MICROENERGY, INC.
Series A Cumulative Convertible Preferred Stock
SUBSCRIPTION AGREEMENT
WHEREAS, Microenergy, Inc. (the "Company") entered into a
certain agreement with AT&T Global Information Systems ("AT&T") under
which the Company became liable for the payment of $2,332,495 (the
"Debt") to AT&T;
WHEREAS, on January 31, 1996, AT&T agreed to accept a payment of
$1,330,000 (the "Discounted Payment") in full satisfaction of the
Debt conditioned on AT&T receiving the Discounted Payment no later
than May 31, 1996;
WHEREAS, the Company desires to deliver the Discounted Payment
to AT&T prior to May 31, 1996 in order to fully satisfy the Debt;
WHEREAS, to partly finance the Discounted Payment, the Company
will borrow approximately $800,000 (the "Commercial Loans") from
certain commercial lenders;
WHEREAS, the commercial lenders require that certain officers
and directors of the Company personally guarantee the Company's
obligations under the Commercial Loans;
WHEREAS, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇"), who is President, Chief
Executive Officer and director of the Company, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
("▇▇▇▇▇▇▇"), who is Vice President, Chief Financial Officer and
director of the Company have agreed to personally guarantee up to
$800,000 of the Company's obligations arising under the Commercial
Loans;
WHEREAS, to further finance the Discounted Payment, the Company
desires to obtain, on demand, an aggregate contribution of $250,000
from ▇▇▇▇▇ and ▇▇▇▇▇▇▇;
WHEREAS, in exchange for their personal guarantees and
contributions, the Company desires to issue shares of Series A
Cumulative Convertible Preferred Stock ("Preferred Stock") to ▇▇▇▇▇
and ▇▇▇▇▇▇▇;
WHEREAS, the number of authorized shares of Preferred Stock
available for issuance by the Company is presently 31;
WHEREAS, the board of directors of the Company has resolved to
amend its certificate of incorporation to provide for an increase in
the number of authorized shares of Preferred Stock; and
WHEREAS, the shareholders of the Company have not yet approved
the amendment to the certificate of incorporation.
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties hereto, intending to be
legally bound, agree as follows:
7. SUBSCRIPTION. The undersigned hereby makes application to
purchase shares of Series A Cumulative Convertible Preferred Stock
("Preferred Stock") in the following manner.
(a) If, within 180 days of this Subscription Agreement, the
certificate of incorporation is amended to increase the number of
authorized shares of Preferred Stock to 350,000 or more, the
undersigned will purchase 175,000 shares of Preferred Stock of the
Company.
(b) If, within 180 days of this Subscription Agreement, the
certificate of incorporation is not amended to increase the number of
authorized shares of Preferred Stock to 350,000 or more, the
undersigned will purchase 14 shares of Preferred Stock of the
Company.
8. REPRESENTATIONS OF SUBSCRIBER. The undersigned subscriber
represents and warrants to the Company as follows:
(a) The subscriber is an "Accredited Investor," as defined in
the Rules of the Securities and Exchange Commission ("SEC").
(b) The undersigned recognizes that the Preferred Stock has
neither been registered under the Securities Act of 1933, as amended
(the "Act"), nor under the securities laws of any state, and,
therefore, cannot be resold unless the Preferred Stock is registered
under the Act or unless an exemption from registration is available.
(c) The undersigned is acquiring the Preferred Stock for his
own account for long-term investment and not with a view toward
resale, fractionalization or division, or distribution thereof, and
he does not presently have any reason to anticipate any change in his
circumstances, financial or otherwise, or any particular occasion or
event which would necessitate or require his or her sale or
distribution of the Preferred Stock. No one other than the
undersigned has any beneficial interest in any of the Preferred
Stock;
9. REPRESENTATIONS BY THE COMPANY. The Company represents and
warrants to the undersigned subscriber that:
(a) If the undersigned purchases 175,000 shares of Preferred
Stock pursuant to paragraph 1(a) of this Subscription Agreement, each
share of Preferred Stock will give the holder those rights set forth
on Schedule A attached hereto.
