonable costs of investigation, unless (i) the indemnified party shall
have employed counsel in accordance with the provisions of the immediately
preceding sentence, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of the commencement of the action,
or (iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 7 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages or liabilities referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of such indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such indemnifying party or
indemnified parties and the parties' relative intent, knowledge, access to
-9-
information and opportunity to correct or prevent such action; provided,
however, that any holder of Registrable Securities shall not be required to
contribute in an amount greater than the dollar amount of the proceeds received
by such holder of Registrable Securities with respect to the sale of any
securities. The amount paid or payable by a party as a result of the losses,
claims, damages and liabilities referred to above shall be deemed to include,
subject to the limitations set forth in this Section 7(d), any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
Section 8. No Inconsistent Agreements. The Company shall not on or after
the date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The Company has not previously entered into or become a party
to nor is it bound by any agreement with respect to its securities granting any
registration rights to any person, except as set forth in or as contemplated by
the Merger Agreement. The rights granted to the holders of Registrable
Securities hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the securities of the Company under
any other agreements.
Section 9. Miscellaneous.
(a) All notices or other communications given or made hereunder shall be in
writing and shall be delivered by hand, against written receipt, or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
Stockholders at their respective address appearing on the records of the Company
and to the Company at its address set forth above. Notices shall be deemed given
on the date of receipt or, if mailed, three business days after mailing, except
notices of change of address, which shall be deemed given when received.
(b) Notwithstanding the place where this Agreement may be executed by the
Stockholders or the Company, they agree that all the terms and provisions hereof
shall be construed in accordance with and governed by the laws of the State of
Delaware without regard to principles of conflict of laws.
-10-
(c) This Agreement constitutes the entire agreement between the
Stockholders and the Company with respect to the subject matter hereof and may
be amended only by a writing executed by each of them.
(d) This Agreement shall be binding upon and inure to the benefit of each
of the Stockholders's and the Company and their respective heirs, legal
representatives, successors and assigns.
(e) The Stockholders and the Company each hereby submit to the
non-exclusive jurisdiction of the courts of the State of New York located in New
York, New York and of the federal courts located in the Southern District of New
York with respect to any action or legal proceeding commenced by either of them
with respect to this Agreement or to the Registrable Securities. Each of them
irrevocably waives any objection they now have or hereafter may have respecting
the venue of any such action or proceeding brought in such a court or respecting
the fact that such court is an inconvenient forum and consents to the service of
process in any such action or proceeding by means of registered or certified
mail, return receipt requested, in care of the address set forth above or below
or at such other address as either of them shall furnish in writing to the
other.
(f) The parties hereto acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement,
this being in addition to any other remedy to which they may be entitled by law
or equity.
(g) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(h) The waiver by either the Stockholders or the Company of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach of any provision of this Agreement.
(i) The Stockholders and the Company agree to execute and deliver all
further documents, agreements and instruments and to take such other further
action as may be necessary or appropriate to carry out the purposes and intent
of this Agreement.
-11-
(j) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
(k) References in this Agreement to the pronouns "him," "he" and "his" are
not intended to convey the masculine gender alone and are employed in a generic
sense and apply equally to the feminine gender or to an entity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
PROTOSOURCE CORPORATION
By:
-----------------------------------
President
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
-12-
Investment Representation Letter and Agreement
Name:
Address:
August 12, 1996
ProtoSource Corporation
0000 X. Xxxx Xxxx #000
Xxxxxx,Xxxxxxxxxx 00000
I am receiving __________ shares (the "Shares") of the common stock of
ProtoSource Corporation, a California corporation (the "Company"), for no
additional consideration, in connection with a concurrent loan by me to the
Company. I understand and acknowledge that the Shares will be shares of the
common stock of the Company.
In connection therewith, I hereby represent and certify to you and agree
that:
1. I am receiving the Shares for investment only and not with a view to
their resale or distribution. I am not receiving the Shares as a result of any
advertisement, general solicitation, public meeting or other public offering.
2. I understand that the Shares are not registered under the Securities Act
of 1933, as amended (the "Act"), or qualified under the California Corporate
Securities Law of 1968, as amended (the "CSL"), and must be held by me
indefinitely unless they are subsequently registered under the Act, and
qualified under the CSL, or an exemption from such registration or qualification
is available. I understand that the resale of such Shares will be restricted so
that such sale may be made only in accordance with the appropriate exemptions
(including holding such Shares for periods of time specified in Rule 144
promulgated under the Act and compliance with the other provisions thereof, if
such exemption is available) under the Act and the CSL, or registration under
the Act and qualification under the CSL.