(b) If the undersigned purchases 14 shares of Preferred Stock
pursuant to paragraph 1(b) of this Subscription Agreement, each share
of Preferred Stock will give the holder those rights set forth on
Schedule B attached hereto.
10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
11. PURCHASE PRICE. The undersigned hereby subscribes to
purchase the number of shares of Preferred Stock set forth in either
paragraph 1(a) or 1(b), whichever is applicable, in exchange for the
following:
(a) The undersigned's execution and delivery of a non-interest
bearing demand note in favor of the Company in the face amount of
$125,000; and
(b) The undersigned's personal guarantee, in the aggregate
amount of $800,000, of the Company's obligations arising under the
Commercial Loans. In order to memorialize such guarantee, the
undersigned agrees to execute and deliver all documents and
instruments required by any commercial lender in connection with the
Commercial Loans.
12. SUBSCRIPTION. This Subscription Agreement is executed
as of this 1st day of February, 1996 and shall bind the parties
hereto and their respective heirs, executors, administrators,
distributees, successors and assigns.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Investor Signature
ACCEPTED BY THE COMPANY THIS
1ST DAY OF FEBRUARY, 1996
MICROENERGY, INC.
BY:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President
SCHEDULE A
Series A Cumulative Convertible Preferred Stock
The Board of Directors of the Company has designated the follow-
ing rights, privileges and preferences for the Series A Cumulative
Convertible Preferred Stock ("Preferred Stock").
1. Dividend Rights
Holders of shares of Preferred Stock are entitled to receive,
out of the assets of the Company legally available for the payment of
dividends, dividends payable semi-annually on the 1st day of each
January and July after issuance at the rate of $.40 per annum per
share. Dividends upon the Preferred Stock are cumulative and accrue
from the date of original issue. No cash dividend may be declared and
paid or set apart for payment upon the Common Stock until any past
quarterly dividend on any outstanding series of Preferred Stock has
been fully paid or declared and set apart for payment.
At the Company's option, the Company may pay all or part of each
dividend in shares of Common Stock. The Common Stock so issued will
be valued based on 100% of the average closing bid price of the
Common Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be
quoted on NASDAQ) for the ten trading days before the record date for
the dividend.
2. Voting Rights
The holder of each share of Preferred Stock will be entitled to
cast one vote at any meeting of the shareholders of the Company.
3. Conversion
Each share of Preferred Stock may be voluntarily converted by
the record holder thereof into Common Stock on the terms described
below. Each share of Preferred Stock is also subject to "mandatory"
conversion into Common Stock upon the occurrence of circumstances
described below. In the event that a share of Preferred Stock is
converted into Common Stock by mandatory conversion, the holder
thereof will lose the right of voluntary conversion with respect to
that share.
(a) Voluntary Conversion. One year after the effective date of
the Company's next prospectus, each share of the Preferred Stock is
convertible, at the option of the holder thereof, into between one
and two shares of Common Stock. The number of shares of Common Stock
into which each share of Preferred Stock is convertible (the
"Voluntary Conversion Rate") will be determined on the first
anniversary of the date of said prospectus. The Voluntary Conversion
Rate will be based upon the average of the closing bid prices for the
Common Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be
quoted on NASDAQ) for the twenty trading days preceding said anniver-
sary date (the "Closing Average"), as follows:
Each Share of Preferred Stock
If the Closing Will Be Convertible Into
Average is Shares of Common Stock
Over $5.50 1.00
$4.51 to $5.50 1.25
$3.50 to $4.50 1.75
Under $3.50 2.00
A holder of Preferred Stock may convert his shares to Common
Stock by surrendering to American Stock Transfer & Trust Company (the
"Exchange Agent") each certificate covering shares to be converted
together with a statement of the name or names in which the shares of
Common Stock shall be registered upon issuance. Such a notice of
election to convert shall have the effect of creating a contract
between the shareholder and the Company whereby the shareholder shall
be deemed to have agreed to surrender the shares of Preferred Stock
and to release the Company from all further obligation thereon, and
whereby the Company shall be deemed to have agreed to issue the
appropriate number of shares of Common Stock upon the surrender of
the shares of Preferred Stock. The conversion right will terminate
at the close of business of the redemption date as to any shares of
Preferred Stock being redeemed on that date.
(b) Mandatory Conversion. In the event that during the first
24 months after the first anniversary of the date of the Company's
next prospectus the closing bid price of the Company's Common Stock
exceeds $7.00 for five consecutive trading days, each share of the
Preferred Stock may, at the Company's option, be converted after the
fifth such day into one share of Common Stock (the "Mandatory
Conversion Rate"). Likewise, after the third anniversary of the date
of said prospectus, each share of the Preferred Stock may, at the
Company's option, be converted into one share of Common Stock.
Holders of the Preferred Stock will receive notice of the conversion
of their shares promptly after the conversion takes place.
(c) The following provisions apply with respect to either
Voluntary Conversion or Mandatory Conversion.
All dividends declared and unpaid up to the date of conversion
shall be paid by the Company at the time of conversion unless that
payment date has not yet occurred, in which event the dividend shall
be paid upon the payment date for such dividend set forth in the Pre-
ferred Stock certificate. Any such unpaid dividends must be paid in
full to the holder prior to the declaration and payment of any other
dividend or distribution by the Company with respect to its Common
Stock and must be paid pari passu to the holder with payment of any
other dividend or distribution by the Company with respect to the
Preferred Stock. The Company will not issue any note or other
evidence of indebtedness with respect to unpaid dividends. If the
Company does not make payment of any dividends when due, the remedy
of a Preferred Stockholder will be to undertake a legal action in a
court of competent jurisdiction.
The Voluntary Conversion Rate and the Mandatory Conversion Rate
are both subject to adjustment upon the occurrence of the following
events: the issuance of shares of Common Stock or other securities of
the Company as a dividend or distribution on shares of Common Stock
of the Company to the holders of all of its outstanding shares of
Common Stock; subdivisions, combinations, or certain
reclassifications of shares of Common Stock of the Company; or the
distribution to the holders of shares of Common Stock of the Company
generally of evidences of indebtedness or assets (excluding cash
dividends and distributions made out of current or retained earnings)
or rights, options, or warrants to subscribe for securities of the
Company other than those mentioned above. No adjustment in the
conversion rates will be required to be made with respect to the Pre-
ferred Stock until cumulative adjustments amount to one percent or
more; however, any such adjustment not required to be made will be
carried forward and taken into account in any subsequent adjustment.
In lieu of fractional shares of Common Stock, there will be paid to
the holder of the Preferred Stock at the time of conversion an amount
in cash equal to the same fraction of the current market value of a
share of Common Stock of the Company.
In the event of any consolidation with or merger of the Company
into another corporation, or sale of all or substantially all of the
properties and assets of the Company to any other corporation, or in
case of any reorganization of the Company, each share of Preferred
Stock would thereupon become convertible only into the number of
shares of stock or other securities, assets or cash to which a holder
of the number of shares of Common Stock of the Company issuable (at
the time of such consolidation, merger, sale or reorganization) upon
conversion of such share of Preferred Stock would have been entitled
upon such consolidation, merger, sale or reorganization.
4. Liquidation Preference
In the event of a voluntary or involuntary liquidation or
winding up of the Company, the holders of Preferred Stock will be
entitled to receive out of the assets of the Company available for
distribution to shareholders $5.00 per share plus all accrued and
unpaid dividends before any distribution is made to the holders of
Common Stock or any other class or series of stock ranking junior to
the Preferred Stock as to distribution of assets.
After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Preferred Stock
will not be entitled to any further participation in any distribution
of assets by the Company. The foregoing liquidation rights shall not
be operative in the event of (i) any consolidation or merger of the
Company with or into any other corporation, (ii) any dissolution,
liquidation, winding up or reorganization of the Company immediately
followed by reincorporation of a successor corporation or creation of
a successor partnership or (iii) a sale or other disposition of all
or substantially all of the Company's assets to another corporation
or a partnership if, in each case, effective provision is made in the
certificate of incorporation of the resulting or surviving
corporation or the articles of partnership of the resulting
partnership or otherwise, for the protection of the rights of the
holders of the Preferred Stock.
5. Preemptive Rights
Holders of Preferred Stock shall have no preemptive right to
purchase any securities of the Company.
SCHEDULE B
Series A Cumulative Convertible Preferred Stock
The Board of Directors of the Company has designated the follow-
ing rights, privileges and preferences for the Series A Cumulative
Convertible Preferred Stock ("Preferred Stock").
1. Dividend Rights
Holders of shares of Preferred Stock are entitled to receive,
out of the assets of the Company legally available for the payment of
dividends, dividends payable semi-annually on the 1st day of each
January and July after issuance at the rate of $5000 per annum.
Dividends upon the Preferred Stock are cumulative and accrue from the
date of original issue. No cash dividend may be declared and paid or
set apart for payment upon the Common Stock until any past quarterly
dividend on any outstanding series of Preferred Stock has been fully
paid or declared and set apart for payment.
At the Company's option, the Company may pay all or part of each
dividend in shares of Common Stock. The Common Stock so issued will
be valued based on 100% of the average closing bid price of the
Common Stock as reported on NASDAQ (or such exchange or quotation
service as the Common Stock may be quoted on, if it ceases to be
quoted on NASDAQ) for the ten trading days before the record date for
the dividend.
2. Voting Rights
The holder of each share of Preferred Stock will be entitled to
cast 12,500 votes at any meeting of the shareholders of the Company.
3. Conversion
Each share of Preferred Stock may be voluntarily converted by
the record holder thereof into Common Stock on the terms described
below. Each share of Preferred Stock is also subject to "mandatory"
conversion into Common Stock upon the occurrence of circumstances
described below. In the event that a share of Preferred Stock is
converted into Common Stock by mandatory conversion, the holder
thereof will lose the right of voluntary conversion with respect to
that share.
(a) Voluntary Conversion. After February 1, 1997, each share
of the Preferred Stock is convertible, at the option of the holder
thereof, into between 12,500 and 25,000 shares of Common Stock. The
number of shares of Common Stock into which each share of Preferred
Stock is convertible (the "Voluntary Conversion Rate") will be
determined on the first anniversary of the date of this Subscription
Agreement. The Voluntary Conversion Rate will be based upon the
average of the closing bid prices for the Common Stock as reported on
NASDAQ (or such exchange or quotation service as the Common Stock may
be quoted on, if it ceases to be quoted on NASDAQ) for the twenty
trading days preceding said anniversary date (the "Closing Average"),
as follows:
Each Share of Preferred Stock
If the Closing Will Be Convertible Into
Average is Shares of Common Stock
Over $5.50 12,500
$4.51 to $5.50 15,625
$3.50 to $4.50 21,875
Under $3.50 25,000
A holder of Preferred Stock may convert his shares to Common
Stock by surrendering to American Stock Transfer & Trust Company (the
"Exchange Agent") each certificate covering shares to be converted
together with a statement of the name or names in which the shares of
Common Stock shall be registered upon issuance. Such a notice of
election to convert shall have the effect of creating a contract
between the shareholder and the Company whereby the shareholder shall
be deemed to have agreed to surrender the shares of Preferred Stock
and to release the Company from all further obligation thereon, and
whereby the Company shall be deemed to have agreed to issue the
appropriate number of shares of Common Stock upon the surrender of
the shares of Preferred Stock. The conversion right will terminate
at the close of business of the redemption date as to any shares of
Preferred Stock being redeemed on that date.
(b) Mandatory Conversion. In the event that during the first
24 months after the first anniversary of the date of this
Subscription Agreement the closing bid price of the Company's Common
Stock exceeds $7.00 for five consecutive trading days, each share of
the Preferred Stock may, at the Company's option, be converted after
the fifth such day into 12,500 shares of Common Stock (the "Mandatory
Conversion Rate"). Likewise, after the third anniversary of the date
of this Subscription Agreement, each share of the Preferred Stock
may, at the Company's option, be converted into 12,500 shares of
Common Stock. Holders of the Preferred Stock will receive notice of
the conversion of their shares promptly after the conversion takes
place.
(c) The following provisions apply with respect to either
Voluntary Conversion or Mandatory Conversion.
All dividends declared and unpaid up to the date of conversion
shall be paid by the Company at the time of conversion unless that
payment date has not yet occurred, in which event the dividend shall
be paid upon the payment date for such dividend set forth in the Pre-
ferred Stock certificate. Any such unpaid dividends must be paid in
full to the holder prior to the declaration and payment of any other
dividend or distribution by the Company with respect to its Common
Stock and must be paid pari passu to the holder with payment of any
other dividend or distribution by the Company with respect to the
Preferred Stock. The Company will not issue any note or other
evidence of indebtedness with respect to unpaid dividends. If the
Company does not make payment of any dividends when due, the remedy
of a Preferred Stockholder will be to undertake a legal action in a
court of competent jurisdiction.
The Voluntary Conversion Rate and the Mandatory Conversion Rate
are both subject to adjustment upon the occurrence of the following
events: the issuance of shares of Common Stock or other securities of
the Company as a dividend or distribution on shares of Common Stock
of the Company to the holders of all of its outstanding shares of
Common Stock; subdivisions, combinations, or certain
reclassifications of shares of Common Stock of the Company; or the
distribution to the holders of shares of Common Stock of the Company
generally of evidences of indebtedness or assets (excluding cash
dividends and distributions made out of current or retained earnings)
or rights, options, or warrants to subscribe for securities of the
Company other than those mentioned above. No adjustment in the
conversion rates will be required to be made with respect to the Pre-
ferred Stock until cumulative adjustments amount to one percent or
more; however, any such adjustment not required to be made will be
carried forward and taken into account in any subsequent adjustment.
In lieu of fractional shares of Common Stock, there will be paid to
the holder of the Preferred Stock at the time of conversion an amount
in cash equal to the same fraction of the current market value of a
share of Common Stock of the Company.
In the event of any consolidation with or merger of the Company
into another corporation, or sale of all or substantially all of the
properties and assets of the Company to any other corporation, or in
case of any reorganization of the Company, each share of Preferred
Stock would thereupon become convertible only into the number of
shares of stock or other securities, assets or cash to which a holder
of the number of shares of Common Stock of the Company issuable (at
the time of such consolidation, merger, sale or reorganization) upon
conversion of such share of Preferred Stock would have been entitled
upon such consolidation, merger, sale or reorganization.
4. Liquidation Preference
In the event of a voluntary or involuntary liquidation or
winding up of the Company, the holders of Preferred Stock will be
entitled to receive out of the assets of the Company available for
distribution to shareholders $62,500.00 per share plus all accrued
and unpaid dividends before any distribution is made to the holders
of Common Stock or any other class or series of stock ranking junior
to the Preferred Stock as to distribution of assets.
After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Preferred Stock
will not be entitled to any further participation in any distribution
of assets by the Company. The foregoing liquidation rights shall not
be operative in the event of (i) any consolidation or merger of the
Company with or into any other corporation, (ii) any dissolution,
liquidation, winding up or reorganization of the Company immediately
followed by reincorporation of a successor corporation or creation of
a successor partnership or (iii) a sale or other disposition of all
or substantially all of the Company's assets to another corporation
or a partnership if, in each case, effective provision is made in the
certificate of incorporation of the resulting or surviving
corporation or the articles of partnership of the resulting
partnership or otherwise, for the protection of the rights of the
holders of the Preferred Stock.
5. Preemptive Rights
Holders of Preferred Stock shall have no preemptive right to
purchase any securities of the Company.