3. I am an accredited investor as that term is defined in Regulation D
under the Act. Based upon my experience in business and as an investor, I am
aware of the risks of an investment in restricted securities, and I have no need
for any income from my investment. I am aware that the Shares may have no value
now,and the Company has not made any representation as to their value now or in
the future. I have such knowledge and experience in financial and business
matters so that I am capable of assessing the merits and risks of acquiring the
Shares. I have reviewed the financial statements of the Company as of March 31,
1996, and I have had an opportunity to ask questions of and receive answers from
management of the Company and to obtain any additional information that the
Company possesses or can acquire without unreasonable effort or expense relating
to the Company's business, financial condition and results of operation,
although the Company has made no representation or warranty except as expressly
contained herein.
4. I understand that all certification evidencing the Shares will bear
legend substantially in the following form:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended
(the "Act"), or qualified under any state securities law.
These securities may not be sold, transferred, pledged or
hypothecated ln the absence of an effective registration
statement for the securities under the Act and qualified
under any applicable state securities law, or unless an
opinion of counsel acceptable to counsel to the Company, and
other assurances satisfactory to the Company, have been
delivered to the Company prior to the transaction to the
effect that registration and qualification is not required."
5. The undesigned has consulted with tax and legal counsel selected by the
undersigned and with such financial advisors, who have reviewed the merits of an
investment in the Shares. The undersigned, together with such persons, has
sufficient knowledge and experience in business and financial matters to
evaluate the merits of the risks of an investment u~ the Shares, and the
undesigned~ fully aware of the risks involved, has determined that an investment
in the Shares in consistent with the undersigned's investment objectives. The
undersigned is relying solely on the undersigned's own tax advisors with respect
to the tax factors relating to an investment in the Shares.
6. I hereby agree as follows:
(a) If the undersigned, or any subsequent holder, desires to transfer
any of the Shams, the undersigned m~ give to the Company prior written notice of
such proposed transfer including the name and address of the proposed
transferee. Unless registered and qualified as provided herein, such transfer
may be made only either (i) upon publication by Securities and Exchange
Commission (the "Commission") of a ruling, interpretation, opinion or "no action
letter" bawd upon facts presented to the Commission' or (ii) upon receipt by the
Company of an opinion of counsel acceptable to counsel to the Company, in either
case to the effect that the proposed transfer will not violate the provisions of
the Act, the Securities Exchange Act of 1934, as amended, any state securities
laws, or the rules and regulations promulgated under any such acts or laws.
(b) Prior to any such proposed transfer, and as a condition thereto,
if such transfer is not made pursuant to our effective registration statement
under the Act, the undersigned, or any subsequent holder, will, if requested by
the Company, deliver to the Company (i) an investment letter setting forth
investment representations of the proposed transferee and such proposed
transferee transferee's covenant to comply with the transfer provisions set
forth in this Section 6 and elsewhere in this Agreement, signed by the proposed
transferee, and (ii) an agreement by the transferee to indemnify the Company to
the same extent as forth in Section 6 (c) hereof.
(c) The undersigned acknowledges that the undersigned understands the
meaning and legal consequences of the representations and warranties contained
herein, and the undersigned hereby agrees to indemnify and hold harmless the
Company and its agents and representatives and each of their heirs, legal
representatives, successors and assigns from and against any and all loss,
damage or liability (including all attorneys' fees and costs incurred in
enforcing this indemnity provision) due to or arising out of (i) the inaccuracy
of any representation or the breach of any warranty of the undersigned contained
in, or any other breach of, this letter agreement, (ii) any transfer of any of
the Shares in violation of the Act, the Securities Exchange Act of 1934, as
amended, as~y state securities laws, or the rules and regulations promulgated
under any of such acts or laws, (iii) any transfer of any of the Shares not in
accordance herewith or (iv) any untrue statement or omission to state any
material fact in connection with the investment representation or with respect
to the facts and representations supplied by the undersigned to counsel to the
Company upon which its opinion as to a proposed transfer shall have been based.
(d) The Company may place a stop order with its transfer agent and
registrar, if any, with respect to soy of the Shams or any certificates into
which such Shares are exchanged.
7. In conjunction with the investment referred to in this Investment
Representation Letter and Agreement, by its execution of the acceptance and
agreement below, Company agrees as follows:
Upon funding and proper documentation of the loan which serves as
consideration for the issuance of the Shares, the Company agrees to issue to the
undersigned investor for no additional consideration two (2) shares of its
common stock for each one dollars ($1.00) lent to the Company by the undersigned
investor.
Very truly yours,
--------------------------------------
Investor
--------------------------------------
Name (Please Type or Print)
The terms and provisions of
Sections 7 are accepted
and agreed to.
Dated: , 1996.
---------------
ProtoSource Corporation, a California corporation
By:
--------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer
